Daily Market Color

Treasurys Rise on Mixed Economic Data, Further Political Drama

Jeff Davenport

New homebuilding and industrial production data released today painted a mixed picture of the economy for the start of Q2.  The number of housing starts in the month of April totaled 1.172 million, a 2.6% decrease from the prior month and the third decline in new-home construction in the past four months.  Single-family starts represented the lone bright spot in the report with a 0.4% monthly increase, while the more volatile multi-family component fell by 9.6%.  Similar weakness was displayed within building permits, which recorded a 2.5% decline in the month of April to a seasonally adjusted 1.229 million.  Last month’s decrease in homebuilding activity points to a reduced supply of houses available in the market which would ultimately lead to a further increase in home purchase and rental prices.  On a more positive note, industrial production rose a stronger-than-expected 1.0% in April, the largest monthly jump in output over the past three years.  Gains in manufacturing were paced by motor vehicles (+5%) and business equipment (+1.2%), while production of consumer goods rose 1.5%.  Additionally, both mining (+1.2%) and utility output (+0.7) were solid in April as the capacity utilization rate rose to 76.7%.   

Political drama in the White House intensified yesterday evening after reports alleged that President Trump provided classified information to Russia’s foreign minister during a meeting last week.  The confidential data allegedly contained details concerning a plot by the Islamic State involving laptops aboard airplanes.  White House officials were quick to dispute the claim against Trump, however the President issued his own response via Twitter, announcing that “as President I wanted to share with Russia (at an openly scheduled W.H. meeting) which I have the absolute right to do, facts pertaining to terrorism and airline flight safety.  Humanitarian reasons, plus I want Russia to greatly step up their fight against ISIS & terrorism.”  While the President has the legal right to declassify and share intelligence information, speculation is being raised regarding the danger such action could bring to bear upon the source of the data provided to the US.  Regardless, the event seems to continue to reflect the polarized state of affairs with Trump supporters seeing his actions as bold and independent of past political norms, and his detractors fearing the onslaught of a constitutional crisis. 
Treasurys rallied throughout the trading session, with yields/swap rates falling as much as 1-3 basis points across the curve as the yield on the 10-year note neared a two-week low of 2.31%.  US stocks were mixed on the day, with the DJIA and S&P 500 posting marginal losses while the tech-heavy Nasdaq gained 0.33%.  The US dollar declined for the fifth straight session, down 0.6% against major currencies to its lowest level since early November.  The rally in crude oil stalled out, as both WTI and Brent fell roughly 0.5% for the session. 

Jeff Davenport

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