The Market Today
The Sharp Recovery for Housing Rolls On as Builder Confidence Matches 35-Year High
by Craig Dismuke, Dudley Carter
VS Coronavirus Chartbook (PDF) (Link) *Updated by 10 a.m. CT
Vining Sparks MarketWatch Video (CLICK HERE)
Housing Recovery Yet to Slow: Housing continues to be the standout performer in an economy still reeling from the effects of the economic standstill caused by the virus and related lockdowns. The NAHB’s Housing Market Index, a measure of home builder confidence, rose from 72 in July to 78 in August, beating expectations and matching the highest level in records back to 1985. An index tracking expected sales in six months rose modestly while gauges of current sales and traffic of prospective buyers through listed homes notched stronger gains. The NAHB’s chief economist said, “Single-family construction is benefiting from low interest rates and a noticeable suburban shift in housing demand to suburbs, exurbs, and rural markets.”
Empire Manufacturing Cools after Strong Gains: However, the tone of almost every other economic indicator remains significantly more uncertain. Released shortly after the NAHB report, the Empire Manufacturing Index fell from 17.2 to 3.7 in August, worse than the modest decline to 15.0 that economists forecasted. The survey of manufacturing executives across New York state eased after storming back more than 95 points from April to July. New orders and shipments both reversed a portion of the prior months’ gains while employment levels inched up for a fourth month to a still-low level. Consistent with the moderation at the headline level, the general business conditions index and most other indicators assessing six-month expectations also cooled.
Later This Week: This week’s economic calendar is relatively contained with several additional housing reports scattered throughout, an important set of Fed Minutes scheduled to be released on Wednesday afternoon, and the broad Markit PMIs for August set for just after markets open on Friday. Considering last month’s Fed meeting was relatively unfulfilling as it relates to the longer-term outlook, markets will be keen to glean any additional insight on the timing of the finalized framework review which could result in changes in how officials go about achieving stable inflation. Any change is expected to also be accompanied by more explicit forward guidance about the Fed’s plans for its overnight target rates.
Quiet Start for Most Equity Indices: Treasury yields had moved lower overnight following a sharp sell-off last week that pushed yields up to their highest levels since mid-June while equity futures had strengthened modestly after losing momentum last Thursday and leveling off near all-time highs. China’s CSI 300 stood out in an otherwise mixed and quiet start to weekly trading across both Asia and Europe. The index jumped more than 2.3% after a larger-than-expected liquidity injection from China’s central bank helped offset tensions between the country and the U.S. President Trump signed another order against TikTok last week and a meeting of trade negotiators from the two countries that was set for Saturday was postponed, although reports said the delay was unrelated to the recent rise in tensions.
Treasury Yields Tick Lower: The resumption of the conflict between the world’s two largest economies has compounded concerns about sustainable economic recovery. Data overnight showing Japan’s economy shrank at an annualized 27.8% rate in the second quarter was not a surprise, but was the latest confirmation of the depth of the destruction the world economy must come back from. Yields on most global sovereign debt had inched lower ahead of U.S. trading, with a 3.4-bps dip for Italy’s 10-year yield leading the pack. The country’s government closed down nightclubs in response to new cases rising at their fastest rate since May, an unfortunate trend also seen in other European countries which had eased lockdowns after successfully bending the curve. At 7:50 a.m. CT, S&P 500 futures were up 0.4% and the 10-year Treasury yields had moved down 2.8 bps to 0.68%.
ICYMI – August 14, 2020 Weekly Market Recap: The S&P 500 broke above February’s all-time high in two separate sessions but failed in both cases to hold the level. The early optimism played out after President Trump put pen to paper over the weekend in four executive actions to provide additional stimulus to the economy after negotiations with Democrats stalled. While the moves were met with debate over their legality, investors hoped they would prod negotiators to break the gridlock on a compromise agreement that could pass Congress. With little evidence of that actually occurring, equities stalled out near record levels. However, the sanguine move up in stocks combined with record auctions of 10-year and 30-year Treasury debt to push Treasury yields to their highest levels in more than two months, a shift that steepened the popular 2s10s spread to its widest level since mid-June. Other notable headlines included Russia alleging it has registered a vaccine, more escalation of U.S.-China tensions, and Presidential candidate Biden’s selecting Senator Kamala Harris to be his running mate. On balance, the economic data was better than forecasted, including the first weekly claims total below a million since March and continued recovery for retail sales and industrial production in July. Click here to view the full recap.