The Market Today
Existing Home Sales Disappoint; Fedspeak and Trade Talks Today
by Craig Dismuke, Dudley Carter
Fedspeak: Today’s economic calendar is comprised entirely of Fedspeak, with a Chicago Booth School forum in New York providing a strong line-up of officials. New York Bank President Williams and San Francisco’s Daly will speak on inflation at 9:15 a.m. CT. Vice Chair Clarida speaks at 11:00 a.m. on Fed tools and communications. Bullard (St. Louis), Harker (Philadelphia), and Quarles (Governor) will all speak on the balance sheet at 12:30 p.m. Finally, New York’s Williams will wrap up the forum at 4:30 p.m. In the absence of any other economic reports and the heavy line-up of officials discussing important topics, the headlines from the event could catch investors’ attention today.
Trade Talks Continue: Also of key importance to investors today will be the meeting, and any post-meeting announcements, between President Trump and China’s top negotiator.
Yesterday – Stocks Slipped as U.S. Data Disappointed, Yields Rose on U.S.-China Trade Progress: Treasury yields pushed higher Thursday on positive developments in the U.S.-China trade negotiations while stocks pulled back after the day’s U.S. economic data was, on balance, weaker than expected. Overnight reports that the U.S. and China were working to outline the framework for a deal had pushed Treasury yields and equity futures up during Asian trading. And while Treasury yields ended higher, equities erased an overnight rise and were weaker for the remainder of the day. While initial jobless claims were better than expected, a regional Fed index hit a 33-month low, business equipment orders dropped again in December, and existing home sales remained weak in January at a 38-month low (more below). The S&P 500 ended down 0.4% but off its lows with a late push higher. Technical factors could have also played a role, as Thursday’s decline was just the second in nine sessions and pulled the index down from its highest level in more than two months. Energy and health care were the biggest drags in a mixed day at the sector level. Despite equities’ weakness, Treasury yields added to overnight gains that coincided with the U.S.-China trade news. The 2-year yield rose 3.1 bps to 2.53% while the 10-year yield added 4.7 bps to 2.69%.
Overnight – Stocks Strengthen on Trade Hopes as Treasury Yields Ease Back After Thursday’s Rise: Yesterday’s weakness in stocks has abated overnight while Treasury yields have halved Thursday’s rise. U.S. stock futures began climbing late in the Asian session as equities in the region strengthened in the afternoon. Investors continue to await news out of Washington with hopes of positive progress in ongoing trade negotiations. Reports within the last 48 hours indicated negotiators from the U.S. and China were working on several draft memos to serve as the basis for a deal and that China offered to buy more U.S. agricultural products. President Trump will meet with China’s top negotiator later today. China’s CSI ripped more than 2.2% and Europe’s trade-sensitive materials sector was leading gains within the Stoxx Europe 600. The broader index was up 0.3% as hopes of smoother trade waters helped offset another disappointing data point from the region’s largest economy. Data yesterday showed Germany’s services sector picked up more than expected while its manufacturing PMI slid to its weakest level in more than seven years. A report Friday showed German business confidence ticked down for a sixth month to its lowest level since November 2014. Germany’s 10-year yield dipped 2.4 bps to 0.10% around 7 a.m. CT, within 2 bps of its lowest level since October 2016. Before an unusually busy day of Fedspeak, Treasury yields were modestly lower. The 2-year yield was down 1.7 bps at 2.51% while the 10-year yield had declined 2.5 bps at 2.67%.
Existing Home Sales Hit 38-Month Low: Existing home sales fell unexpectedly in January, slipping 1.2% to start 2019, while December’s 6.4% estimated decline was revised up to a smaller 4.0% pullback. As a result, January’s activity annualized out to a 4.94MM-unit pace, short of the 5MM units expected and the weakest in more than three years (since November 2015). The three largest regions by volume saw a second straight month of slower activity, more than offsetting a positive month for the Northeast. Other metrics also reflected the ripple effects of slower sales: months of supply ticked up, the median price hit an 11-month low of $247.5k (+2.8% YoY, weakest gain since February 2012), the share sold to first-time buyers was the weakest in at least six months, and the time a home sat on the market before receiving a contract lengthened to 49 days (longest in at least six months). Lower rates should provide a much needed positive for the housing sector, but have yet to have a noticeable impact on hard sales metric. The NAR’s chief economist said, “Lower mortgage rates from December 2018 had little impact on January sales, however, the lower rates will inevitably lead to more home sales.”