Tuesday's Markets Update (May 23, 2023)
On Tuesday, there was a surprising jump in both the Services PMI and new home sales, catching traders off guard and resulting in a slight downturn for NASDAQ (: 12,652, c: 12,560) and BTC (o: 27,284, c: 27,181).
Unexpectedly, there was a 4.1 percent surge in new home sales in April, reaching a total of 683K units. This marked the highest level since March 2022, surpassing the forecasted figure of 665K. Notably, sales experienced a significant rise of 17.8 percent in the South, with 443K units sold. Similarly, in the Midwest, there was an 11.8 percent increase, totaling 76K units. Conversely, the Northeast witnessed a substantial decline of 58.6 percent, with sales plummeting to 24K units. Likewise, the West region saw a 9.1 percent decrease, with sales amounting to 140K units.
The median price of newly sold houses stood at $420,800, while the average sales price was $501,000. These figures are in comparison to $458,200 and $562,400 respectively, recorded a year earlier.
Yet another surprise came from the S&P Manufacturing PMI, which declined to 48.5 in May (previously: 50.2, forecast: 50), while the Service PMI, in contrast, increased to 55.1 (previously: 53.6, forecast: 52.6). Both indexes exceeded market expectations significantly. However, optimism regarding future output in the next 12 months reached its highest level in a year for both the services and manufacturing sectors. One possible explanation is that clients have been building up their inventories in recent months, leading to a decrease in deliveries and forcing manufacturers to adjust their plans. Additionally, there has been a notable decrease in input prices, the first occurrence since May 2020, accompanied by improved supplier delivery times.
On the service side, new orders rose at the fastest rate since April 2022. Additionally, the rate of job creation reached its highest point in ten months. In terms of pricing, both input prices and output charges saw an increase. These signals may raise concerns for optimists who were hoping for the Federal Reserve (FED) to ease rates. Jerome, perceiving this as an indication of a persistently overheated job market, might continue to pursue his policies aimed at reducing demand.
Other Markets Update:
Japan: The Reuters Tankan sentiment index for manufacturers in Japan soared from -3 in April to +6 in May, marking the first positive reading this year. This indicates a recovery from the enclosure-induced slowdown. The survey revealed that more firms now consider business conditions as good. Manufacturers' mood is expected to improve further in the next three months, while the service sector experienced a minor decline. The automobile and oil refinery industries showed optimism as supply disruptions eased. However, global headwinds and elevated inflation continue to hinder consumption and dampen sentiment.