Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050330c.jpg" width="353">
The Mortgage Bankers Association reported that mortgage applications recovered 2.4% last week following the 9.4% drop during the prior period. The average level in March 4.8% below February.
Purchase applications rose 5.5% to the highest level of the year. Purchase applications in March are 6.2% higher than in February.
Applications to refinance added 2.0% to the 16.5% decline the prior week. The decline pulled the March average down 16.1% versus February.
The effective interest rate on a conventional 30-year mortgage rose further to 6.34% from 6.19% the prior week and from 5.85% averaged in February. The effective rate on a 15-year mortgage also rose to 5.96%.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">03/25/05</th>
<th scope="col">03/18/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>674.3</td>
<td>658.8</td>
<td>-38.2%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>470.9</td>
<td>446.4</td>
<td>6.1%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,857.2</td>
<td>1,894.2</td>
<td>-61.8%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
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The Mortgage Bankers Association reported that mortgage applications recovered 2.4% last week following the 9.4% drop during the prior period. The average level in March 4.8% below February. Purchase applications rose 5.5% to the [...]

Mortgage Applications Up A Bit

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Retail gasoline prices for all grades declined to $3.73 per gallon (+2.3 y/y) in the week ended May 13 from $3.77 in the prior week. It was the lowest price in five weeks and compare to a low of $3.18 in the middle of January. The recent high stands at $4.00 per gallon in the third week of September, and the all-time high was $5.11 in the week ended June 13, 2022. Retail prices for on-highway diesel fuel slipped to an average $3.85 per gallon (-1.3% y/y) last week from $3.89 in the prior week. A recent low of $3.77 per gallon occurred in the week ended July 3, 2023.

The average price of West Texas Intermediate crude oil declined to $79.32 per barrel (+10.1% y/y) in the week ended May 7 from an average $81.07 in the prior week. It remained well above its low of $69.37 per barrel in the week of June 30, 2023. The price remained below a high of $91.45 in the week of September 29, 2023. The all-time high was seen in the week of July 4, 2008 at $142.46 per barrel. Yesterday, the price of West Texas Intermediate crude oil was $79.12 per barrel. The price of European Brent crude oil declined to $83.36 per barrel (+9.9% y/y) in the week ended May 10 compared to $84.82 in the prior week. The price of Brent has recently ranged from a low of $73.55 in the week ended June 30, 2023 to a high of $127.40 in the week ended June 10, 2022. Yesterday, the price was $83.06 per barrel.

Natural gas prices strengthened to an average of $2.00/mmbtu (-4.8% y/y) in the week ended May 10 from $1.64/mmbtu in the prior week. These compare to a high of $3.20 averaged in the week of October 13, 2023. Yesterday, the natural gas price was $2.11/mmbtu.

Gasoline demand fell 4.0% y/y in the four weeks ended May 3 after declining 3.6% y/y in the four weeks ended April 26. Demand for all petroleum products was little changed y/y for the second consecutive four-week period. Crude oil input to refineries rose 0.3% y/y in the four weeks ended May 3, the same as during the previous four week period.

Gasoline inventories rose 3.8% y/y in the week of May 3 after rising 1.9% y/y in the prior week. Inventories of residual fuel oil fell 14.8% y/y in the week of May 3 after declining 9.8% y/y in the previous week. Crude oil inventories, including the Strategic Petroleum Reserve, improved 0.3% y/y in the week of May 3, the same as in the prior week.

Measured in days’ supply, gasoline inventories eased w/w to 26.4 days in the week of May 3. The recent low was 23.4 days in the week of June 30, 2023. Crude oil inventories fell to 29.0 days of supply in the week of May 3 from 29.2 days in the prior week. These compare to a recent high of 31.9 days in the week of March 3, 2023 and a low of 25.0 days in the week of September 1, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** & **USENERGY** database.

- Gasoline prices fall for third straight week.
- Crude oil costs decline sharply.
- Natural gas prices strengthen.

U.S. Gasoline & Crude Oil Prices Decline in Latest Week

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The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) fell 0.9% (+3.3% y/y) during the four weeks ended May 10, 2024, after rising during April. The index remained 20.1% below the cycle peak in the second week of March 2022. During most of that period of time, U.S. factory output has been little changed.

Prices in the miscellaneous group fell 3.5% during the last four weeks and weakened 0.5% y/y. Plywood prices fell 7.8% in four weeks, rising 2.3% y/y. The cost of natural rubber fell 10.3% in four weeks but rose by roughly one-quarter y/y.

Prices in the crude oil & benzene group were off 2.7% (+7.7% y/y) in the last four weeks. The cost of West Texas Intermediate crude oil fell 8.5% in four weeks to $78.64 per barrel, up 9.3% y/y. Prices hit a low of $70.42 in the third week of December. The cost of the petro-chemical benzene, used for making plastics & synthetic fibers, increased 3.0% (+23.3% y/y) in four weeks. Excluding crude oil, the industrial commodity price index eased 0.5% (+2.9% y/y) in the latest four-week period.

Textile group prices declined 1.7% (-1.0% y/y) in the latest four weeks but had been rising since their low in the second week of November. Cotton prices weakened 10.6% (-10.5% y/y) in the last four weeks, falling to the lowest level since December 2020. The cost of burlap posted a 0.7% (7.8% y/y) four-week increase.

Offsetting these declines, metals group prices increased 4.0% (9.7% y/y) over the most recent four weeks. Zinc prices rose 8.0% (10.1% y/y) while tin prices improved 5.2% in four weeks, strengthening 22.2% y/y. Copper scrap prices increased 5.1% (15.1% y/y) in the last four weeks and aluminum prices improved 3.9%, rising 9.7% y/y. Lead prices increased 2.6% (2.4% y/y) in four weeks but the cost of steel scrap eased 0.5% (+1.5% y/y).

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

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- Lumber costs continue to weaken.
- Crude oil prices fall and reverse earlier gains.
- Cotton prices exhibit notable decline.
- Most metals prices strengthen.

FIBER: Industrial Commodity Prices Decline in Latest Four Weeks

Tian Yong Woon

In this week's letter, we examine monetary developments in Asia. In particular, we take stock of the latest decisions by central banks in the region and delve into the possible motivations behind them. We find that while the Fed's policy trajectory remains a key policy focus, their recent actions have also been driven by domestic factors. Furthermore, we also find their policy priorities to be wide-ranging, with some aiming for currency stability, while inflation remains the focal point for others.

In Japan, recent bouts of yen appreciation have fueled speculation about potential currency intervention by the authorities. Also, the Bank of Japan’s latest summary of opinions indicates an unexpected shift from some members towards a more hawkish stance. In South Korea, persistently high inflation and potential improvements to Q2 GDP growth serve as reasons for the central bank to keep rates higher for longer. In Indonesia, the central bank’s recent surprise rate hike has drawn attention to its focus on currency stability and its broad range of policy tools. In Thailand, the central bank remains committed to maintaining its policy rates, despite ongoing governmental pressure for looser policy. Finally, in Malaysia, we acknowledge the central bank's consistent approach to policy rates and explore recent developments concerning the ringgit.

**Japan**
The yen experienced sudden bouts of appreciation in early May, with the USD/JPY exchange rate having fallen by about 3% through May 2-3 (Chart 1). The moves spurred speculation that Japanese authorities had stepped in to support the yen following its prolonged spell of weakening this year. To infer possible episodes of currency market intervention, some market participants have turned to analyzing the Bank of Japan’s (BoJ) daily current account data for clues. Specifically, market participants looked at the BoJ’s daily net receipt of funds and contrasted them with broker-estimated figures to estimate possible currency intervention activity. Regardless, and despite its sporadic moves, the yen seems to have resumed its previous trend toward weakening. This has been fueled in part by the still-wide yield differentials between Japan and other major economies. 

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Homing in on the prospective path of BoJ policy, we saw some hawkish indications from the central bank’s April Summary of Opinions released last week. For one, members flagged the possibility of a higher future policy interest rate than currently factored in by the market. There was also some discussion on having moderate interest rate hikes as an option to contain shocks from rapid policy changes. Additionally, members noted that the BoJ’s pace for monetary normalization may increase, should inflation come in higher than expected. Relatedly, the report also highlighted a possible resurgence in price pressures owing to increased crude oil prices, wage hikes, and yen depreciation. We have not yet seen, however, a conclusive inflation re-acceleration just yet in Japan, as shown in Chart 2. Furthermore, and if Tokyo inflation prints are of any indication of nationwide readings, it may be that price pressures in Japan cool in April instead.

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**South Korea**
While Japan veers towards more tightening, albeit gradually, the prospective path of monetary policy in South Korea is quite different. Markets are re-evaluating the expected timing of Bank of Korea (BoK) rate cuts after Governor Rhee’s recent remarks that the “situation has changed since April”. Apart from Fed-related considerations, the BoK faces two-pronged justifications to hold off monetary easing for now. Firstly, South Korea’s CPI inflation, whilst moderating, remains some way above the BoK’s 2% target, having come in at 2.9% in April. Secondly, South Korea’s economic growth is arguably healthy, with GDP growth having exceeded consensus estimates to firm to 3.4% y/y in Q1. More recent indications, including South Korea’s double-digit y/y export growth in April, suggest possible lifts to growth in the current quarter as well.

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**Indonesia**
Moving to Indonesia, Southeast Asia’s largest and most populous economy, its central bank’s surprise 25 bps rate hike in late April stands out as a notable recent development. Unlike many of its Asian peers, that prioritise inflation targeting, Indonesia’s central bank (BI) is legally mandated to protect the stability of its domestic currency. It was for such purposes, among others, that BI decided to raise rates in April. Apart from interest rate-related measures, BI also adopts a “triple intervention” approach in the currency (FX) markets to stabilize the rupiah during bouts of volatility. Specifically, BI achieves this by trading in the spot FX market, the domestic non-deliverable forward (DNDF) market, and the secondary local currency-denominated government bond market. Looking at recent moves, we have seen some interim recovery and stabilization of the rupiah, especially against the dollar (Chart 4). With that said, some of the rupiah’s recovery against the dollar may have been driven by US-side moves, following recent communications from the Fed. Looking ahead, BI Governor Warjiyo has indicated that further BI rate hikes are not needed. 

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**Thailand**
Thailand’s central bank (BoT) kept its policy rate unchanged at 2.5% for the third straight meeting in April. The choice to hold policy rates was not unanimous, with two of seven committee members having voted for a 25 bps cut instead. Voices calling for rate cuts extend beyond the Monetary Policy Committee, with Thailand’s Prime Minister urging for easier monetary policy for several months now. Also, Thailand’s new Finance Minister has added to the pressures, having recently called for monetary and fiscal policies to move in “the same direction”. The BoT has so far resisted the government’s pressures, citing monetary policy’s limited effectiveness at solving structural problems in the Thai economy. Furthermore, while Thailand’s inflation remains low, it has been picking up, finally turning positive in April following six prior months of price declines (Chart 5). Also, the re-emergence of outbound travel from China, traditionally one of Thailand’s major tourism revenue sources, points to a possible pickup in external-driven demand ahead.

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**Malaysia**
We shift last to monetary policy developments in Malaysia. The central bank (BNM) expectedly left its policy rate unchanged at 3% last Thursday, citing that its stance “remains supportive” of the Malaysian economy. Looking ahead, many analysts continue to expect BNM to keep its policy rate unchanged over the medium-term, partly due to a stable inflation outlook. Relatedly, the government’s recent service tax (ST) hikes appear to have had limited effects on prices thus far. This is understandable since ST hikes predominantly apply to non-essential services. There remains some concern, however, regarding the stability of the ringgit, which has weakened to just shy of 4.8 per dollar this year. BNM has assessed that the currency currently “does not reflect” the economic fundamentals and growth prospects of Malaysia. Instead, the ringgit’s heightened volatility is attributed to external drivers, such as the monetary policy paths of major economies.

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Asia

Economic Letter From Asia: Beyond the Fed

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For the first seven months of FY 2024, the U.S. Treasury Department reported a U.S. government budget deficit of $855.2 billion compared to a $924.9 billion deficit in the first seven months of FY 2023. For April alone, the budget surplus of $209.5 billion compared to a $176.2 billion surplus twelve months earlier. The Action Economics Forecast Survey expected a $270 billion surplus for April.

Overall revenues have increased 10.3% y/y as individual income tax receipts rose 11.4% y/y so far in FY’24. The level of corporate tax receipts rose by roughly one-quarter versus the first seven months of FY’23. Social insurance revenues have risen an improved 6.6% y/y and excise taxes have increased 14.0% y/y so far in FY’24. Customs duties fell 7.4% y/y, continuing the decline since late-2022.

Federal government outlays have increased 5.8% y/y so far in FY’24. Defense spending rose 7.0% so far this fiscal year, about equal to the gain in the first seven months of FY’24. Medicare payments increased 9.1% y/y while Social Security outlays rose 8.7% y/y after rising 10.5% in the first seven months of FY’23. Interest payments strengthened 41.4% y/y so far in FY’24, about as they did last year. Health program spending have edged 0.8% higher this year, while income security outlays fell 16.3% this fiscal year as they did in the first seven months of FY’23.

Haver's data on Federal Government receipts & outlays are contained in **USECON**. The expectations figure is in the **AS1REPNA** database.

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- Personal income tax receipts surge.
- Corporate tax payments strengthen.
- Outlay growth moderates with fewer income security payments.

Mortgage Applications Up A Bit

Summary

Tom Moeller

More Economy in Brief

U.S. Gasoline & Crude Oil Prices Decline in Latest Week

FIBER: Industrial Commodity Prices Decline in Latest Four Weeks

Economic Letter From Asia: Beyond the Fed

U.S. Government Budget Deficit Shrinks So Far in FY 2024

MBA Mortgage Applications (3/16/90=100)	03/25/05	03/18/05	Y/Y	2004	2003	2002
Total Market Index	674.3	658.8	-38.2%	735.1	1,067.9	799.7
Purchase	470.9	446.4	6.1%	454.5	395.1	354.7
Refinancing	1,857.2	1,894.2	-61.8%	2,366.8	4,981.8	3,388.0