The older I get, the harder it is to get out of bed and get going on Monday morning. It seems like the weekend is never long enough. However, now that we’re here, we might as well make it a good Monday!
I feel like the stock market is in the same boat this morning. It’s trying to make the best of a situation that it would rather not deal with today. More on that later, but first, let’s look at some of the data traders were using to get a read on the situation this past week.
ISM Manufacturing Index
Confidence in the manufacturing sector faltered slightly in May, down 0.7 points to 52.1. Although growth is still indicated by a reading over 50, this is the weakest it’s been since October 2016.
Production came in at 51.2, new orders at 52.7 and employment was at 53.7. Backlogged orders were actually shrinking, down 6.7 points to 47.2. Although this might seem like a good thing, if factories are less behind, they won’t need to hire as many people, which is bad for employment numbers.
Also seeing less manufacturing are apparel, primary and fabricated metals. Tariffs continue to be a concern among those that left comments on the survey, along with higher prices. Indeed, cost pressures are still growing at 53.2.
MBA Mortgage Applications
Mortgage applications were up 1.5% overall as the number of people looking to refinance last week was up 6%. Purchase applications were down 2% and are now up only 0.5% on the year. Analysts worry this means uneven improvement in the housing sector.
Tariff concerns with both China and Mexico were ongoing last week, and the Fed made some comments that made the market think there would almost certainly be a cut in short-term interest rates by the end of the year. These two factors brought the average rate on a 30-year conventional mortgage down 10 basis points to 4.23%.
It was a so-so for international trade in April. On one hand, the U.S. trade deficit came in exactly at expectations, falling $1.1 billion to $50.8 billion. On the other, the deficit for March was revised up by nearly $2 billion to $51.9 billion. Additionally, while the trade deficit decreased, both exports and imports fell.
Exports were down 2.2% to $206.8 billion. There was a $2.7 billion drop in exports of capital goods $244.7 billion including a $2.3 billion decline in exports of civilian aircraft. Many other export categories were down as well with the one bright spot being in foods and feeds which was up a bit in April to $11.2 billion.
Imports came in at $257.6 billion, also down 2.2% on the month. Imports of food and seasons were down a bit to $12.8 billion. Meanwhile, there was a $1 billion decline in vehicle imports to $30.9 billion along with a $1.1 billion drop in consumer goods imports.
The trade deficit with China did increase by $6.2 billion to $26.9 billion, which is nevertheless lower than $34.9 billion at this time last year.
Initial jobless claims were flat last week at 218,000. Meanwhile, the 4-week average fell 2,500 to come in at 215,000.
Continuing claims came in at 1.682 million, up 20,000 on the week. The 4-week average was down 1,000 to about 1.673 million.
It was expected that 180,000 jobs would be added to nonfarm payrolls in May and the numbers defied expectations, just not in a good way. Only 75,000 jobs were added to the economy in May while the unemployment rate remained at a very low 3.6%.
There were 90,000 jobs added to private payrolls in May. This means there were 15,000 jobs cut in the government sector. Digging a little deeper into individual areas, 3,000 jobs were added in manufacturing, below expectations for a 5,000-job increase. Meanwhile, there were 4,000 jobs added in construction, which came in well below the two previous readings. Traditional retail stores are closing, which helped the sector lose 8,000 jobs in May. Meanwhile, 33,000 jobs were added in professional and business services
Wages were only up 0.2% month on an hourly basis. These are only up 3.1% on the year, which is the lowest annual rate of growth since September. Finally, the labor force participation rate remained at 62.8% and the average worker worked 34 hours, 24 minutes in May.
Mortgage rates fell again last week and the 30-year fixed mortgage is now near a 2-year low, according to data collected by Freddie Mac. Further, the major mortgage investor goes on to say that with rates below 4%, it could make sense for the majority of people who refinanced in 2018 to look at doing so again to take advantage of lower rates.
Whether you’re in the market to buy or refinance, one thing that’s certain is that rates are really good right now. If you’re ready, you should consider locking your rate.
The average rate on a 30-year fixed-rate mortgage fell by 17 basis points to 3.82% with 0.5 points paid in fees last week. This is down from 4.54% at the same time a year ago.
Looking at shorter terms, the average rate on a 15-year fixed mortgage fell 18 basis points to 3.28% to come in at 3.28% with 0.5 points paid. This is down from 4.01% last year.
Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) came in down eight basis points to 3.52% with 0.4 points paid. This is down from 3.74% last year.
It was a really weird week on Wall Street. First, the U.S. reached a trade deal with Mexico, which included them making immigration concessions that may have been months in the making.
But things got really odd after the employment report was released on Friday. Typically, the only place where bad news is good news is in the bond market because people are looking for safer assets. However, despite the jobs report disappointing, the stock market rose Friday. The reason? Traders believe the weak report will leave the Federal Reserve with no choice but to cut short-term interest rates sooner rather than later.
The Dow Jones Industrial Average was up 263.28 points on the day and 4.71% on the week, closing at 25,983.94. Meanwhile, the S&P 500 finished at 2,873.34, up 29.85 points on the day and 4.41% on the week. Finally, the Nasdaq was up 3.88% on the week after finishing Friday at 7,742.1, up 126.55 points on the day.
The Week Ahead
Tuesday, June 11
Producer Price Index (PPI) (8:30 a.m. ET) – The Producer Price Index measures the average change over time in prices received by domestic producers for the sale of goods and services.
Quicken Loans Home Price Perception Index (HPPI) (10:00 a.m. ET) – Quicken Loans releases data every month comparing what people think their homes are worth compared to appraisals. Similar opinions of value often make for smoother purchase and refinance transactions.
Quicken Loans Home Value Index (HVI) (10:00 a.m. ET) – Quicken Loans also releases data on home values at both the national and regional levels. Homeowners can gain a perception of whether values are increasing or decreasing and get a better idea of where they stand in terms of equity.
Wednesday, June 12
MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
Consumer Price Index (CPI) (8:30 a.m. ET) – The consumer price index measures changes based on the price of a fixed basket of goods and services purchased by consumers.
Thursday, June 13
Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The four-week moving average of new claims smooths out weekly volatility.
Friday, June 14
Retail Sales (8:30 a.m. ET) – Retail sales measure total receipts from stores selling merchandise and related services to final consumers. Sales are measured by retail and food service stores. Data is collected from the Monthly Retail Trade Survey conducted by the U.S. Census Bureau.
Industrial Production (9:15 a.m. ET) – The Federal Reserve’s monthly index of industrial production – and the related capacity indexes and capacity utilization rates – covers manufacturing, mining, and electric and gas utilities.
We get some housing data next week as well as a look at inflation, production and sales. It’s fairly busy, and we’ll have it all covered in next week’s Market Update!
This is pretty dry fair, but we’ve got plenty more to share with you if you subscribe to the Zing Blog below. As a reminder, this Sunday is Father’s Day. Don’t know what to get dad yet? Here’s a list of ideas. Have a great week!
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