6/10/2015
By Jennifer Coombs

The Census Bureau released its quarterly survey on revenues in the information and technology-related service industries, and noted that information revenues rose by 0.4% in the first quarter of 2015 over the prior quarter; however, on a year-over-year basis information revenue rose by 3.0% for Q1-2015. The slowdown in revenues for Q1 is not surprising since the initial gross domestic product (GDP) readings show that there was a tangible slowdown in the US economy during that time. 

It looks like the positive homebuilding data is finally being reflected in the number of families finally making the move to buy homes. Calendar-related factors linked to the Memorial Day holiday weekend led to large gains in mortgage applications, as the Mortgage Bankers’ Association (MBA) composite index jumped by 8.4% in the week of June 5^th after applications declined by 7.6% in the prior week. The purchase index jumped by a sizable 10.0% after the 3.0% drop in the prior week, while the refinance index climbed 7.0% after a big 12.0% decline in the prior period. The calendar factors outweighed the big jump in rates, as the average interest rate on a 30-year loan for conforming balances (i.e. $417,000 or less) jumped by a whopping 15 basis points to 4.17%. While this data certainly looks good in the immediate term, this massive rise in mortgage rates is sure to hold down the application level in the coming weeks.

Additionally, the Energy Information Administration (EIA) gave us a status update on petroleum-based reserves, and the data sent the market even higher. Reflecting an overall dip in imports, oil inventories continued to drop in the week of June 5^th, falling by 6.812 million barrels for a total of 470.6 million barrels in storage. This was an even greater decline than the 1.9-million-barrel draw last week and much higher than consensus’ expectation for a draw of about 1.5 million barrels. Despite various reports of outages across the country, refineries operated at a relatively active 94.6% of capacity for the week. Refineries also increased their production of both gasoline and distillates with gasoline inventories falling by 2.9 million barrels while distillates were up 0.9 million barrels. As such, the consistent plunge in inventories resulted in the price per gallon popping, and subsequently pulled much of the equity market higher as well. The West Texas Intermediate (WTI) price jumped back above the $61-level following the news, although these price levels need to be consistent for some time before it can be considered a recovery. The chart below shows the changes in WTI prices since the start of 2015, and although the price has yet to break above $62 per barrel, prices are hovering around the highs for the year.

Jennifer Coombs
Wall Street Strategies

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