The Market Today

New Home Sales Plunge, Existing Sales Today; Jackson Hole Kicks Off

by Craig Dismuke, Dudley Carter

Today’s Calendar – Existing Home Sales Can Right the Housing Ship; Jackson Hole Kicks Off:  At 9:00 a.m. CT, the July Existing Home Sales report is expected to show a 0.5% increase in sales.  Coming off yesterday’s 9.4% drop in new home sales (more below), today’s report is as important as ever.  The growth rate of the housing data has been slowing for several years and concerns are growing that affordability is beginning to have an impact.  The MBA’s mortgage delinquency report for the 2nd quarter will also be released.  At 10:00 a.m., the Richmond Fed will release its regional manufacturing index.

Most importantly for the markets, the Jackson Hole Symposium kicks off today.  Both Yellen and Draghi are scheduled to deliver highly anticipated remarks tomorrow.


Overnight Activity – Global Tone Steadies as Investors Look to Wyoming:  The weekly ups and downs in global assets continued Thursday as the highly anticipated Jackson Hole event commenced. In the absence of significant economic news this week, markets have been indecisive ahead of the gathering of Fed Officials and their special guests in Wyoming. After slipping yesterday, European stocks have recovered and are leading a mostly positive session for global equities. European sovereign yields are higher in response with longer yields leading the rise. In currencies the Dollar was firmer against the Yen, unchanged against the Euro, but weaker against the British Pound. Data overnight showed French manufacturing confidence hit its highest level in August since 2007 and overall U.K. 2Q growth was confirmed at 1.7% YoY. However, the GDP revisions showed weaker consumer spending offset by better-than-expected trade. In the U.S. equity index futures are up more than 0.2% and Treasury note yields inside of 30 years are higher by roughly 2.0 bps.


Yesterday’s Trading Activity – Curve Flattest Since Late June as Longer Yields Drop:  Stocks remained underwater for the entire session Wednesday as the major three averages failed to hold positive momentum from morning trading. After slumping at the open, stocks climbed back before turning lower again around lunch. Another effort higher in the afternoon failed and stocks sold off into the close. Industrials led losses within the S&P and just three sectors managed to remain positive. The energy sector gained as crude prices bounced on reported draws in crude and gasoline inventories. Real estate and utilities companies improved as Treasury yields fell and ended at session lows. The 2-year yield dropped 1.6 bps to 1.31% as maturities five years and out lost at least 4 bps of yield. The 10-year yield fell 4.7 bps to 2.166% helping to drop the spread between 2s and 10s to 85.8 bps; both were the lowest levels since late June. The Dollar’s roller coaster of a week continued and the currency closed near its lowest levels of the day.


New Home Sales Sink in July:  The number of new homes sold in July slowed unexpectedly and were much weaker than estimated. The 9.4% month-over-month decline was the sharpest since August 2016 while the 8.9% year-over-year pullback was the largest since June 2014. To be fair, both comparisons were against two of the strongest readings of the current recovery. Nonetheless, the 571k unit annualized pace of sales was the weakest since December and showed declines in three of the four geographic regions. The Midwest experienced a slight improvement but sales in the South softened. The biggest declines came in the Northeast and West where sales fell more than 20%. Easing the current month’s disappointment was a positive net revision of 46k for the three months prior.


OECD Issues Optimistic Report on Global Growth:  The OECD released a report yesterday projecting that all 45 countries they track are expected to show economic growth this year for the first time since 2007.  Additionally, 33 of the countries are expected to show better growth in 2017 than in 2016.  After the global economy grew 3.2% in 2016, the OECD projects growth will be 3.5% in 2017.  While this is a good sign, it is also important to note that broad global growth is a lagging indicator of how the largest, most influential economies are faring.


Kaplan Touches on Policy in Comments at Oil Association Luncheon:  Dallas Fed President Kaplan briefly discussed monetary policy in an appearance geared more towards the interests of the energy-focused audience at the Permian Basin Petroleum Association Membership Luncheon on Wednesday. He kept his cautious tone towards rate hikes, saying that while tightness in the labor market would seem supportive of additional policy tightening, he will not argue for another rate hike this year until he has more information showing inflation firming towards the Fed’s 2% target.


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