Indices reflect rate hike concerns, Dollar stronger, Gold holds $2000-mark

Major indices were weaker today on stronger data from the New York manufacturing sector, as the path of rate rises becomes clear for a peak in May. Wall Street’s fear index, the VIX, hit a 12-month low. The dollar was stronger. Gold and oil saw profit-taking.

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Stronger manufacturing sentiment in New York

Sentiment in the New York manufacturing sector rebounded in April, with a big positive number suggesting month-on-month growth after an equally big number suggested contraction in March. However, surveyed businesses saw little improvement in overall conditions in the next six months. The New York Fed’s report is always the first each month for the manufacturing sector, so traders will be watching to see if this sets a better trend for the sector, or if it is an aberration.

May rate peak? Housing market restrained

The market is getting comfortable with Fed policy and the path of future interest rates. Fed Fund futures trading puts 84% odds on another 25-basis point rate hike by the central bank on May 3rd, pushing it to a 5% peak, and then falling back to 4.5% by December. The Fed has indicated that there will be no rate cuts this year, but the now anticipated 50-point pullback is less than the 75-100 points in rate cuts expected by the market earlier this year. Reflecting this rate outlook, the National Association of Home Builders (NAHB) Housing Market Index published today remains at historically low levels, albeit slightly higher for the fourth consecutive month, suggesting that buyers are slowly adjusting to a higher rate environment.

Dollar up, Indices and Bonds down

• The dollar index was up 0.6% at 102.9, reflecting anticipated rate hikes, with major cross rates at £/$1.2355 and €‎/$1.0913
• At the time of writing, the broad S&P 500 index and the tech heavy NASDAQ were off marginally by 0.2% and down by 0.4%, at 4,128 and 12,080 respectively
• Nonetheless, the VIX, Wall Street’s fear index, edged lower to 17.3, a 12-month low
• Yields on 2- and 10-year Treasuries moved up to 4.19% and 3.59%, respectively

Gold at 5-year high, Oil sees profit taking

• Gold’s price was 0.6% lower at $2,002 per ounce
• Crude oil was 2.1% lower at $80.8
• Grain and oilseed prices pushed higher, led by soybeans

New York Manufacturing sentiment bounces back

• The Empire State manufacturing index, conducted by the Federal Reserve Bank of New York, rose to 10.8 this month, above analyst expectations of -18.3, and up dramatically from a -24.6 in March
• New orders and shipments the New York Fed district surged, delivery times held steady, and inventories moved higher
• Employment and hours worked declined for the third consecutive month
• Input price increases moderated, while selling prices continued higher at the previous month’s pace

Firmer housing market

• The NAHB Housing Market Index firmed to 45, up from 44 last month, but well below the 77 posted in April of last year
• The single-family sales index firmed to 51 in April, up from 49 in March, and down from 86 a year ago
• The six-month outlook for single-family home prices firmed to 50 in April, up from 47 the previous month, and down from 73 the previous year

Taiwan war a risk factor for commodities

• The greatest risk to the commodity markets near-term is an “accidental” Taiwan war, with plentiful military equipment at hand
• Tensions remain high in the Taiwan Strait, as China built a blockade around the island and staged military drills that mocked precision strikes on key targets
• China continues to conduct military activities around Taiwan, on a reduced scale, with 18 Chinese military aircraft and four naval vessels spotted operating around Taiwan in the latest 24-hours
• US warship USS Milius sailed through the Taiwan Strait on Sunday, also sending a message

Analysis by Arlan Suderman, Chief Commodities Economist

Contact: Arlan.Suderman@StoneX.com