The Market Today

Mixed U.S. Housing Data; Focus Remains on COVID-19 and Earnings Reports


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

Mixed Starts and Permits Data Add to Uncertainty about Housing Direction: Housing starts beat expectations in June, rising 6.3% versus expectations for a 1.2% gain.  Driving new starts higher was a 6.3% gain in single family and a 6.2% increase in multi-family.  However, the more leading indicator of building permits disappointed expectations.  Total permits fell 5.1% for the month on a 6.3% decline in single family and a 2.6% decline in multi-family. While the reports are cumulatively mixed, the lack of clarity provided by the reports only add to uncertainty about the housing market, particularly after the softest reading on prospective homebuyer foot traffic since last August in yesterday’s NAHB report (more below).

Earnings Reports: United Airlines, Halliburton, Netflix, among others.

 

24 HOURS OF MARKET ACTIVITY

Stocks and Treasury Yields Tumbled Monday Amid Growth Concerns: Monday’s market moves reflected a fierce bid for safer assets, including Treasurys, as the major U.S. equity indices tumbled amid a global sell-off. The selling had started earlier in Asia and intensified as European markets opened. Energy companies were a significant drag on world indices as crude prices corrected. OPEC+ announced on Sunday that its members had struck an accord to begin the process next month of fully unwinding the 5.8 million barrels of daily production cuts it had implemented to support prices earlier in the pandemic. Crude’s sell-off was enhanced by broader economic worries tied to growing concerns about rising global infections. U.S. WTI plunged 7.5% to $66.50 a barrel, closing at its weakest level since late May. Those broader economic concerns also resulted in a sharp rally in Treasury prices that drove longer yields to their lowest levels in more than five months. While the 2-year yield was relatively steady, down 0.6 bps to 0.216%, the 10-year yield tumbled 10.1 bps to 1.189%. The drop, its fourth in a row, pushed the key global benchmark yield through its 200-day moving average, a technically important development, and to its lowest level since February 11. With the curve flattening nearly 10 bps to a spread of 0.97% between the 2- and 10-year notes, a low since February 1, financial companies closed as the second worst performing sector within the S&P 500. Monday’s weakness, broad and led by cyclically sensitive sectors, ultimately knocked 1.6% off the S&P 500, less severe than its intraday worst 2.2% decline but still the largest decline since May 12. The Dow slumped a larger 2.1% while the Nasdaq fell 1.1%.

Treasury Yields Continue Lower Tuesday, Despite Modest Equity Recovery: Equities across Asia fell again Tuesday but European indices and U.S. futures were attempting to find a bottom and bounce back from Monday’s sharp declines. The MSCI Asia Pacific index dropped 0.7% before Europe’s Stoxx 600 opened 1.0% higher, subsequently trimming that rise to a 0.5% gain. That level was consistent with the S&P 500’s pre-market gain around 7 a.m. CT; the Dow was leading with a 0.6% recovery from its worst day since late October while the Nasdaq had added 0.4%. Despite the slightly firmer tone for equities, however, global sovereign yields had continued to move lower. At 7:25 a.m. CT, the 2-year Treasury yield was 1.8 bps lower to 0.198%, nearly on top of its lowest level since the Fed’s hawkish dot-plot surprise on June 15. The 10-year yield was down 1.5 bps to 1.174%, a new low since February 11. The 5-year yield was leading all declines, dropping 3.4 bps to 0.669%, its lowest yield since early March. While notable, those moves were trailing larger declines across Europe, where Germany’s 10-year yield had lost 3.2 bps to -0.42%, its lowest mark since mid-February.


NOTEWORTHY NEWS

Home Builder Confidence Slips in July Amid Housing Slowdown, But Builders Hold Out Hope: The NAHB’s Housing Market Index, which tracks sentiment among home builders, inched down 1 point unexpectedly in July to an 11-month low of 80. The details reinforced the assessment that low inventories and rising prices and construction costs are weighing on current activity. The current sales index edged 1 point lower while the rate of potential buyers walking through for-sale properties registered a 6-point decline, both also touching their weakest levels in nearly a year. While the decline at the headline level left the index far below last November’s record high of 90, it remained above its pre-pandemic trend and builders clung to optimism that demand will remain solid into early 2022. The index tracking sales expectations for the next six months recovered its 2-point decline from June that had pushed the index to its weakest level since August 2020.

NBER Determines COVID-19 Recession Lasted Two Months, Marking the Shortest in U.S. History: While the general rule of thumb in identifying recessions is considered to be two consecutive quarters of economic contraction, the National Bureau of Economic Research added the latest entry to a growing list of factors that make the COVID-19 recession historically unique. In a statement published Monday, the group’s Business Cycle Dating Committee said that it had “determined that a trough in monthly economic activity occurred in the US economy in April 2020,” based primarily on an assessment of the low points for employment and personal incomes excluding transfers. Considering the previous economic peak occurred in February 2020, the statement said, “The recession lasted two months, which makes it the shortest US recession on record.”


CORONAVIRUS UPDATE  Vining Sparks Coronavirus Chartbook and Vining Sparks Coronavirus State Charts

The virus headlines Monday were centered around rising global cases amid spread of the Delta variant and the responses from global health and government bodies.

U.K. Developments: The U.K. will remain a point of focus in coming weeks after removing the last remaining virus restrictions on Monday despite a surge in new cases tied to the Delta variant. Prime Minister Johnson said he couldn’t guarantee that the decision was irreversible and noted full vaccination will be required to enter certain venues. His top medical officials acknowledged the risks of reopening into a rising caseload and said the health impact won’t be visible in the data for at least another week. For important context, the U.K. hasn’t yet seen a concerning uptick in fatalities associated with the recent surge in new infections. Nonetheless, an official from the Bank of England weighed in, saying rising infections may start to have an effect on the economic recovery.

U.S. Developments: The data has shown a small but broad-based uptick in new cases across the U.S. in recent weeks as focus has returned to rising case counts around the globe. While certain Asian countries and others in Europe have seen larger increases, the absolute level of cases in the U.S. remains low. President Biden said the biggest increases are occurring in communities with comparatively low rates of vaccination. A White House health advisor said Delta is becoming more dominant across the U.S. but noted that fully vaccinated individuals are “generally protected” from the variants. The CDC raised its U.K. travel alert to 4, warning against travel to the island. Later in the afternoon, the CDC also announced it was increasing its travel advisory level for Indonesia to the highest level.  In the corporate response, Apple announced they were delaying their return to the office by one month, to October at the earliest.


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