The Market Today

FOMC Meeting Begins; Big Tech Earnings

by Craig Dismuke, Dudley Carter


June Durable Goods Data – Business Investment in Equipment Remains Strong, Supply Chain Issues Continue to Weigh on Auto Activity: Durable goods orders rose 0.8% in June after May’s data were revised up from +2.3% to +3.2%.  The headline strength was driven by another strong result for non-defense aircraft orders, up 17.0%.  Orders excluding those volatile transportation items rose 0.3% versus expectations for a 0.8% gain.  Contributing to the weaker-than-expected core result was a 0.3% drop in motor vehicles, parts, and supplies.  The sector continues to weigh on the pace of recovery.  The key indicator of business investment in equipment, core capital goods shipments, rose a solid 0.5% in June while May’s tally was revised up from +0.1% to +0.5%.  This portends an even stronger result for business investment in equipment (~+10%) in the 2Q GDP report scheduled for release tomorrow morning.  Core capital goods orders, an indicator of future business investment, rose 0.6% in June, a slightly softer reading than was expected.

FOMC Meeting, Big Tech Earnings, Home Prices and Consumer Confidence: The May home price reports from S&P CoreLogic and FHFA (8:00 a.m. CT) are both expected to show continued, strong gains.  After a larger-than-expected increase in June, the Conference Board’s July report on consumer confidence (9:00 a.m.) is expected to pull back but remain positive.  The Richmond Fed’s July report on manufacturing activity is expected to moderate (9:00 a.m.).  All eyes will be on Washington, where the Fed will begin its two-day meeting today. Microsoft, Alphabet, and Apple will report after the bell today.

High Prices Taking Toll on New Home Sales, Inventories Rise: Released yesterday, new home sales fell 6.6% MoM in June, significantly disappointing expectations and bringing the total seasonally adjusted, annualized rate down to 676k. The annualized rate has now dropped 32% from a peak of 993k in January.  On a non-seasonally adjusted basis, sales declined to a monthly rate of just 60k, the first monthly total in 2021 to not be the highest level since 2007.  Year-to-date, new sales remain at their highest level through June since 2007, but the pace has clearly slowed.  The total inventory of new homes for sale rose 32k to 358k (NSA), its highest since 2008. However, only 69% of that inventory is either under construction or already completed versus 83% of new home inventory at the beginning of 2006, highlighting that builders have adjusted following the housing crisis.  The median price of new homes sold in June fell from $380,700 to $361,800.

Dallas Fed Index Shows Positive Trends: The Dallas Fed’s July report on manufacturing activity fell from 31.1 to 27.3 yesterday but showed generally positive trends.  New orders remained very strong and the employment index crept up to its second-highest level of the year.  On the supply chain issues, the delivery times index declined from 26.9 to 19.7 after peaking at 31.2 in March.  After posting its highest level on record last month, the prices paid for raw materials index remained elevated but pulled back from 80.8 to 73.5.



10-Year Real Yield Hits Lowest Level on Record, Stocks Set Fresh Records: The 10-year Treasury yield rose 1.3bp to 1.290% while the TIPs breakeven rate rose almost 5bp to 2.39%, its highest level since early June.  The combination pushed the 10-year real yield down to -1.10%, its lowest level on record.  Despite the apparent concerns about inflation and weaker economic growth, the three main U.S. equity indices all closed at new record-highs.  The S&P climbed 10.5 pts (+0.2%) and is now up 17.7% YTD. Tesla reported better-than-expected 2Q earnings after the bell.  CEO Musk indicated that chip supply was the limiting factor on auto output, but noted “It does seem like it’s getting better.”

Coming into this morning’s trading, the 10-year yield has dropped to 1.25% as the global tone soured on the Chinese crackdown over the weekend. China enacted new regulations taking aim at for-profit education, education tech, and tutors over the weekend.  China’s CSI 300 index was down 3.5% overnight while Hong Kong’s Hang Seng plunged 4.2%. U.S. equity futures are mixed.


U.S. Deputy Secretary of State Wendy Sherman met with Chinese Foreign Minister Wang Yi yesterday in closely following discussions given growing tensions.  Yi reportedly argued that the U.S. tariffs on China are a “blatant violation” of WTO rules and requested that they be removed in order to “prevent the China-U.S. relations from getting out of control.”

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