May 16 – Stocks are continuing their push to fresh record highs at mid-day, while the VIX remains very low near the 12.4 level, reflecting a sense of calm on Wall Street. The dollar is attempting a slight rebound from this week’s losses, hovering around 104.34 at the time of writing, while treasuries are also up slightly at mid-day, with 10-year yields at 4.37% and 2-year yields near 4.79%. Crude oil is in the green as well, with the nearby WTI contract trading near $79.3, while the ags are largely mixed.
The Philadelphia Fed Manufacturing Index fell sharply in May from April’s surprise two-year high, though remaining slightly in expansionary territory for the fourth consecutive month at a 4.5 reading. After a very ugly year and a half, the U.S. manufacturing sector has shown surprising strength thus far in 2024 as the broader economy continues to cruise along. However, the New Orders portion of the index did fall back into negative territory in May for the first time since February, coming in at -7.9 vs. the 12.2 seen in April. The Employment portion of the index rose slightly from April but remained negative, with more firms reporting decreases (20%) than increases (12%). Also in the inflationary vein, price pressures showed mixed results in May, with the Prices Paid portion of the index declining from 23.0 to 18.7 but the Prices Received portion of the index climbing from 5.5 to 6.6.
Overall U.S. manufacturing production also fell 0.3% month-on-month in April, a big miss compared to analyst expectations of a 0.1% rise and turning back into negative territory after two consecutive months of gains. Additionally, the 0.5% rise seen in March was revised downward to only a 0.2% rise. Durable manufacturing led the way down, falling by 0.5% month-on-month, while non-durables saw a lesser decline at 0.1%. U.S. capacity utilization also fell in April by 0.1% down to 78.4%, the lowest level seen since the weather-driven dive in January. Following a handful of recent economic data releases showing signs of weakness, along with yesterday’s softer than expected CPI, the market appears to like today’s readings, potentially giving the doves at the Fed more of what they’d like to see, though the overall tone from FOMC member speeches continues to be one of holding rates higher for longer. However, it’s important to keep in mind that the trade has long overestimated the Fed’s dovishness despite being told not to do so.
China and Russia today pledged a “new era” of partnership between the two countries during Russian President Putin’s visit to Beijing. In a 7,000-word joint statement, the two sides pledged to deepen their partnership and cooperation on a wide-ranging group of topics. Notable highlights from the statement include Russia’s reaffirmation of the “One China” principle (recognizing Taiwan as a part of China), both sides pointing to their concerns over “U.S. attempts to violate the strategic balance” while also condemning “destabilizing steps” by the U.S., as well pledging deeper cooperation throughout the agricultural, energy, industrial, and technology sectors. This week’s meeting comes at a time of again-rising tensions between the U.S. and China, with rebukes coming from China regarding new U.S. tariffs and other policies. With both Russia and China uniting in this anti-U.S. rhetoric, it appears likely to see these tensions continue rising.
On China’s economic front, fresh government intervention to boost the long-struggling Chinese property sector is providing newfound optimism. The local government in Hangzhou, the capital of China’s Zhejiang province, announced they would be buying up to 100,000 square feet of apartments and renting them out at affordable rates in an attempt to cut back on massive housing inventories. There are also reports that other cities may be following with similar measures soon, with the issue being widespread throughout the country. This is the most direct government intervention seen thus far to stop the bleeding in the property sector, with other measures proving largely unsuccessful. While the news has provided a sharp boost to Chinese property developer stocks, there remains skepticism as to the effectiveness of these measures due to the large debt loads of local Chinese governments, and the results will need to be monitored going forward.
