The Market Today
FOMC Meeting Begins Amid Heightened Market Uncertainty
by Craig Dismuke, Dudley Carter
TODAY’S ECONOMIC DATA
Housing Starts and Building Permits Boosted by Multi-Family Activity, Single Family Construction Remains Beleaguered: Housing starts and building permits both beat expectations in August, rising 3.9% and 6.0%, respectively. Starts were lead higher by a 20.6% gain in multi-family while single family disappointingly fell 2.8%. The strength in multi-family permits was notable, the second-strongest monthly tally on record. Single family continue to trend lower, down 18.2% from their peak in January. Regionally, the Northeast saw an unusually large increase (+167% MoM) while the West reported a large decline (-21.1%). The leading indicator for housing starts, new building permits also beat expectations on a large jump in multi-family. Multi-family permits gained 15.8% while single family inched up 0.6%.
FOMC Meeting Begins: The FOMC begins its two-day policy meeting today with a policy decision expected tomorrow at 1:00 p.m.
YESTERDAY’S ECONOMIC NEWS
Home Builder Confidence Inches Up for First Time in Five Months: Home builder confidence inched up unexpectedly in September, marking the first monthly gain for the index in five months. With inventories at historic lows and prices accelerating at record paces, the housing data has turned softer this year after a stellar second half of 2020. Home builder confidence had dropped from 90 last November to 75 in August. Although September’s 76 clearly reflects cooling from last year’s unsustainable pace for activity, the level of the index equals its highest pre-pandemic reading since the late 1990s. September’s modest improvement was the result of a 1-point gain in the current sales index and a 2-point increase for the index tracking prospective buyer foot traffic. Both indexes remained at their second lowest levels since late last summer. An index gauging future sales expectations was unchanged.
The U.S. announced that it will begin allowing some foreign travelers to fly in starting in early November. The passengers must be fully vaccinated and test negative before their flight. Any unvaccinated Americans returning from abroad must produce a negative test before boarding the plane. The decision was applauded by foreign leaders and executives at top airlines. Europe and the U.K. had previously changed their travel guidance to allow vaccinated Americans to visit. Less optimistic, news reports tallying fatality data said total deaths as a result of the COVID-19 pandemic officially surpassed estimates of the total deaths caused by the 1918 influenza pandemic.
Stocks Plunged Monday Amid Rising Uncertainty, Pushing Treasury Yields Lower and Flatter: Stocks suffered their sharpest declines in months Monday as September’s sell-off deepened amid elevated uncertainties about the outlook. The move began early in global trading and was widespread across continents. Hong Kong’s Hang Seng slumped 3.3% to lead all declines, with continued weakness for real estate applying the greatest pressure. Financial calamity at a major Chinese property development company has raised concerns about contagion within the industry. Nearly every sector, however, was weaker, a trend that was consistent in both Europe and the U.S. Cyclical sectors led all declines in the West, knocking 1.7% off of the Stoxx Europe 600 and the S&P 500, the U.S. index’s worst day since May. The S&P 500 had fallen as much as 2.9% intraday, its biggest decline since late January. Energy companies were the hardest hit as oil and gas declined as part of broader weakness for the commodities complex. Consumer discretionary shares were the second hardest hit, led lower by losses in automakers. Home builder stocks dropped as well, despite the marginal recovery for builder confidence in September. Financials were the third worst performers as a lower and flatter Treasury curve weighed on banks. The flight from risk to quality cut into last week’s increase in Treasury yields. For the day, the 2-year yield slipped 0.6 bps to 0.22%, the 5-year yield lost 3.6 bps in yield to 0.82%, and the 10-year yield slumped 5.1 bps to 1.31%.
Several bouts of stock selling throughout the pandemic have been cut short by investors buying the dip amid economic recovery, copious fiscal stimulus, and persistent support from monetary policymakers. The phenomenon has been less prevalent in September, however, as questions arose about the duration of each of those supporting forces. Nonetheless, markets have bounced overnight following Monday’s sharp declines. Europe’s Stoxx 600 rose 1.1% after a mixed Asian session and U.S. futures were 0.7% higher. Treasury yields partially recovered as focus shifted to the Fed’s Wednesday decision. The 10-year yield recouped 0.8 bps of yesterday’s 5.1-bps decline to trade at 1.32%.