August 27 – Stocks have rebounded from morning lows, with the S&P 500 and Nasdaq now both in the green at mid-day while the Dow Jones hangs narrowly in the red. The VIX has cooled after spiking this morning, falling from over 16.7 earlier in the session to trade below 15.9 at the time of writing. The dollar is down on the day, trading near 100.65 after starting the week off on a strong note yesterday. Treasuries have softened through the morning, with 10-year yields now trading narrowly in the green around 3.84% while 2-year yields have turned red, trading below 3.93%. Crude oil is taking a breather after the sharp climb seen in the last three trading sessions, with the nearby WTI contract falling back around $76 at the time of writing, while the ags are mostly in the green following declines in the U.S. and European crops, likely in part a reflection of some shorts being covered following the recent selloff.
U.S. home prices are showing signs of cooling according to this morning’s release, with the Federal Housing Finance Agency (FHFA) House Price Index falling to 424.5 in June, a 0.1% month-on-month decline from the record-high 424.8 seen in May. While this still marks a 5.1% year-on-year increase, that is the lowest level of yearly increase seen since July 2023. The slight decline is largely reflective of an increase in existing home inventory, which has risen to its highest level in nearly four years as of July, coupled with ongoing soft demand due to high mortgage rates. A decline in housing prices is also consistent with the recent signs of cooling overall inflationary pressures, though if we do see the expected decline in interest rates, we could also see an uptick in demand keep support under home prices as buyers who have been sitting on the sidelines waiting for said decline emerge.
Today’s U.S. manufacturing data was uglier than yesterday's, with the Richmond Fed Manufacturing Index unexpectedly falling to a reading of -19 in August, its lowest level seen since the pandemic lows of spring 2020. This follows yesterday's better-than-expected headline reading from the Dallas Fed, suggesting the health of U.S. manufacturing is region-dependent right now. New order volumes, order backlogs, and local business conditions all saw notable declines on today’s reading, with optimism for these categories six months from now all falling as well. Perhaps the most noteworthy takeaway was the sharp drop in employment, with that portion of the index falling to -15, the worst level seen since May 2020 during pandemic shutdowns. Excluding the pandemic lows of April/May 2020, this month’s reading would be the worst since the 2009 recession. This follows a turn back into contractionary territory on yesterday’s reading from the Dallas Fed as well, suggesting a softening jobs market in U.S. manufacturing. With the Fed turning their focus to the weakening labor market, this carries more significance and adds more weight to next week’s JOLTs jobs report ahead of the FOMC’s upcoming September meeting.
Consumer confidence jumped sharply in August, with this morning’s Conference Board reading climbing to a six-month high of 103.3, blowing past expectations of a slight rise to 101.0, while July was revised sharply higher from its initial 100.3 up to 101.9. Consumer optimism about the economy right now improved to 134.4 in August from July’s 133.1, while the gauge for confidence six months from now also improved to 82.5 from July’s 81.1 reading. Expectations of an upcoming rate cut from the Fed, as well as the continued cooling of inflationary readings helped drive much of this improvement. However, concerns about the labor market are growing, with the labor market differential (respondents who feel jobs are plentiful minus those who feel they are hard to get) dropping to 16.4 from the 17.1 seen in July. The market will get an additional look at U.S. consumer confidence on Friday’s report from the University of Michigan.
The recent heatwave across the U.S. knocked crop ratings down on yesterday afternoon’s USDA Crop Progress report (corn -2% week-on-week, soybeans -1%, spring wheat -4%), though expectations for big yields remain as these are still 7%, 8%, and 8% ahead of their respective five-year averages at this time. With the excellent weather seen throughout the Midwest for most of August, the biggest impact of this brief hot and dry stretch is essentially just speeding along maturity. 11% of the U.S. corn crop has reached maturity according to yesterday’s report, coming in 5% ahead of the average at this time, while 6% of the U.S. soybean crop is dropping leaves, 2% ahead of its average level. With the calendar turning to September over the upcoming weekend, it won’t be long before we see combines rolling in the Midwest, giving us more data points to confirm the size of this year’s expected big crops. We won’t see another update from the USDA until 9/12, but we’ll continue to see private estimates roll in during the lead-up to then.
