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Durable Goods Healthy; Pre-Markets Up

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Monday, June 27, 2022

We begin a new trading week with pre-market futures up again, following the first week in the green so far in the month of June 2022. It’s been a welcome respite: after weeks upon weeks of inflation and recession fears, over the past five trading days we see an unmistakable sign of more hopefulness among market participants.

Some of this will be contingent on new economic reads, which pick up the pace this week and next. These will dovetail nicely (on not-so-nicely, depending) into the heart of Q2 earnings season, which will eventually lead us to the next Fed meeting. We’re talking about a month out from where we are right now, but the question is worth asking: will the Fed raise rate another 75 basis points (bps), bringing the Fed funds rate to 2.25% from 0% in early March?

We’ll start by looking at Durable Goods Orders for May, which are out this morning: the headline figure of +0.7% is more than triple the +0.2% analysts were expecting, and also up from a slightly downwardly revised +0.4% for April. This is the highest monthly read since January, which was more than twice as high at +1.5%.

Stripping out transportation costs (meaning the high prices of things like airplanes can often skew monthly totals), we remain at +0.7%, which is a good sign for our overall economic appetite. This comes off a downwardly revised +0.4% the previous month. And Core Cap Non-Defense, Non-Aircraft orders — a proxy for “normal” business investment — reached +0.5%, up from the downwardly revised +0.3% for April.

So far, so good: investment into new durable goods gives us some evidence of demand, and (hopefully) not a glut of inventory. We’re still looking at data over a month in arrears here, so we’re not seeing any direct corollary with the jacked up Fed funds rate this month (75 bps). But with any luck — something the Fed has found in short supply this year — we may be seeing the rolling off of inflation strain in economic metrics already. Fingers crossed.

After today’s open, we’ll get a look at Pending Home Sales for May, with expectations for -4.0% following April’s -3.9%. This represents a clear downtrend in home sales during the spring of this year, and some of this may indeed be the result of the Fed hiking interest rates — or the threat of it, which may have pulled some home-buying activity into the first quarter of the year.

We’re not seeing immense growth in this early trading session, but anything in the green is acceptable: the Dow is +40 points at this hour, the Nasdaq is +25 and the S&P 500 is +7.5 points. Summer months also usually carry lighter overall trading volume, so perhaps this will continue to help cool the harsh volatility we’ve seen in the markets over the past several weeks.

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