It’s looking more and more like we’re actually going to see a peace accord signed this time. After weeks of banter while the closure of the Strait of Hormuz created strained economic conditions in the U.S. and around the globe, a Memorandum of Understanding (MOU) is slated to be signed by Iran and the U.S. in Switzerland on Friday, two days after the latest G7 summit concludes in nearby Evian, France.
Oil prices have already dropped to three-month lows — $77 per barrel (/bbl) on the domestic WTI side and $79 on the international Brent spot price at this hour, and sinking. The Strait of Hormuz re-opening — it had been shut shortly after the U.S. and Israel began bombing Iran in late February — is a huge deal for the flow of 20% of the world’s daily oil supply, where no tolls, restrictions or blockades will impede tankers from traveling the Strait. Full details will reportedly be released in the next day or two.
We had ought to keep in mind this MOU has a 60-day time period. Details regarding Iran’s development of enriched uranium for developing nuclear weapons will presumably be hashed out during that two-month period, as will cessation of hostilities throughout the region, including, presumably, Israel’s involvement in Lebanon. In short, this is a window — a very hopeful one, but still a limited time period — where much has yet to be agreed upon.
Bond yields, for example, are not winding down the same way spot oil prices have: the 10-year yield, while off the near +4.7% highs of late, remain just under +4.5% — still more than half a point higher than where we were ahead of the war. The 2-year remains above +4.0% currently, while the yield curve has now shrunk to around 40 basis points (bps). The bond market is looking for more proof of peace, it would appear.
Imports & Exports Reflect Rising Inflation During Iran Crisis
This morning’s May prints on Imports and Exports suddenly look out of date. Big jumps month over month are clearly due to inflated oil prices, but also appear to have seeped into the larger economy somewhat. Headline Import Prices month over month came in at +1.9%, down 10 bps from the upwardly revised +2.0% for April (which was the highest read since March of 2022) but +80 bps from consensus. Subtract fuel prices from this metric and we cut it more than in half: +0.8%.
Year over year, we see Imports balloon up to +6.7%, 100 bps ahead of expectations and well ahead of the +4.2% reported a month ago. This is now the highest level of import inflation we’ve seen since August of 2022. On the Export Prices side, +1.3% month over month is +40 bps higher than projected — though thankfully down from the upwardly revised +3.5% in April — while year over year jumped to +11.2%, where we also haven’t been since August four years ago (when prices were rapidly descending).
We can immediately start subtracting from these figures going forward — again, assuming all is well with the MOU and beyond — although we do see some areas where inflation has begun to rise outside strict energy-producing categories. Industrial Supply rose +5.4% last month, while Capital Goods increased +1.3%. Bringing these numbers back down may take a bit longer than what a normal level of oil supply might initially provide.
Housing Starts Fall to 6-Month Lows: 1.18M
Meanwhile, the housing market continues to suffer. A May Housing Starts print of 1.177 million seasonally adjusted, annualized units is not only far off the 1.43 million expected, but the lowest figure since the depths of the Covid crisis back in May of 2020. The prior month was also revised lower: from 1.465 million units initially reported to 1.392 million in today’s revision.
Building Permits — a proxy for future Starts — were also below expectations, but not by nearly the same paltry margin: 1.413 million seasonally adjusted, annualized units is just off the 1.42 million projected. The prior month was downwardly revised from 1.44 million to 1.42 million, although single-family home permits actually increased +0.6%. It was multi-family, which had been carrying the entire Housing industry for the past several months, which fell off, especially in building with five or more units.
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Building Permits Edge Lower in May
It’s looking more and more like we’re actually going to see a peace accord signed this time. After weeks of banter while the closure of the Strait of Hormuz created strained economic conditions in the U.S. and around the globe, a Memorandum of Understanding (MOU) is slated to be signed by Iran and the U.S. in Switzerland on Friday, two days after the latest G7 summit concludes in nearby Evian, France.
Oil prices have already dropped to three-month lows — $77 per barrel (/bbl) on the domestic WTI side and $79 on the international Brent spot price at this hour, and sinking. The Strait of Hormuz re-opening — it had been shut shortly after the U.S. and Israel began bombing Iran in late February — is a huge deal for the flow of 20% of the world’s daily oil supply, where no tolls, restrictions or blockades will impede tankers from traveling the Strait. Full details will reportedly be released in the next day or two.
We had ought to keep in mind this MOU has a 60-day time period. Details regarding Iran’s development of enriched uranium for developing nuclear weapons will presumably be hashed out during that two-month period, as will cessation of hostilities throughout the region, including, presumably, Israel’s involvement in Lebanon. In short, this is a window — a very hopeful one, but still a limited time period — where much has yet to be agreed upon.
Bond yields, for example, are not winding down the same way spot oil prices have: the 10-year yield, while off the near +4.7% highs of late, remain just under +4.5% — still more than half a point higher than where we were ahead of the war. The 2-year remains above +4.0% currently, while the yield curve has now shrunk to around 40 basis points (bps). The bond market is looking for more proof of peace, it would appear.
Imports & Exports Reflect Rising Inflation During Iran Crisis
This morning’s May prints on Imports and Exports suddenly look out of date. Big jumps month over month are clearly due to inflated oil prices, but also appear to have seeped into the larger economy somewhat. Headline Import Prices month over month came in at +1.9%, down 10 bps from the upwardly revised +2.0% for April (which was the highest read since March of 2022) but +80 bps from consensus. Subtract fuel prices from this metric and we cut it more than in half: +0.8%.
Year over year, we see Imports balloon up to +6.7%, 100 bps ahead of expectations and well ahead of the +4.2% reported a month ago. This is now the highest level of import inflation we’ve seen since August of 2022. On the Export Prices side, +1.3% month over month is +40 bps higher than projected — though thankfully down from the upwardly revised +3.5% in April — while year over year jumped to +11.2%, where we also haven’t been since August four years ago (when prices were rapidly descending).
We can immediately start subtracting from these figures going forward — again, assuming all is well with the MOU and beyond — although we do see some areas where inflation has begun to rise outside strict energy-producing categories. Industrial Supply rose +5.4% last month, while Capital Goods increased +1.3%. Bringing these numbers back down may take a bit longer than what a normal level of oil supply might initially provide.
Housing Starts Fall to 6-Month Lows: 1.18M
Meanwhile, the housing market continues to suffer. A May Housing Starts print of 1.177 million seasonally adjusted, annualized units is not only far off the 1.43 million expected, but the lowest figure since the depths of the Covid crisis back in May of 2020. The prior month was also revised lower: from 1.465 million units initially reported to 1.392 million in today’s revision.
Building Permits — a proxy for future Starts — were also below expectations, but not by nearly the same paltry margin: 1.413 million seasonally adjusted, annualized units is just off the 1.42 million projected. The prior month was downwardly revised from 1.44 million to 1.42 million, although single-family home permits actually increased +0.6%. It was multi-family, which had been carrying the entire Housing industry for the past several months, which fell off, especially in building with five or more units.