The Market Today
It May Be Cold Outside, But Don’t Tell the Economy That
by Craig Dismuke, Dudley Carter
Today’s Calendar – Consumer Confidence and Pending Home Sales: With consumer confidence now as high as its been since 2000, it seems logical that sentiment could only turn lower. However, given the continued low gasoline prices, continued decline in the unemployment rate, continued record-setting run for stock prices, and the newly approved tax cut bill; confidence may increase yet again in December’s report from the Conference Board. The release is scheduled for 9:00 a.m. CT. November’s Pending Home Sales report will also be released at 9:00 a.m.
Overnight Activity – Mixed Moves on Light Volumes: Global markets were mixed again overnight on sluggish volumes as activity in the holiday shortened week remained subdued. On average, shares across the Asian-Pacific rose 0.3% while the Stoxx Europe 600 hovered around unchanged. Despite the mixed results, underlying trends were mostly consistent with those in yesterday’s U.S. session; technology continued as a drag broadly and energy companies remained near the top of most bourses. Shares in China have so far been Wednesday’s weakest link with the CSI 300 down 1.5%. Economic data showed industrial profits at Chinese companies grew in November at the slowest YoY pace since February. Looking at the Stoxx Europe 600 sector performances, materials companies displaced energy as the top daily performer after copper jumped to a three-year high on supply news out of China. Energy companies were the second strongest despite crude prices turning back after touching more-than-two-year highs yesterday (more below). U.S. equity futures are mixed. European sovereign yield curves are mixed but the Treasury curve is slightly lower and flatter; the 2-year yield is down 0.4 bps and the 10-year yield has dropped 1.8 bps. The Dollar has covertly creeped lower in seven of the last eight sessions and is at its weakest level since December 1.
Yesterday’s Trading Activity – Tech Sector’s Losses Offset Energy Gains as Yield Curve Quietly Flattens for a Fourth Day: Stocks dropped Tuesday as the tech sector weighed on the major U.S. indices. The Nasdaq led losses with its 0.34% decline while the S&P slipped 0.11% and the Dow inched 0.03% lower. Apple Inc. was the biggest detractor in the Dow after reports that demand for its iPhone X could be weaker than expected. The tech’s drag on the S&P offset healthy gains for the energy sector on the back of a big bounce across the energy commodities complex. Crude prices, which have been climbing steadily higher since the Summer, jumped more than 2% to their highest levels since the middle of 2015. Prices spiked on reports of an explosion at a pipeline that feeds Libya’s largest exports terminal. The Treasury curve flattened slightly on mixed moves in shorter and longer yields. The 2-year and 3-year Treasury yields climbed less than 1 bps while yields from the 5-year note and out dropped by similar amounts. The net result was the 2-year yield closing at a nine-and-a-half-year high of 1.90% and the curve flattening between 2s and 10s for a fourth consecutive session.
Home Price Gains Accelerate and Could Continue into 2018: The S&P CoreLogic Home Price Index for October showed a larger-than-expected gain, up another 0.70% MoM (seasonally adjusted). The increase brought year-over-year prices from +6.2% to +6.4% as home prices continue to grow at more brisk pace than expected when the year first began. The 20-city index now shows prices cumulatively within 1% of hitting their pre-crisis peak after falling over 35%. Over that period, some metro areas have performed significantly better while others have fared more poorly. Las Vegas remains 28% below its 2005 peak while Phoenix is 24% below and Miami is 19% lower. Prices in Dallas are now 43% above their 2005 peak and homes in Denver are up 44%. Those two cities also saw the smallest declines during the housing correction, down 11% and 14%, respectively. Going forward, affordability may be a concern as home prices continue moving higher. However, given the strength expected for consumers in 2018, income growth could offset that concern, freeing home prices to continue their run.