Market response to surprisingly strong Manufacturing index muted

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Published Date 5/24/2024

Overnight the 10 year note yield edged up to 4.50% +2 bps. At 8:30 am ET April durable goods orders were stronger than estimates; new orders were thought to b -0.5% but increased 0.7%, excluding transportation orders estimates were +0.2% but also increased, to 0.4%, core capital goods increased 0.3% against forecasts of +0.1%.

The indexes were expected to be generally unchanged with a minor uptick, but the indexes increased to levels not seen in two years, particularly the service sector where inflation has a strong foothold. The manufacturing index thought to be at 50.1, increased to 50.9, the service sector estimates were the index at 51.4 compared to 51.3 in April, the index increased to 54.8. Index readings over 50 indicate expansion. The reaction increased the 10 year yield from 4.43% to 4.49% within three minutes and MBS prices fell 30 bps. The stronger than thought PMI indexes yesterday and prices increasing continued to keep rate cuts up in the air, yesterday the odds of a rate cut moved out to December increased to 82%.

At 9:30 am the DJIA opened +72 after falling 606 yesterday, NASDAQ +76 and S&P +21. 10 year at 9:30 am 4.50% +2 bps. FNMA 6.0 30 year coupon at 9:30 am -8 bps from yesterday’s close and -33 bps from 9:30 am yesterday (MBS re-pricing yesterday occurred at 10 am on PMI data).

At 10 am the University of Michigan/Wells Fargo consumer sentiment index was expected unchanged from the end of April at 67.4; the index declined to 69.1, over the last two months both this survey and the consumer confidence index have been declining. The initial reaction pulled the 10 year note back to unchanged.

The bond market will close at 2 pm this afternoon but stocks will trade as usual until 4 pm. Now that the University of Michigan consumer sentiment index has been released trading volume will slow, bond traders looking to extend the three-day weekend. This week’s economic calendar was thin on key data, next week’s very important inflation data will be released on Friday; the April PCE, the Fed’s go to for inflation news.

Source: TBWS

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