Philly Fed Ticks in Lower Than Expected
We finish off the trading week after a nice edge-of-summer break for Juneteenth yesterday. Pre-market indexes are climbing a quarter-point to a third of a point higher at this hour, with the small-cap Russell 2000 already up more than +1%. Only the Russell is up over the past five trading days, but the other indexes are approaching.
The Dow is up +114 points right now, with the S&P 500 +14. The Nasdaq is +62 points at this hour, with the Russell +25 points. Currently, only the S&P 500 and the Nasdaq are up (marginally) year to date. Bond yields are remaining in place, more or less: +4.44% on the 10-year, +3.95% on the 2-year and +4.94% on the 30-year.
Headline Philly Fed manufacturing came in at -4.0 for June, equalling the prior month's level and notching the third-straight month lower. Business conditions, capital expenditures, new orders and prices paid were all lower last month. And the Employment Index sank lower than expected, to -9.8. This could be seen as a further indication of a softening labor market in the U.S.
Pre-market traders are not missing this opportunity: a sinking Employment Index, while a relatively minor part of the Philly Fed Index (which focuses on the region around Philadelphia and the goods-producing sector there), do point to an opening for the Fed to lower interest rates at some point in the future. But the Fed would have to see demonstrably worse employment numbers first.
We will most certainly track this new infusion of positivity into the stock market; it may even bring us a positive trading week over all, depending on the size of gains. We also have to keep our eyes and ears open about potential trade deals ahead of the July 9th deadline, as well as any new developments in the Middle East, on which President Trump has cooled his rhetoric (with yet another self-imposed deadline of two weeks before making a decision on whether to make a move on Iran).
After today's open, the latest U.S. Leading Economic Indicators (LEI) report will come out for the month of May. Expectations are for a headline to drift marginally negative: -0.1%, from a deeper -1.0% for April and -0.8% for March. We are now scraping 9-year lows on LEI — well off the late 2021/early 2022 highs.
For April, all components were lower except Lending Credit and Manufacturing New Orders, both of which were up marginally. Meanwhile, the Coincident Economic Index (CEI) has fully recovered from Covid-era lows to keep its upward trajectory. While the LEI is a leading indicator for growth, the CEI reflects current economic conditions.
It's a big data week starting on Monday. Various prints on the housing market, Services and Manufacturing PMI, Durable Goods, Jobless Claims and Personal Consumption Expenditures (PCE) — a week from today — will all be hitting the tape. PCE levels in particular are important, as they tend to have a pronounced effect on future Fed monetary policy decisions.
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