September PMIs Beat Hard
The September flash S&P Global PMIs came in far above expectations. Services hit 58.7 versus 55.8 expected. Manufacturing hit 57.0 versus 53.6 expected. The flash composite PMI reached 58.4 versus 56.0 expected - the fastest pace of growth month-over-month since July 2021.
Manufacturing output rose to 56.7 from 53.1. Most of that demand is domestic; exports stay weak. Both manufacturing readings are the strongest since 2022. The services PMI marked a 59-month record. The rate of change and the raw numbers point back to 2021 and 2022 levels.
Why the Concern
Input prices keep rising. Backlogs and capacity constraints are building, which raises fear that companies will pass higher input costs on by raising their own prices. Firms are noting supply-chain bottlenecks. Input costs surged at the fastest pace in four years.
This is why the 10-year Treasury yield moved higher and quickly to the upside. S&P Global PMIs are second-tier data, yet this morning they carried outsized weight. More volume traded on the 10-year futures contract on the initial reaction to this data than on the Fed meeting and Warsh's comments - a sign of how seriously the market took it. The move shows the economy's resilience alongside the steepest input-cost jump in four years.
Europe told a similar story the prior night, with PMIs at a 41-month high.
Oil and the 10-Year
Oil and the 10-year yield are correlated right now, and traders appear to be shifting back to macro drivers. Several factors lifted oil:
- A tanker was hit in the Strait of Hormuz, a strike timed with the UN meeting, pushing energy prices up.
- Prices got close to key support where several moving averages sit, so buyers stepped in.
- The API report the prior evening showed a small build. The EIA number was due in about 24 minutes to confirm or not.
- The market is weighing whether the White House will ban diesel exports.
WTI was up about 1.25% to 1.5%, but diesel fell 2.4%. The energy market takes a possible export ban seriously - it would lower US domestic prices for a short time but could disrupt global energy markets.
Housing and Mortgages
Mortgage rates jumped last week to 7.12% from 6.97%, the highest for the 30-year since 2024. Mortgage applications fell about 1.5% week-over-week. More borrowers who want to buy are turning to adjustable rate mortgages (ARMs), which offer a lower rate than 30-year fixed loans. ARMs were popular before 2008 and tied to that bust. Refinancing demand fell 3% week-over-week.
The housing market shows continued slack, and consumer weakness persists. Some institutional buyers are stepping in: Berkshire Hathaway (BRK.A/BRK.B) reportedly increased its stake in D.R. Horton (DHI), reported Monday. KB Home (KBH) reported the prior night. High mortgage rates keep weighing on affordability.
