Daily Market Color

Beige Book Shows Strong Economy


Fed: Economy Remains Strong

The Federal Reserve released The Summary of Commentary on Current Economic Conditions or, Beige Book as it is more commonly known.  The Beige Book is a report published by the United States Federal Reserve Board eight times a year consisting mostly of anecdotal information from businesses in each of the Fed districts.  According to the report: “Economic activity continued to expand across the United States, with 10 of the 12 Federal Reserve Districts reporting moderate or modest growth. The outliers were the Dallas District, which reported strong growth driven in part by the energy sector, and the St. Louis District where growth was described as slight.”  The report also found that the labor market remained tight. “Employment continued to rise at a modest to moderate pace in most Districts. Labor markets were described as tight, with most Districts reporting firms had difficulty finding qualified labor.”  While the report also showed that prices continued to move higher, “Prices increased in all Districts at a pace that was modest to moderate on average; reports showed upticks in inflation in several Districts.” The report is likely to bolster the argument for continued gradual rates hikes by the FOMC. 



Financials Lead Markets Higher

Equity markets were led higher today by the financial sector as Morgan Stanley reported earnings that outperformed the estimates.  Two of the three major indices posted gains on the day, with the DJIA leading the way (+0.32%) and the S&P 500 higher by (+0.22%).  However, the Nasdaq couldn’t quite hold on to the record close from yesterday falling 0.01%.  Across the curve treasuries were generally higher between 0-2 bps, from the 3 year to the 30 year point.  However the front end rallied with short yields down 0.5 bps.  As such 2s10s steepened on the day, although overall the curve remains historically flat. The 10-year US Treasury note closed the day at a yield near 2.875%, higher by 1.5 bps.  WTI crude futures settled higher on up 1.2% on the day at a price of $68.01/barrel.  This follows news that the crude stockpiles are up, while gasoline inventories are dwindling.  In foreign exchange markets, the USD Dollar (USD) had another strong day as it gained 0.3% against the British Pound (GBP), rose 0.2% against the Euro (EUR) although it was unchanged against the Japanese Yen (JPY).



Housing Starts Fall Unexpectedly

For the month of June, overall housing starts fell more than estimated. Starts were down 12.3% MoM to 1.173 million on an annualized basis, well below the expectation of 1.320 million starts.  This is the lowest number recorded in the past nine months. The prior month was also revised downward by 13k from 1.350 million to 1.337 million annualized.  Single family home starts fell by 86k from 944k to 858k, while multi-family starts were down about 20% dropping to 315k.  Home affordability remains a challenge with both property values and borrowing costs continue to rise at faster rates than income levels.  While this report appears to indicate overall housing market weakness, single family permits were up this month 0.8% to 850,000 and had generally been firm in prior months as well.



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