Perspective: Mid-Day Commentary for September 19

By: Arlan Suderman, Chief Commodities Economist

Thu, 19 Sep 2024, 15:26

Perspective: Midday Commentary

Guest Commentary by Mike Castle

Market Intelligence - Senior Fertilizer Analyst

September 19 – The market is seeing what it wanted to see today in the wake of yesterday’s aggressive 50-basis point cut— more evidence of a resilient U.S. economy. This is driving stocks firmly higher at mid-day, with the Dow Jones and S&P 500 both pushing to new all-time highs today, while the Nasdaq has pushed to its highest level in nearly two months. The euphoria on Wall Street has also pushed the VIX down to trade near 16.7 at the time of writing. The dollar is rebounding from yesterday’s losses, though down considerably from overnight highs to trade around the 100.6 level. Treasuries are diverging, with 10-year yields pushing higher to 3.73% while 2-year yields fall below 3.60%. Crude oil is higher with fresh escalations between Israel and Lebanon raising risks of a broadening Middle East conflict, as the nearby WTI contract trades near $71.80. The ags are mostly lower, though the cattle complex is showing solid gains.

More strength in the U.S. economy was shown on this morning’s Philadelphia Fed Manufacturing Index, rising to 1.7 in September versus the -7 seen in August and well above the -0.8 average analyst estimate. There has been a nice rebound in the manufacturing sector in the Philadelphia Fed’s region in 2024, with seven of the year’s nine months now in expansionary territory after spending 11 of 12 months in contraction in 2023. The employment portion of the index improved notably in September, rising to 10.7 from the -5.7 seen in August and marking the second-highest reading of the year, which will be viewed as another sign of stability in the labor market. In less positive news, however, it is worth pointing out the signs of potential inflationary pressures from today’s data, with the prices paid portion of the index jumping to the highest level seen since December 2022 at a reading of 34. The market got what it wanted with yesterday’s 50-basis point rate cut, but it’s worth keeping in mind the potential stimulatory effect that could have which has the potential to make the Fed’s path downward take longer than the market would like.

The Conference Board’s Leading Economic Index rebounded in August to -0.2%, up from the -0.6% seen in July and beating analyst estimates of a smaller improvement to -0.3%. Yes, it was a negative reading, and the sixth-consecutive negative reading at that, but the market is opting to focus on the silver linings today, with expectations of yesterday’s rate cut helping to stem the issues going forward. For other silver linings, the Coincident Economic Index saw a return to positivity in August, rising to 0.3% from the -0.1% seen in July, while the Lagging Economic Index improved to an unchanged reading in August, also up from a -0.1% drop in July.

Existing home sales fell 2.5% month-on-month to a seasonally adjusted annualized rate of 3.86M in August, down from 3.96M in July and slightly below analyst expectations of 3.9M. This marks the weakest existing home sales seen since October 2023, likely a reflection of buyers awaiting lower mortgage rates ahead. Meanwhile, supply continues to tick higher, with existing home inventories rising 0.7% month-on-month to 1.35M units. This is now 22.7% higher than the same month last year and marks the largest level of inventory seen since October 2020. This helped push prices lower for the second consecutive month, with the median sales price at $416,700 in August, down 1.1% from July and down 2.4% from the all-time high of $426,900 hit back in June.

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