{"id":207083,"date":"2024-05-23T11:15:00","date_gmt":"2024-05-23T15:15:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=207083"},"modified":"2024-05-24T03:34:44","modified_gmt":"2024-05-24T07:34:44","slug":"rates-soar-on-upside-pmi-beats","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/rates-soar-on-upside-pmi-beats\/","title":{"rendered":"Rates Soar on Upside PMI Beats: May 23, 2024"},"content":{"rendered":"\n

Robust PMI data from the US and Europe are dampening investor sentiment and offsetting the impact of blockbuster earnings results from AI juggernaut Nvidia. This morning\u2019s figures are sending yields north at a time when global central bankers are eager to cut rates. Rates are also taking their cue from yesterday\u2019s release of minutes from the last Fed meeting depicting certain officials leaving the door open to further rate hikes amidst a lack of inflation progress. Those same policymakers were skeptical of the restrictiveness of current policy. It\u2019s indeed hard to argue that policy is tight, considering that home prices and stock values have reached fresh all-time highs countless times this year. Central bankers are contending with the risks of declaring victory too early.<\/p>\n\n\n\n

PMIs Strengthen Inflation Fears<\/strong><\/h2>\n\n\n\n

US economic performance in May accelerated to its fastest pace in 25 months, according to this morning\u2019s flash Purchasing Managers\u2019 Indices (PMI) from S&P Global. May\u2019s composite PMI score of 54.4 trounced expectations of 51.1 and improved sharply from April\u2019s 51.3. The progress wasn\u2019t free\u2014price pressures continued to build on the back of deep order books, elevated materials costs and labor shortages. The lack of worker availability did lead to a decline in employment at servicers, which was partially buffered by an increase in manufacturing headcounts.<\/p>\n\n\n\n

While manufacturing climbed firmly into growth territory, activity was led by servicers. The services PMI of 54.8 is well above both the expansion-contraction threshold of 50 and the median analyst forecast of 51.2, which would have been near last month\u2019s 51.3. The manufacturing PMI arrived at 50.9, up from April\u2019s 50, which was also the consensus projection for this month. Goods orders were propelled by exports, which counteracted sluggishness in domestic purchases. Improved confidence across both firms and customers also buoyed results. However, optimism remains below longer-term trends as corporations and households alike are concerned about rates, elections and geopolitical instability.<\/p>\n\n\n\n

\"Purchasing<\/figure>\n\n\n\n

Hiring is Slow, but So Are Layoffs<\/strong><\/h2>\n\n\n\n

Labor market conditions remain benign with unemployment claims arriving near their recent ranges. Initial unemployment claims of 215,000 for the week ended May 18 were slightly less than the 220,000 expected and the prior week\u2019s 223,000. Continuing claims, meanwhile, came in at 1.794 million for the week ended May 11, near estimates of 1.793 million and the previous period\u2019s 1.786 million. Four-week trends did move slightly higher, with moving averages rising from 218,000 and 1.777 million to 219,750 and 1.782 million. <\/p>\n\n\n\n

\"Unemployment<\/figure>\n\n\n\n

Discounts Fail to Support New Home Sales<\/strong><\/h2>\n\n\n\n

Similar to yesterday\u2019s existing home sales<\/a> report, April new home sales missed expectations despite improving supply conditions. The pace of new home sales declined 4.7% month over month (m\/m) to 634,000 seasonally adjusted annualized units, despite the Street awaiting a number closer to 680,000. March\u2019s figure came in at 665,000. Most regions delivered m\/m contractions in the rate of transactions with the Northeast, West and South declining 20.9%, 7.3% and 4.8%. The Midwest offset some of the softness, rising 10%. The weakness occurs as opportunities to scoop up new builds are on the rise, with the ratio of the months\u2019 supply at the current monthly sales pace bumping sharply from 8.5 to 9.1 m\/m, the highest since November. Builders also offered discounts and rate concessions to try and lure in prospective buyers, with the median sales price declining m\/m from $439,500 to $433,500. There\u2019s indeed a stark bifurcation between the new and existing markets, with the former down 6% from all-time highs while the latter reaches new heights.<\/p>\n\n\n\n

\"New<\/figure>\n\n\n\n

Europe Economic Growth Accelerates<\/strong><\/h2>\n\n\n\n

Sailing east, the euro area PMI also battered economists\u2019 expectations, with economic activity expanding at the quickest rate in 12 months. Similar to the states, growth was dominated by services while manufacturing showed modest improvement. An important consideration, however, is that manufacturing remains well below expansion territory, but the rate of decline has moderated, with May\u2019s figure reaching a 14-month high. Services and manufacturing PMIs came in at 53.3 and 47.4, a slight miss on the former but a sizable beat for the latter; analysts were expecting 53.5 and 46.2. Services were unchanged from the prior period while the goods sector climbed from 45.7. Overall, results were supported by business confidence that reached the loftiest level in 27 months amidst strong ordering and steady hiring. Price pressures eased slightly but remained well above trend and target.<\/p>\n\n\n\n

\"European<\/figure>\n\n\n\n

Nvidia Boosts Optimism for Artificial Intelligence<\/strong><\/h2>\n\n\n\n

At least one provider of off-premises technology is validating Nvidia\u2019s comments about strong demand for products from cloud-computing companies and data centers. Meanwhile, the trend of discount store operators such as BJ\u2019s capturing market share is continuing while mainstream retailers feel the pinch of inflation hurting consumer spending. Consider the following earnings highlights:<\/p>\n\n\n\n