Market Observations - Oct 26
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Econ Brief 10/25:?Yesterday, the Bank of Canada held its key overnight rate steady at 5.0% for the second consecutive meeting. With inflation still elevated at a current rate of 3.8%, officials now expect inflation to average 3% in 2024, up from a 2.5% projection in July. At the same time, the economy is slowing markedly, with the latest Q2 GDP report showing a decline of 0.2% and projections for Q3 subdued at 0.5%.
U.S. new home sales jumped 12.3% in September from 676k to 759k, the most since February of last year. According to the median forecast, new home sales were expected to rise just 0.7%. Over the past 12 months, sales rose 33.9%, up from the 6.0% gain the month prior. Due to a rise in sales, the months’ supply of new homes fell from 7.7 months to 6.9 months, the lowest since February 2022. From a price standpoint, the median cost of a newly constructed home fell 3.3% from the month prior to $419k. Year-over-year, new home prices decreased 12.3% in September, following a 1.6% decline in August.
Bottom Line:?Minimal existing home inventories, coupled with higher borrowing rates and a significant lock-in effect, have resulted in a sizable slowdown in transactions. Higher prices, however, have prompted some developers to increase new buildings and inventory, which has helped to alleviate some of the growing imbalance between housing demand and supply.
U.S. Wednesday market Wrap: And down we go!
A bit of a shift in risk-reward/sentiment today as solid to very solid prints in TMT are barely up. (MSFT +3%, VRT-4%, V +1%, TMUS flattish) and mixed to weaker prints are down a fair bit with the market showing some signs of struggling to price in bad news at the moment (or even just ‘ok’ news) – think GOOGL -9.7% yesterday (2nd worst day in >15 years) ... ADP -9% yesterday(3rd worst day in 20+ yrs.) ... TRU -28% last 2-days (worst stretch ever).?
The S&P closed below the 4200 level that was being widely watched by chart analysts. It was the first time below 4200 since May. On the day the S&P lost 1.4%, the Nasdaq tumbled 2.4% for its worst day since February 14th. The Dow fell 105 points or just 0.3%. Only two S&P sectors closed green. Utilities +0.56% led, and communication services -4.33% lagged.
And now for some good news! The economy is still looking good, and even the U.S. House of Representatives has a speaker (lol).?
Despite the run-up in mortgage rates, new home sales jumped to 759k new homes sold in September, up from 676k in August vs 680k forecast. The quick take on a new house speaker is it makes the possibility of a government shutdown (November 17th), which is good for the economy and gives the Fed one less thing to worry about.
Treasuries fell, the yield on the U.S. 10y rose 11bps to 4.95%. The F.T. reported that Bill Ackman made $200million from his bond short.
?The Chinese government is trying to balance risks while supporting economic growth, lifting its deficit to three-decade highs by unveiling a sovereign debt package that analysts say is a?“firm signal from policymakers that they intend to support growth.?Meanwhile, it restricted the ability of twelve heavily indebted local governments to take on new debt, with new issues requiring central government approval. And Hong Kong is halving stamp duties that non-permanent residents have to pay for property as it looks to stoke demand in the floundering real estate market.
Weeks after ARM Holdings went public in the U.S., Japanese semiconductor equipment maker Kokusai Electric went public on the Tokyo Stock Exchange.?The company sold 58.8 million shares, raising 108 billion yen, making it the largest listing since SoftBank in December 2018.
Kokusai Electric is a spin-off from Hitachi Kokusai Electric, a subsidiary of multinational electronics giant Hitachi. However, it was acquired by American private equity firm KKR in 2018 for $2.2 billion. KKR still has about 110 million shares that it must wait at least 180 days to sell, but it did quite well on the deal
As for day-one investors,?the stock saw a 32% pop in its debut.?We’ll have to wait and see if that enthusiasm continues or if it has a similar experience as recent U.S. IPOs that have quickly fallen back to earth.?
G.M. and Honda scrap plans to co-develop affordable electric vehicles (E.V.).?The traditional automakers have canceled plans to bring sub-$30,000 E.V.s to market, citing slower-than-expected demand and changing market conditions. The partnership was supposed to use G.M.’s next-generation Ultium battery technology to produce millions of “affordable” EVs beginning in 2027. It’s the latest development in a growing number of automakers scaling back their E.V. ambitions due to mounting challenges.
The market is on edge. Anxiety is running higher. It is partly geopolitics, and it is partly market stresses. The dollar is holding above JPY150, but so far, there have been no reports or signs of intervention. Bank shares are under pressure. An index of Japanese banks has fallen for five of the past six sessions and is off about 8% from the year’s high set last month. An index of European bank shares has fallen in six of the past seven sessions and will likely close at a loss for the fourth consecutive week tomorrow. The index has fallen more than 8.5% since the July high. U.S. bank indices have fallen for the past six sessions and are of 20-23% from August highs.?
More broadly, today, equities are lower. Chinese markets are a notable exception, but many suspect the hand of China’s sovereign wealth fund. Most large bourses in the region, including Tokyo, Taiwan, South Korea, and India, were all off more than 1%.?
Europe’s SXXP is 0.8% lower, offsetting the gains of the past two sessions in full.?
U.S. index futures are trading lower after the S&P and NASDAQ closed on their lows yesterday, at levels not seen since early June.
The dollar is trading with a firmer bias, but the dollar-bloc currencies are recovering from earlier losses and are trading a bit higher against the dollar.
?The 10-year JGB yield rose to a new high near 0.87% today, but European and U.S. bond yields are slightly softer. The 10-year U.S. Treasury yield is near 4.95%.?
Gold has recovered from about $1954 on Tuesday to approach $1993.50 today. Last week’s high was slightly above $1997. December WTI is straddling the $85-a-barrel level after recovering from almost $82 yesterday.?
The German economy, once regarded as the locomotive of the European economy, has not grown since Q3 22.?It appears to have contracted again in Q3 after a flat Q2 performance. The eurozone is expected to have stagnated in Q3. The economy was flat in Q4 22 and Q1 23. It grew by 0.2% in Q2 23. Inflation has been halved this year to 4.3% in September from 9.2% at the end of last year. Another sharp fall is likely when the October CPI is reported next week after last October’s 1.5% month rise drops out of the 12-month comparison. The base effect will be considerably less favorable from November through January. The ECB’s balance sheet has fallen from a peak last year of about 8.84 trillion euros to 7.04 trillion, or from around 69.5% of GDP at its peak to near 50%. It was slightly more than 39% of the region’s GDP at the end of 2019. The money supply is contracting, credit conditions are tightening, and demand for loans is weak.
There does not appear to be a compelling reason for the ECB to hike rates today.?And, indeed, the swap market sees practically no chance of a move. The pricing in the swaps market suggests the market is fairly convinced that the ECB is done.?
The markets seem braced for a strong US GDP.?The Atlanta Fed’s GDP tracker, which tends to be fairly accurate this late in the cycle, is for 5.4% growth at an annualized pace, while the median forecast is for 4.5% growth. Consumption has been particularly strong. The 4% annualized increase in the median forecast follows a soft 0.8% increase in Q2 and would match the strongest since Q2 21. There are good reasons to suspect it will not be sustained:
Inventories and trade also likely contributed to Q3 growth. The improvement in trade is not because of stronger exports. Exports have fallen for five consecutive months through August, but rather because imports have fallen faster. Exports are off about 1.2% over the period (~$36B), while imports have fallen by around 2.5% (~$100B). The contribution from trade cannot be assumed in Q4. Some of the inventory growth may be in the auto sector ahead of the strikes and maybe run down in Q4. A little more than a quarter of the $2.02 trillion federal budget deficit for the fiscal year that ended last month was due to a decline in revenue--with individual income tax receipts much lower given the lack of capital gains in equities and fixed income. Still, government spending recent peak was in Q4 22 at a 5.3% annualized rate. It slowed to 4.8% in Q1 23 and 3.3% in Q2. It likely eased further in Q3 (maybe a little less than 2%) and is set to slow further in Q4... Leaving us to wonder, "What can go wrong?"??
Crypto Market Rundown
The global crypto market cap is $1.27T, a 1.70% increase over the last day.
BTC saw choppy yesterday, but is still currently trading around the $34,300 mark on Uphold Ascent.
Top 5 Gainers on Uphold Ascent in the past 24H
Top 5 Losers on Uphold Ascent in the past 24H
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Business Development
1 年PLAN= Out flow from bonds to risk on assets - pushed by feds. They need to keep the "Stawks" elevated to prevent Chaos. Buckle up for ATH in "Stawks" by 2024
Investigator at Ramsey County
1 年Awesome insight today!