The Market Today
Off Again, Never Scheduled?; Home Sales Disappoint
by Craig Dismuke, Dudley Carter
Mortgage Applications Slow But Recent Trend Gives Optimism: Mortgage applications for the week ending January 18 fell 2.7% on a 2.2% drop in purchase apps and a 5.3% decline in refi apps. Despite the disappointing weekly tally, applications have been on the uptick lately, giving reason for some optimism about future sales. This optimism is particularly important after yesterday’s very disappointing existing home sales figures. Moreover, the disappointing December home sales data would have reflected homes that predominantly went under contract in October and November. Mortgage rates were at their peak at that time. According to Freddie Mac’s Mortgage market Survey, the 30-year mortgage rate peaked in early-November at 4.94% and has since fallen 50 basis points.
Home Price Gains Expected to Continue Slowing: At 8:00 a.m. CT, the FHFA home price index is expected to show a 0.3% MoM change in home prices, further lowering the YoY pace of price gains. Thus far, the FHFA index has shown price growth slow from +7.7% YoY to +5.6%. January’s Richmond Fed Manufacturing Index is scheduled for release at 9:00 a.m.
Yesterday – Stocks Fell Tuesday After Global Equities Weakened and Trade Headlines Confused: U.S. stocks closed lower Tuesday for the first time in five days as worries around global growth returned and reports of renewed trade tensions weighed. Global stocks had weakened and weighed on U.S. futures in the overnight session in response to the weakest year of growth for the Chinese economy since 1990 (as-expected 6.6%) and after the IMF cut its expectations for the world economy over the next two years. After drifting down during morning trading, the major indices took a leg lower around lunch on reports the U.S. had called off a planning meeting between vice ministers intended to lay the groundwork for a meeting of heavy hitters from both sides later next week. The report re-charged fears that the two countries were still seas apart on key issues despite positive positioning from both sides in recent days. However, the White House’s top economic adviser, Larry Kudlow, went on CNBC with thirty minutes left in the trading session to say no preliminary meeting had been cancelled because no preliminary meeting had been planned. He said next week’s main event has been and continues to be the main event. Stops recouped a portion of their losses with a late positive push after Kudlow’s CNBC interview but the S&P 500 still slipped 1.4% on the day. Treasury yields tracked equities’ path closely Tuesday with the 2-year yield finishing down 2.7 bps to 2.59% and the 10-year yield 4.5 bps lower at 2.74%.
Overnight – Sentiment Picks Up in Europe After Asia Struggled on Trade Questions: Asian stocks struggled Wednesday in response to yesterday’s conflicting trade reports but European indices have worked their way back from an opening drop to trade near their highs of the day. Equities in Japan weakened and were among the worst performers after the country’s December trade data showed a smaller-than-expected gain for imports and a larger-than-expected decline in exports. The 3.8% YoY drop in Japanese exports was the largest since October 2016 and comes at a time of growing concerns about trade tensions and the impact on global growth. In his post-meeting press conference Wednesday, Governor Kuroda highlighted trade as a major reason that global risks have heightened recently. The central bank left its policy rate, asset purchase program, and forward guidance unchanged and once again lowered its inflation forecast. The central bank blamed lower crude prices for fiscal 2019’s core inflation forecast being cut from 1.4% to 0.9%. In the U.S., the Dow was leading futures’ gains after United Technology and Procter & Gamble, which combined carry a 6% weigh, both topped earnings estimates. Treasury yields ticked up after Tuesday’s decline with the 2-year yield 1.7 bps higher and the 10-year yield adding back 2.9 bps to 2.77%.
Existing Home Sales Sank the Second Most Since 2010 to Cap the Weakest Year Since 2015: After a brief two months of respite, existing home sales resumed their disappointing downtrend in December with the second-sharpest one-month decline since 2010; sales plunged 9.5% in November 2015 but recovered 13.8% in December as a regulatory change delayed activity for a month. Total sales fell 6.4% last month to an annualized pace of 4.99MM units, the weakest since 2015, as activity in the Midwest, the second largest region by volume, contracted 11.2% to lead a slowdown across all four geographic regions: South -5.4%, West -1.9%, Northeast -6.8%. The monthly pullback, while steeper than expected, was not surprising as pending sales recently slipped to a four-year low. With December’s data now in hand, sales totaled roughly 5.34MM units in 2018, the least since 2015. Other metrics also reflected the more paltry pace of closings, as the YoY gain in the median sales price ($253.6k) slowed to 2.9% YoY (slowest since 2012) and the number of days a house sat on the market continued its lengthening trend to 46 days.