October 17 – The Dow Jones and S&P 500 have pushed to fresh all-time highs today with traders focusing on economic optimism in the U.S. following this morning’s hotter than expected retail sales and lower jobless claims, choosing to ignore some of the less optimistic readings as recent hurricanes likely obscure the picture to some extent. The VIX continues to cool, pushing down to trade just above the 19 level. The dollar rally continues as well, remaining at roughly two-and-a-half month highs near 103.6 at the time of writing. Treasuries have fallen from their morning highs but remain in the green, with 10-year yields trading at 4.09% and 2-year yields at 3.98%. Crude oil has had a very up-and-down session today but hovers around unchanged again near $70.4, while the ags are now mixed as the whole sector bounces from morning lows and the wheat complex breaks slightly into the green.
The second round of manufacturing data released this morning painted a less rosy picture, with U.S. manufacturing production falling 0.4% month-on-month in September, sharper than the anticipated 0.1% drop and a big move down from August’s 0.5% increase. In year-on-year terms, manufacturing production was down 0.5% in September, the worst reading since April, while August was revised down to be flat. Overall industrial production took a dive as well, down 0.3% month-on-month versus market expectations of a 0.2% decline, while August was revised down to a 0.3% rise. Meanwhile, capacity utilization fell to 77.5% in September, the lowest reading seen since January. As with this morning’s jobless figures, however, it’s important to take these numbers with a grain of salt due to weather. Hurricane Francine striking the U.S. Gulf Coast in mid-September likely had a sizable effect, along with Helene later in the month. The same can be said for January’s sharp low, which was largely weather-driven due to the arctic blast causing widespread shutdowns.
Homebuilder sentiment is continuing to improve in October, with this morning’s NAHB Housing Market Index rising to 43 from the 41 seen in September, matching the highest level since June. Regionally speaking, the Northeast is seeing the most optimism at a reading of 52, followed by the West at 44, while the Midwest and South each sit at 43. Current sales conditions improved two points to 47, also the highest since June, but expectations for the next six months saw a spike to 57, indicating more optimism than pessimism amongst respondents and climbing to the highest level seen since April. With one 50-basis point cut from the Fed under our belts and expectations of more to come in the months ahead, it’s no surprise to see this improvement. However, the traffic of prospective buyers remains a drag at only 29, though that is an improvement from the 26 seen in the same month last year and the recent low of 25 hit back in August.
U.S. crude oil stocks fell by more than expected to 420.55 million barrels (excluding the SPR) in the week ending October 11th, a 2.19-million-barrel week-on-week draw, reversing course from the massive 5.81-million-barrel build in the week prior. This was driven in part by a tightening in trade, with imports falling to their lowest in roughly eight months while exports rebounded to their highest since mid-September, as well as a sharper than expected 1.0% uptick in refinery utilization to 87.7%, a three-week high. Gasoline stocks also saw a sharper than expected draw of 2.2 million barrels, with the weakest weekly production seen in roughly six months, while distillate stocks fell 3.53 million barrels, also sharper than the expected 2.19-million-barrel draw.
Israel’s security cabinet is reporting that they may have killed Hamas leader Yahya Sinwar today, though media outlets have urged caution as investigations are still underway to confirm that fact. If true, this would be a major blow in the conflict, especially following Israel’s killing of Hezbollah leader Hassan Nasrallah last month among a wide range of other Iranian-aligned proxy leadership. The market has largely been taking out risk premium related to Middle East tensions this week, but if this is confirmed, we could certainly see another round of escalation in the near-term while still waiting to see Israel’s response to Iran’s October 1st attacks.
