Farmers & Merchants Bank

Unlike the equity markets, the bond market did not produce a positive return for the week as it generated a total return of -0.4%. The negative return was attributable to the increase in interest rates that occurred over the period as the yield on the 10-year U.S. Treasury moved from 4.10% to 4.18%.

The economic calendar was relatively light this week but was not without significance. Housing-related data was one of the prominent areas represented in this week’s data, with housing starts and building permits both producing better-than-expected results. Housing starts actually declined month-over-month, but the decrease was less than forecast and the seasonally adjusted annualized rate for the metric was higher. On the negative side, existing home sales were slightly behind the results anticipated by economists.

While the housing data was somewhat mixed, the consumer continued to show strength as the University of Michigan Consumer Sentiment Index registered a much stronger-than-expected preliminary reading of 78.8. This compares to the forecast of 69.5 and a prior reading of 69.7. The index is now at its highest level since July 2021 and the two-month move is the largest since 1991. Increased confidence that inflation is moderating was a driver of the strong reading, as well as recent gains in the stock market.

Other significant economic data points for the week were the preliminary readings for the Markit PMI series. All three metrics (composite, manufacturing, and services) had readings over the 50.0 threshold, which suggests economic growth. Most significant was the result for the manufacturing sector, which was forecast to deliver a reading of 47.8 but delivered a meaningfully stronger result of 50.3.