The Market Today

Consumer Confidence Pulls Back, Impeachment Proceedings To Begin … More Uncertainty


by Craig Dismuke, Dudley Carter

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TODAY’S CALENDAR

Mortgage Applications Drop But Remain Positive Indicator: Mortgage applications for the week ending September 20 fell 10.1% on a 3.1% drop in purchase apps and a 15.2% drop in refi apps.  According to the report from the Mortgage Bankers Association, the 30-year mortgage rate inched up 1 bp to 4.02% during the reference week, but was up 20 bps from a recent low of 3.82% two weeks ago.  Even with the pullback in weekly purchase apps, the monthly data still point to a positive month for home purchases.

New Home Sales Need To Rebound: At 9:00 a.m. CT, August’s new home sales report is expected to show sales rose 3.8% after falling 12.8% in July.  Sales will need to make a strong comeback in the August and September reports to prevent new sales from declining for the eighth time in the last ten quarters.  Due largely to the weakness in new sales activity, residential investment has been negative in eight of the last nine GDP reports (see Chart of the Day).

Fedspeak: On the calendar today are comments from Chicago Fed Bank President Evans (voting dove), Kansas City Bank President George (voting hawk), FOMC Governor Brainard (voting centrist), and Dallas Bank President Kaplan (non-voting centrist).  Thus far, there have been no noteworthy surprises in the post-FOMC speeches from Fed officials.


OVERNIGHT TRADING ACTIVITY

Weekly List Of Uncertainties Continues To Grow: Global equities are exclusively lower Wednesday as uncertainty continued to grow yesterday with a trade speech from President Trump and an announcement that he will now face an official impeachment inquiry (more below). Those developments were added to a list of weekly worries that also includes several weaker-than-expected top economic reports from Europe, a softer-than-expected services PMI for the U.S., a crack in the Conference Board’s consumer confidence index (more below), and a U.K. Supreme Court ruling against PM Johnson that amplified the ongoing Brexit chaos.

Equities Slump Amid The Angst: The MSCI Asia Pacific Index dropped 0.6% Wednesday and Europe’s Stoxx 600 was weaker by 1.2% around 7:20 a.m. CT, holding near its lows of the day. U.S. equity futures had also declined, but contained the losses to around 0.2%. Compared with the broad risk-off tone in equity markets, global yields were relatively little changed. Germany’s 10-year yield was 0.6 bps lower while the Treasury curve had actually risen around 1 bp. In other markets, oil prices were lower on reports Saudi Arabia was bringing capacity back online more quickly than expected after last week’s drone attack. U.S. WTI  has now erased more than 80% of its historic 14.4% surge two Mondays ago.


YESTERDAY’S TRADING ACTIVITY

U.S. Economic Data Disappointed: U.S. equities slid Tuesday and Treasury yields rallied lower after another day of disappointing data continued to add to concerns about the economic outlook. Stocks had opened higher but turned back after a regional Fed survey weakened unexpectedly and consumer confidence posted a larger-than-anticipated drop in September (more on both below). Treasury yields, which had begun to drift lower as U.S. trading opened, dropped further on the disappointing data.

President Trump Doesn’t Pull Punches In UN Speech: Adding to the worries around the global outlook, President Trump spoke at the UN with frank words about China’s trade regime. “Not only has China declined to adopt promised reforms, it has embraced an economic model dependent on massive market barriers, heavy state subsidies, currency manipulation, product dumping, forced technology transfers and the theft of intellectual property and also trade secrets on a grand scale,” the president said.

House To Begin Formal Impeachment Inquiry: Also impacting the market’s mood Tuesday were twists and turns in speculation about a possible impeachment inquiry into President Trump. The calls for such action have grown since it was alleged the president withheld funding from Ukraine until its government investigated potential Democratic candidate Joe Biden’s son. Stocks and yields jumped briefly after President Trump, who has said the allegations were untrue, said he would release a transcript of the call in question. However, uncertainty returned after it was reported that Speaker Pelosi would announce a formal impeachment inquiry later in the day.

Investors Get Anxious About Weak Data And Political Uncertainty: By the time markets closed, the S&P 500 had slid 0.8%, its biggest drop in a month, and the 2-year (1.63%) and 10-year (1.65%) yields had declined 5.6 bps and 8.1 bps, respectively. The spread between the two closed at its lowest level in just over two weeks.


NOTEWORTHY NEWS

Home Price Reports Show Still-Slowing Price Gains: The FHFA Home Price Index showed prices up a slightly better-than-expected 0.36% MoM in July, helping the year-over-year pace of gain inch up from 4.94% to 4.97%.  That pace of gain has slowed from a peak of 7.51% in early-2018. There was notable strength in the mountain-state region (+1.2% MoM) which includes states from Arizona and New Mexico up to Montana.  The broader S&P CoreLogic price index reported a weaker monthly price gain (+0.02%) which brought the year-over-year pace of gain down from 2.16% to 2.00%, continuing the trend of weaker price gains.  By metropolitan area, there was notable weakness in Los Angeles (-0.3% MoM), Washington D.C. (-0.1% MoM), and New York (-0.1% MoM).  While the two reports showed slightly different trends geographically, both were consistent in showing home price gains continuing to fade despite the recent decline in mortgage rates.

Consumer Confidence Tumbles More Than Expected On Broad-Based Weakness: Consumer confidence was weaker than expected in September and the details of the Conference Board’s latest report were broadly disappointing. The headline sentiment index, expected to decline a modest 1.2 points, tumbled 9.1 points, its biggest drop of the year, to a three-month low. The current assessment pulled back 7 points from its cycle-high level while the future outlook slumped more than 10 points to its second weakest level since the election. Consumers were less optimistic across all key categories (general business conditions, employment, and income expectations). While still solid in a cyclical context, the disappointment shows consumers may be responding to increased global uncertainties.

Richmond Fed Survey Posted Surprise Miss On Weaker Activity: The Richmond Fed’s Manufacturing Index was notably weaker than expected, falling to its second weakest level since early 2016. New orders and shipments both posted steep declines while the employment-related metrics showed minor improvements. Looking ahead, expectations for new orders and shipments also softened from August, although to a lesser degree, while the outlook for employment firmed up.


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