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By Greg Warner, CTP
Co-Head of Investment Management
HilltopSecurities Asset Management
The conflict with Iran is stretching into its third month with no end in sight. Critically, the Strait of Hormuz remains effectively closed with barely a trickle of vessels passing through each day. Based on data compiled by Bloomberg, over the ninety days before hostilities began, daily ship traffic through the Strait averaged 108 vessels. Over the past seven days through May 4, a total of 36 ships have passed through, a dismal 5 per day average. Until something gives, this impasse will continue to cloud the economic outlook.
Many of the traditionally important economic releases are being overshadowed by the conflict as data is either ignored or viewed through an inflationary lens. Today brought several releases that might normally move markets, but like the U.S. / Iran impasse, the economy seems to be at a stalemate, too. New home sales rose a larger than expected 8.9% in March to a 682k unit annual rate, but that merely brings sales back in line with the 680k pace that has prevailed for the past two years.
The ISM Services Index fell from 54.0 to 53.6, a tenth below forecasts. The new orders component tumbled from 60.5 to 53.5, though that still represents expansion. The prices paid component was unchanged at an elevated 70.7 but at least it didn’t surge higher. Employment rose from 45.2 to 48.0, remaining in contraction. The ISM Manufacturing survey, released last Friday, showed similar results with the headline index holding steady at 52.7 while employment slid from 48.7 to 46.4. The manufacturing sector showed a much bigger surge in the prices paid index, which jumped from 78.3 to 84.6, the highest since the covid pandemic in 2022.
The March Job Openings and Labor Turnover Survey (JOLTS) showed job openings down slightly from 6.92 million to 6.87 million, leaving openings essentially flat compared to the year ago level and suggesting some stabilization after nearly three years of declines. Other details within the report revealed little and left intact the view that labor demand has softened.
There was some interesting news buried in the Census Bureau’s Trade Balance report. The trade deficit for March came in at $60.3 billion but what caught our attention was the big surge in exports of crude oil and petroleum products, an obvious result of the Iran conflict, as well as a 97% surge in imports from Taiwan as capital spending on AI drives imports of computer chips and high-tech equipment.
None of this data has mattered for bond markets. With economic growth supported by resilient consumers and massive AI related capital spending, inflation flames fanned by higher energy costs, and the Fed sidelined, markets have given up hope for rate cuts this year. That leaves bond yields much more sensitive to Iran-related news than economic data. Despite some volatility, the two-year Treasury yield has settled into a comfortable range just above 3.90%, while the ten-year hovers near 4.40%. Meanwhile, stocks are once again flirting with record highs.
About Scott McIntyre, CFA
As HilltopSecurities Asset Management’s Co-Head of Investment Management, Scott McIntyre specializes in investment management services and is responsible for the management, oversight and trade supervision of more than $30 billion in institutional fixed income assets for HilltopSecurities’ public sector municipal clients. Scott also provides investment advice and consulting, reviews local government investment policies, formulates overall investment strategies, evaluates account performance and oversees the day-to-day operations. He is a member of the Chartered Financial Analyst (CFA) Institute and a CFA Charterholder, a two-term advisor to the GFOA Treasury and Investment Management (TIM) committee, a Registered Investment Advisor, and holds FINRA Series 7, 24, 63, and 65 licenses.
About Greg Warner, CTP
As HilltopSecurities Asset Management’s Co-Head of Investment Management, Greg Warner specializes in investment management services and is responsible for the management and oversight of more than $30 billion in institutional fixed income assets for HilltopSecurities’ public sector municipal clients. Greg coordinates all client services and portfolio management duties, including security evaluation and portfolio analysis, trading, investment reporting, board presentations, and monitoring of broker-dealer relationships. He is an advisory committee member to the Texas Association of Counties, a member of the Government Treasurers’ Organization of Texas (GTOT), a Registered Investment Advisor, a Certified Treasury Professional (CTP) and holds FINRA Series 7, 63, and 65 licenses.
About Matt Harris, CFA
As HilltopSecurities Asset Management’s Senior Portfolio Advisor, Matt Harris specializes in investment management services for public sector municipal clients. He developed his experience in the banking industry, supporting balance sheet management, interest rate risk analysis, liquidity planning, and investment strategy implementation. At HilltopSecurities, he works closely with clients to develop and implement customized investment strategies, oversees account documentation and reporting, and assists clients with the public funds depository review process, including competitive RFP evaluations. Harris is a member of the CFA Institute and a CFA Charterholder, a Registered Investment Advisor, and holds FINRA Series 7, 63, and 66 licenses.
The paper/commentary was prepared by HilltopSecurities (HTS). It is intended for informational purposes only and does not constitute legal or investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product. Information provided in this paper was obtained from sources that are believed to be reliable; however, it is not guaranteed to be correct, complete, or current, and is not intended to imply or establish standards of care applicable to any attorney or advisor in any particular circumstances. The statements within constitute the views of HTS as of the date of the document and may differ from the views of other divisions/departments of Hilltop Securities Inc. and its affiliates. In addition, the views are subject to change without notice. This paper represents historical information only and is not an indication of future performance. This material has not been prepared in accordance with the guidelines or requirements to promote investment research, it is not a research report and is not intended as such. Sources available upon request.
Hilltop Securities Inc. is a registered broker-dealer, registered investment adviser and municipal advisor firm that does not provide tax or legal advice. HTS is a wholly owned subsidiary of Hilltop Holdings, Inc. (NYSE: HTH) located at 717 N. Harwood St., Suite 3400, Dallas, Texas 75201, (214) 859-1800, 833-4HILLTOP.