KG on Crude & Deisel's Price Action, Consumer Sentiment Dip & Durable Goods Orders

Sam (0:00)

So, let's get out to Kevin Green, who joins me now, because we do have Umish hitting the wire with consumer sentiment. We obviously want to know how people are feeling about these higher prices when it comes to the pump, and particularly when it comes to diesel, what that could mean for pass-through for the consumer. Kevin, what are you seeing there?

Kevin Green (0:18)

Good morning, Sam. We are actually seeing a pullback in the markets after this report came out, and we did see better than expected numbers when it came to consumer expectations, as well as consumer sentiment. So let's go through the data. Michigan consumer sentiment for the month of September came in at 48.1, street was looking for 47.8, the previous number is 51.7. So we did see a slight uptake compared to the street's expectations, but it is still a deceleration on a month over month basis. Current conditions that came in at 50.9, exactly like the street expected at 50.9, and consumer expectations coming in at 46.3, Street was looking for 45.8, previous number is 51.5. So better than the expectations, but you're still seeing, obviously, sentiment still moving to the downside here. The one year inflation expectation stayed at, or actually went to 4.6%, previously was sitting at 4%.

So the consumer believes that inflation is going higher, but once again, better than the street's expectations when you're looking at the consumer expectations as well as consumer sentiment, you are seeing the market actually pull back. The S&P 500 is now pretty much flat on the session. And if you're looking at the cash index for the 10-year treasury bond, it has now crossed over 5.2%.

So we are seeing some movement there around four basis points, about four basis points to the upside today. So not really the numbers that you really wanted to see, kind of the similar reaction that we saw with the S&P Global PMI numbers that we got the other day as well.

Sam (1:50)

Yeah, absolutely, which revealed to us that obviously with the higher input costs, there could be some pass-through in the next couple of months, particularly when it comes to some upward pressure on inflation. And this was the lowest reading in four months. We're down 15% since January this year on consumer sentiment out from Umich. So something to keep an eye on, that obviously caps off a week in which we have seen some relatively strong data, it seems, which has been good news, but also bad news as it's been revealed here. What are we seeing as far as the latest updates on the third-quarter GDP now estimate?

Kevin Green (2:28)

I haven't had that come by the wire, across the wire here as of yet, so I'm still refreshing. But the last print that I do see is 5.1% for Q3. So it's coming in relatively hot here. And that's really the dynamic that the Fed is really challenged with. You have higher input prices, especially on the energy front, but you are still seeing some resiliency when it comes to the broader economic conditions here in the United States, especially when you're looking at orders. You have seen a little bit of an uptick, especially with that S&P Global PMI data, both for services and manufacturing. Orders actually picking up, but they're picking up domestically and you are seeing demand overseas still waning here a little bit. They're also seeing a little bit of a backlog when it comes to their production processes on the manufacturing front. That could also push prices a little bit higher. So once again, coming in a little bit hot when it comes to the GDP number and the expectations here, and it just makes it a little bit harder for the Fed to really stay at these current levels when it comes to interest rate policy. But on the back of that, we do see any type of deal between the US and Iran, and Middle East conflict starts to abate here a little bit and brings prices down. That could also change the trajectory of the Fed's rate hiking cycle over the next couple of months.

Sam (3:38)

Okay. So we're waiting for that next update, which is due to drop today. I thought it was just my screen that wasn't refreshing here today at KG. It wouldn't be the first weird thing that's happened to the New York Stock Exchange this morning, but let's talk about durable goods because we do have those. We've got the preliminary August read. What do we see?

Kevin Green (3:55)

Yeah. So a very volatile number of durable goods headline a month over month actually was flat. Street was looking for a drop of 0.3%.