Deciphering Economic Signals

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These are the best rates you can find in the fixed-income markets:

• C.D.s (New Issues): 5.40% (1-year term)

• U.S. Treasury Bonds: 5.19% (1-year period)

• U.S. Treasury Zeros: 5.05% (9-month period)

• Agency/GSE: 5.87% (5-year period)

• Corporate (Aaa/AAA): 5.05% (9-month period)

• Corporate (Aa/A.A.): 5.38% (9-month period)

• Corporate (A/A): 6.70% (9-month period)

• Corporate (Baa/BBB): 11.27% (5-year period)

• Municipal (Aaa/AAA): 4.15% (10-year term)

• Municipal (Aa/AA): 4.50% (10-year term)

• Municipal (A/A): 4.85% (10-year period)

• Taxable Municipal: 6.22% (9-month period)

For our street investors… face the wall with A.I. sentiment analysis and adjust your trading for Today (June 7, 2023):

Futures markets hint at a steady open with a cautious tone, with potential impacts for SPY, RUT, DIA, and VIX expected. Anticipation of May inflation data and next week's FOMC meeting potentially affecting market movements. Exchange-traded funds SPY and QQQ both show slight gains in premarket activity; these should be monitored closely, as they can indicate the day's trading direction.

Consumer Discretionary ETF (XLY) outperforms Consumer Staples ETF (XLP) pre-market, indicating a possible shift towards riskier assets. Indicative of potential strength in the discretionary sector, supporting a bullish sentiment for SPY and RUT.

In contrast, United Natural Foods (UNFI), significantly down after posting lower earnings, could negatively affect the consumer staples sector and the broader market. However, STMicroelectronics (STM) is up on joint venture news, indicating possible positive movements for the technology sector.

With Healthcare ETFs essentially unchanged, and Cogent Biosciences (COGT) down, the healthcare sector could see muted performance. Industrials showing a slight pre-market gain, possibly aiding DIA performance, contingent on market reaction to Sidus Space (SIDU) news.

The financials sector showing gains, implying market optimism towards banks and insurers, benefiting XLF and SPY. Goldman Sachs (GS) was notably up pre-market, hinting at an intense day for the banking subsector. The commodities sector mixed, with gold down while silver and crude oil up; this could see investors shifting towards energy and away from safe havens.

US Dollar's weakening may support multinationals in SPY and DIA due to increased competitiveness overseas. The slightly increased chance of a Fed rate hike could increase market volatility and increase VIX.

Due to the impending Fed decision, investor caution visible in the market could limit significant upward movements and increase the chance of the VIX spiking on any unexpected news. Finally, increased oil prices indicate higher inflationary pressures, and if May inflation data is higher than expected, expect a downturn in equities, and a potential spike in VIX.

Events

Analysis of MBA Mortgage Applications

The week ending June 2, 2023, the Mortgage Bankers' Association reported decreased mortgage application activity. The composite index fell by 1.4%, continuing a downward trend observed over the last four weeks, where it has decreased by 14.5%, and year-on-year, the index is down 32.5%. The decline reflects the impact of the higher interest rate environment, with the 30-year fixed rate at 6.81%, the second-highest rate of 2023.

The purchase index, indicating applications for home purchases, decreased by 1.7% week-over-week; significantly, it's down 12.7% from four weeks ago and 27.1% lower than a year ago. Similarly, the refinance index, reflecting refinancing activity, declined by 0.7% from the previous week, down 19.2% from four weeks ago, and dropped a significant 42.3% year-on-year.

The indexes for both fixed and adjustable-rate mortgages showed decreases. The fixed-rate mortgages index is down by 1.3% week-on-week, 14.5% from four weeks earlier, and 31.4% from a year ago. The adjustable-rate mortgage index shows a decrease of 1.6% from last week, 15.0% from four weeks earlier, and a substantial decrease of 44.1% from last year.

Despite the observed decrease in mortgage rates, the overall demand for home purchases continues to be constrained due to limited inventory in the housing market, reducing the purchasing power of potential homebuyers. This scenario highlights the current challenges in the U.S. housing market amidst the rising interest rate environment.

Analysis of the International Trade in Goods and Services

In April 2023, the U.S. trade deficit widened to $74.6 billion, exceeding the previous month's revised deficit of $60.6 billion and surpassing expectations of a $76.0 billion deficit. The data suggests a deepening trade imbalance, as indicated by an advanced report which showed a substantial $12.1 billion increase in the goods deficit.

The monthly International Trade in Goods and Services report provides a comprehensive view of the cross-border trade activity, detailing merchandise and services trade by export, import, and trade balance. It's a crucial indicator of economic performance and global demand for U.S. goods and services.

The significant widening of the trade deficit implies that imports significantly outpaced exports for the month, possibly due to various factors such as domestic economic conditions, the strength of the dollar, and global economic circumstances. This data has implications for GDP calculations and can influence policy decisions related to trade.