Indices ahead on good earnings, belief that rate peak is in sight

Upbeat earnings reports and a belief that an interest rate peak is near lifted Wall Street this morning, despite disappointing data on the economy and housing market data. The Federal Reserve is still expected to raise its benchmark interest rate by 25 basis points next week, but then to starting to cut rates by up to 50 basis points by the end of the year.

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A lower-than-expected headline GDP number was largely a product of declining business stockpiling and housing, reflecting the weaker outlook among business managers evident in yesterday’s core durable goods orders.  Consumers might complain about the challenges of the economy, but they’re still spending, as they utilize extra savings that they put away during the pandemic. Today’s data reflects first quarter activity, but retail sales slowed dramatically in March, suggesting that the pendulum may be starting to swing the other way.

Indices up, Fear Index Down (again)

• At the time of writing, the broad S&P 500 and NASDAQ indices were up 1.5% and 2.2%, respectively, at 4,116 and 12,108
• The VIX, Wall Street’s fear index, moved down again to 17.1, indicating a sanguine mode
• The dollar index and major cross-rates were unchanged
• Yields on 2- and 10-year Treasuries rose to 4.08% and 3.51%, respectively

Gold sticks at $2K mark

• Gold prices are still hovering around the $2,000 per ounce mark
• Crude oil prices were up 1.1% at $75.1 per barrel
• Export demand for grain and oilseeds remains very soft, while chart signals are weak, resulting in continued fund selling

US GDP slowed in Q1, consumer still upbeat

• Gross domestic product grew at an annualized rate of 1.1% in the first quarter of this year, below analyst expectations of 2.0% growth, and down from 2.6% in the fourth quarter
• Personal consumption expenditures rose at a healthy annualized rate of 3.7% in the first quarter, up from 1.0% in the fourth quarter of last year. Consumer spending accounts for nearly 70% of U.S. economic activity.
• Business investment rose at a slow 0.7% in the first quarter, down from 4.0% growth the previous quarter.
• Spending on buildings, oil rigs and other structures surged 11.2%, but spending for computers, delivery trucks, factory machines and other equipment was down 7.3%, reflecting more caution among small businesses, who represent a core component of the economy
• This is ironic since consumer spending at the household level accounted for most of the economy’s strength in the first quarter
• Elsewhere, the Kansas City Fed manufacturing index dropped to -10 this month, down from zero in March, indicating a month-on-month contraction

Home sales weaker than expected

• The National Association of Realtors pending home sales index fell 5.2% in March to 78.9, whereas analyst expected a small increase, after it rose 0.8% in February
• The index reflects signed contracts but not closed sales, and as such it is designed to be a leading indicator of housing activity focused on existing home sales
• The drop was significant, as interest rates saw a significant pullback in March, which should have spurred more movement in the housing sector

Jobless claims fell modestly

• First-time claims for unemployment benefits fell to 230,000 in the week ending April 22, below analyst expectations of 249,00, and down from 246,00 the previous week
• The four-week moving average fell to 236,00 claims, down from 240,00 the previous week
• Continuing claims for the week ending April 15 fell modestly to 1.858 million

Soft commodities impacted by global politics

• Russia again blocked movement of four ships in the “safe corridor” yesterday, but they appear to be moving again today
• The US Department of Agriculture (USDA) announced this morning that China cancelled another 9.2 million bushels of previous purchases of US corn, bringing known total of Chinese cancellations over the past couple of weeks to more than 24 million bushels

Analysis by Arlan Suderman, Chief Commodities Economist

Contact: Arlan.Suderman@StoneX.com