The US market saw worse than expected data from S&P Global PMI (especially services), Richmond Fed manufacturing index (joining the Empire and Philly regional indices) and new home sales.

The April new home sales were particularly shocking as they showed a sharp fall in annualized sales pace to to 591K vs 751K estimate. Moreover, the month's supply of homes at the current pace shot up to 9 months from 6 months last month. A normal month's supply is around 6 months.

The number of new sales was the lowest since the start of the pandemic. The April sales pace was down -16.6% from March and -26.9% from April 2021.

The decline, although shocking, is nevertheless, the medicine the economy needs to slow growth and inflation.

It is also the direct result of higher mortgage rates which began the month at 4.88% and ended at 5.41%. Coupling that rise, with the average price rise of 20% from a year earlier, and the affordability of house buying has taken a big hit. Many home buyers have been priced out of the market.

A fall in demand (vs building the supply to satisfy demand) at sharply higher prices is the best medicine for the overheated housing market. Moreover, a slow down is likely to reduce the demand for other commodities (such as lumber), and labor, two resources in short supply and a major source of inflationary pressures in the economy. Him him him him

Not all is bad, but a decline in housing puts more pressure on the economy and earnings in the process.

As a result, the broader stock indices (S&P and NASDAQ index) fell today after solid gains yesterday. The more cyclical Dow industrial average, erased sharply lower prices to close higher on the day.

A look at the final numbers shows:

  • Dow industrial average up 48.38 points or 0.15% at 31928.63
  • S&P index fell -32.27 points or -0.81% at 3941.49
  • NASDAQ index fell -270.82 points or -2.35% at 11264.46
  • Russell 2000 fell -27.93 points or -1.56% at 1764.82.

In the US debt market, yields reacted by moving sharply lower led by the 2 year yield which fell -14.2 basis points on the day. The closing levels (and recent cycle highs) are showing:

  • 2 year 2.483%, -14.2 basis points. That is down from its cycle high of 2.857%
  • 5 year 2.748%, -12.1 basis points. That is down from its cycle high of 3.107%
  • 10 year 2.761%, -9.4 basis points. That is a down from its cycle high of 3.203%
  • 30 year 2.975%, -0.8 basis points. That is down from its cycle high of 3.309%

In the forex, market, the JPY and the CHF received safe haven flows and are ending as the strongest of the majors. The CAD and the GBP are the weakest.

In the UK, Ofgem (Office Of Gas and Electricity Markets) informed UK government officials that the current price cap for energy would rise toward £2800 from the current £1971 which applies until September 31. The previous 6 months earlier showed a £693 rise (from £1278). The "once in a lifetime" surge is likely to put extreme stress on the middle and lower income population in a time where other inflation measures are already rising and sapping buying power. Moreover uncertainty from the Ukraine war could make things worse going forward if Russian oil supplies are slashed. The BOE has raised rates 4 times to 1%.

UK's Chancellor Sunak is putting together a minibudget that would impose a windfall tax on energy companies who have benefitted from the run up in prices. However, their is some disagreement with the PM Boris Johnson who prefers lowering the VAT and an income tax cut of 1% that is promised for 2024.

The energy news, coupled with weaker PMI data out of the UK, was the catalyst for the GBP's decline today..

The strongest to weakest of the major currencies.

The USD is ending the day mixed to lower with declines vs the JPY, CHF and EUR (the EURUSD was higher on expectations that they would start liftoff in July and get rates to positive territory by the end of the 3rd quarter), and gains vs the GBP, CAD and NZD. The NZD moved mostly lower today as traders braced for the 2nd 50 basis point hike in a row when the RBNZ announces their rate decision at 10 PM ET.

In other market near the 5 PM end of day showed:

  • spot gold up $13.43 or 0.73% at $1866.17
  • spot silver is up $0.32 or 1.46% at $22.10
  • WTI crude oil is down -$0.21 at $110.08
  • Bitcoin trades back below the $30,000 level at $29,362.52