Daily Market Color

Treasurys Fall as Robust Economic Data Boosts U.S. Growth Expectations

Jeff Davenport

With third-quarter GDP due to be released on Friday, investors received promising housing and trade data today that boosted expectations for the economic growth figures.  New homes sales gained 3.1 percent in September, recording a 593,000 annualized rate.  Although the sales readings from both July and August were revised downwards, the housing market remains on a steady growth track, with YoY new home sales up 30 percent.  Supply stands as the main factor in limiting further activity, with the current market only possessing 4.8 months’ supply of new homes compared to 5.8 months in September of last year.

The US trade deficit decreased sharply in September to $56.1 billion, well below median forecasts of $60.5b.  Exports rose by 0.9%, led primarily by increases in capital and consumer goods, while imports declined 1.1%.  Wholesale and retail inventories both gained in September, up 0.2% and 0.3% respectively.  In the service sector, the Purchasing Managers’ Index (PMI) US Services Flash reported a 54.8 level, up 2.9 points from September’s flash, marking the strongest growth so far this year.  New orders and business activity both reached their 11-month highs.

The Dow Jones Industrial Average gained 0.2% on the day, while the S&P 500 and Nasdaq indexes slipped 0.2% and 0.6%, respectively, as Apple’s share price weighed down markets after posting its first annual revenue decline in 15 years.  Treasury yields and swap rates rose 1-5 bps across the curve in a bear steepening pattern, pushing the yield on the 10-year note to 1.79%.  Crude oil prices continued their weekly descent, with both WTI ($49.14/barrel) and Brent ($49.85/barrel) falling below the $50 mark.   

Jeff Davenport

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