Market Matters Weekly Recap 8-15-19

The Fed holding steady with no rate cut, 10yr yields touching below 2% for the first time since the Trump victory, the manufacturing sector showing much weaker results, and raised geopolitical tensions after a downed drone…Too many headlines to count!

Empire State Manufacturing

The June NY Fed Manufacturing Index fell a whopping -26.4 points on headline, dropping from a previous +17.8 to -8.6. This is now the first decline in roughly two years and is also the single largest decline since the index has been recorded. Overall, a pretty dismal report that further confirms that the sector is experiencing more hardships, especially as the tariff and trade wars continue.

Housing Starts/Permit

Housing Starts in May fell by -.9% to 1.269mln vs. expectations of 1.24mln. Starts were strong in the multi-family sector with a gain of +10.9% vs. the decline of -6.9% in 
single-family starts. In May, total starts were down by -45% in the Northeast, down -8% in the Midwest, down -2.4% in the West, and up +11.2% in the South. Finally, building permits rose by +.3% on headline to 1.294mln from a downwardly revised 1.29mln. Permits for single-family rose by +3.7%, while multi-family saw a decline of -5%.

Philly Fed Manufacturing Index

The Philly Fed Index fell from 16.6 to 0.3, coming in well below market expectations of an 11 print. The report shows new orders, average workweek, and number of employees all declining. If we pair this now with the previously released Empire Fed report, we expect to see a further decline in business investment and core capital goods orders.

FOMC – No Ease for June

FOMC decision: after Powell and Company held steady with no rate cut this week, markets have now priced in even more future 'easing' than previously reported. Futures are now implying a 100% change of a 25bps cut in July, with now a 32% chance of a 50bps cut (pre-release was 0%). Also, by year-end, we see an implied 84% chance of a third cut of at least 25bps. Overall, it’s apparent now that markets have the expectation and sentiment that the Fed is falling behind and needs to catch up.

Middle-East Tensions

There was speculation that the US may have approved of a military strike in retaliation to the news of Iran shooting down one our drones this week. Shortly after US markets closed on Thursday, that speculation cooled as reports emerged that the President had called off the strike at the last moment. Regardless, this single event has put even more pressure on geopolitical tensions and added to the already high levels of uncertainty.