The Market Today
Housing Data Thaws a Bit
by Craig Dismuke, Dudley Carter
Home Prices Expected to Rise Further: At 8:00 a.m. CT, the FHFA and S&P CoreLogic home price reports are both expected to show 0.7% MoM gains in prices. Home price growth continues to churn along at an above-6% YoY pace, despite a slower pace of sales growth. Driving prices higher is historically-low inventory.
March New Home Sales Expected to Bounce: After three consecutive monthly declines in sales, new home sales are expected to bounce 1.9% in the March report released at 9:00 a.m. Similar to the recent weakness in existing home sales (more below), new home sales have fallen 15.0% since peaking in November.
Higher Gas Prices and Stock Volatility to Weigh on Sky-High Consumer Confidence: Consumer confidence continues to be very strong, particularly according to the Conference Board report. However, gasoline prices have now risen to $2.76 per gallon, according to American Automobile Association data, the highest they have been in three years. This, along with the recent stock market volatility is likely to begin eating into consumer exuberance.
Yesterday – Stocks Treaded Water as Interest Rates Added to Friday’s Multi-Year Highs: U.S. stocks finished little changed Monday after an up-and-down day of trading resulted in a nearly even split between S&P 500 sector winners and losers. Telecommunication companies led all gains while information technology companies finished in last place. The S&P 500 gained a grand total of 0.01%, or 0.15 points. The Dow was only slightly more active, falling 14 points, or 0.06%, and has now slipped in four consecutive sessions since interest rates began their most recent climb last Wednesday. Interest rates held their overnight rise as the 2-year yield rose 1.9 bps to a new cycle-high of 2.48% and the 10-year yield closed 1.5 bps higher at 2.98%. The 5-year yield rose 2.1 bps 2.82%. The Dollar, which responded positively overnight to higher rates, maintained its strong position that pushed the U.S. currency to its strongest level since January 15.
Existing Home Sales Increase in March, Still Limited by Inventory Crunch: The March existing home sales data, released yesterday, showed a better-than-expected 1.1% jump in sales as activity in the Northeast (+6.3%) and Midwest (+5.7%). Sales fell in the South (-0.4%) and West (-3.1%). Existing home sales dropped 6.0% from November to January but have now recouped two-thirds of the decline. Inventory continues to be sparse with just 3.6 months on-hand, although the tally increased from February’s 3.4 months’ of inventory.
Flattening Yield Curve Isn’t Just the Fed’s Problem (WSJ): “The flattening U.S. yield curve, a harbinger of possible economic trouble, has caught the eye of officials at the Federal Reserve. But a potential problem for the Fed is a worry for the rest of the world, too—especially the European Central Bank. … Last week, the gap between two-year and 10-year U.S. Treasury yields reached its narrowest since 2007, below 0.5 percentage point. … In addition, swaps measuring U.S. interest-rate expectations for 2021 have edged below those for 2020, notes Deutsche Bank, showing investors are thinking about the Fed cutting rates, not just raising them. … But the timing matters because the ECB has locked itself into a very gradual path from exit. … By 2020, the ECB might only just have exited its negative-interest-rate policy. … It is, of course, easier to tighten policy when the growth outlook is good. … [If] markets grow nervous about a hit to U.S. growth, that might at the least complicate the ECB’s task in exiting ultraloose policy. A U.S. downturn will undoubtedly affect Europe. … And if a real downturn were to emerge in the U.S.—Société Générale is forecasting a mild recession in 2019-2020—and spill over elsewhere, then a debate would start about what tools central banks had left. While the Fed now has some room to cut rates again, the ECB might be grappling with inventing new ways to provide stimulus.”