Perspective: Mid-Day Commentary for April 25

By: Arlan Suderman, Chief Commodities Economist

Tue, 25 Apr 2023, 16:11

Perspective: Midday Commentary

Guest Commentary by Mike Castle

Market Intelligence - Fertilizer Analyst

April 25 - Stocks remain under pressure at mid-day, with banking sector nerves creeping back in following First Republic Bank's depositor flight and worse than expected consumer confidence readings weighing on sentiment. Wall Street has plenty to digest this week amid a slew of earnings that have shown mixed results thus far and tech sector giants Alphabet (Google's parent company) and Microsoft due to report after the close today. While still low relative to recent history, the VIX has pushed to its highest level in roughly two weeks this morning above 18 amid the increasing uncertainty. The U.S. dollar is rallying to trade above 101.5 at the time of writing. Treasuries are off slightly, with 10-year yields falling to trade near 3.42% while 2-year yields fall to trade near 4.03%. Crude oil is reversing course after yesterday's gains, with the nearby WTI contract trading down near the $77 level, while the ags are down somewhat sharply as well.

U.S. consumer confidence fell sharply in April according to today's report from the Conference Board (CB). April's reading of CB's Consumer Confidence Index (CCI) fell to 101.3 while March was also revised downward to 104.0 vs. the 104.2 seen previously. This is the lowest reading seen since July as consumer sentiment had improved gradually after hitting their lows last summer. The Present Situation portion of the index did improve slightly, though the Consumer Expectations (forward looking) portion declined from March. The CCI is effectively a barometer of the health of the U.S. economy from the perspective of the consumer and is considered a leading indicator of consumer behavior.

Struggles continue for the U.S. manufacturing sector, with this morning's Richmond Fed Manufacturing Index showing a decline to -10 in April from the -5 reading seen in March. This follows yesterday's worse-than-expected reading from the Dallas Fed's Manufacturing Index of -23.4 which was its lowest since last July as overall business conditions for manufacturers worsen. The new orders portion of both indexes continue to show negative readings as uncertain economic outlooks weigh on demand. Adding on to today's negative manufacturing news, 3M this morning announced layoffs of 6,000 jobs due to slowing global demand for goods.

The U.S. service sector showed mixed results, however, with the Richmond Fed's Services Index declining to -23 in April, its lowest level since June 2020, while the Dallas Fed's Service Index improved slightly to -14.4 in April from -18 in March, though still squarely in contractionary territory. As a reminder, the Richmond Fed covers the activity of Maryland, Virginia, DC, both Carolinas, and most of West Virginia, while the Dallas Fed covers the activity of Texas. The service sector has made its way into the spotlight in the ongoing battle with inflation due to its sensitivity to wage inflation. Although the negative readings still point to overall pessimism in the sector, one interesting takeaway was an easing of wage pressures from the month prior. The Fed has readily acknowledged that it must cause some pain in order to tame inflation, and this could very well be one indicator of that happening. While the near-term situation may look ugly, the easing of inflationary pressures will provide longer-term benefit.

U.S. new home sales came in surprisingly high in March at an annualized rate of 683K units, well above market expectations of 630K and marking the highest level seen in a year. The biggest jump in new home sales was seen in the Northeast, followed by the West, then Midwest, while a slight drop was seen in the South. Today's new home sales data showed a median sales price of $449,800 and an average sales price of $562,400. These are year-over-year increases of 3.2% and 9.9%, respectively. The Federal Housing Finance Agency (FHFA) also released their February House Price Index this morning, showing prices climb by 0.46% month-on-month to an index reading of 394.8. This was the second consecutive monthly increase in U.S. house prices and the highest level seen since hitting an all-time high of 395.66 back in June. Housing prices dipped slightly from the peak in June and stagnated through the late summer and fall before unexpectedly perking back up in January and February. With many factors working against the housing market, continued low inventory of available homes has allowed prices to hold firm despite expectations by some of a sharp slowdown.

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