The Market Today

Trends for Housing Starts and Building Permits Remain Positive, But Volatile

by Craig Dismuke, Dudley Carter


Housing Starts and Building Permits Continue Positive Trends but Remain Volatile on Month-over-Month Basis: New housing activity continued to show volatility in April with new starts falling 9.5% after a 19.8% jump in March.  Driving the monthly change was a sizeable, 13.4% decline in single family starts, the second 13%-plus decline in four months.  However, there have also been offset increases.  On the multi-family front, starts rose just 0.8%.  Overall, housing starts are up 66% YoY including a 58% gain in single family and a 88% gain in multi.  New permits to begin construction rose a tepid 0.3% MoM after a 1.7% gain in March.  Single-family permits fell 3.8% and multi-family permits rose 8.9%.  Overall, new permits are up 63% YoY on a 69% gain in single family and a 56% increase in multi.  The overall trends for both permits and starts remain quite positive over the last six months, despite the typical volatility seen in housing starts.

Fedspeak and Earnings: Dallas Fed Bank President Kaplan is scheduled to speak at 10:05 a.m. CT.  Also today, Walmart and Home Depot will report earnings.


Equities and Yields Continue to Fluctuate after CPI Inflation Scare Last Week

U.S. equities trimmed their morning declines in afternoon trading but remained lower at the close. The Nasdaq led declines with an 0.4% drop while the Dow slipped 0.2% and the S&P 500 fell by a slightly larger 0.3%. Energy companies were the top performers as crude prices saw solid gains. Materials and financials, two sectors that should also benefit from a stronger economic outlook, were the only other industries to register stronger valuations to start the week. The pressure on U.S. tech stocks evolved as Treasury yields ticked higher for the first time since a surge last Wednesday. The benchmark 10-year Treasury yield jumped more than 7 bps on Wednesday after April’s CPI inflation report showed much stronger inflationary pressures than were expected. After unwinding most of that jump on Thursday and Friday, the 10-year yield added back 2.0 bps on Monday to 1.65%.

Global equities were on the mend early Tuesday as tech rebounded, gains for Walmart and Home Depot lifted broader indices, and sovereign yields fell. Japan’s Nikkei 225 led most Asian indices higher with a 2% jump, despite data confirming the country’s economy shrank 5.1% (annualized) to start the year. Unyielding outbreaks across the continent have led to concerns about double-dip recessions for some countries. Data overnight confirmed previous projections that Europe’s economy did fall back into a technical recession around the turn of the year, with 0.7% and 0.6% unannualized declines in 4Q20 and 1Q21. Nonetheless, Europe’s Stoxx was 0.3% higher. The tech recovery lifted Nasdaq futures by over 0.6% while gains for Home Depot and Walmart helped the Dow and S&P 500 to 0.2% gains. Home Depot beat expectations in a strong earnings report thanks in part to “unprecedented demand for home improvement projects.” Walmart said its estimates-exceeding quarterly results indicate U.S. “customers clearly want to get out and shop.” Just before 7:40 a.m. CT, the 10-year Treasury yield was 1.9 bps lower at 1.63%, its session low.


Home Builder Confidence Holds Up Amid Low Inventories, Low Rates: The NAHB’s Housing Market Index was unchanged in May at 83, an historically elevated level but below stronger readings from late last year, including November’s series’ high of 90. Each of the three major underlying metrics, which track current and future sales expectations and buyer interest based on foot traffic, were also little changed. The NAHB’s Chair said, “Builder confidence in the market remains strong due to a lack of resale inventory, low mortgage interest rates, and a growing demographic of prospective home buyers.” Low inventories, which have driven prices sharply higher over the last 12 months, provide an opportunity for builders of new homes. However, rising input costs provide a countervailing headwind that could create some friction for activity.

WSJ: Child Tax Credit Expansion Kicks in July 15 with Monthly Payments to Families: Many U.S. households will receive additional funds from the federal government in a couple of months’ time, adding to the flood of stimulus payments from pandemic-related emergency legislation that has boosted personal savings to record levels. Implementing the expanded child tax credit included in the American Rescue Plan that was passed in March, “The Internal Revenue Service will make its first batch of monthly payments to about 39 million families with children on July 15, …Tens of millions of households will receive up to $250 a month per child between age 6 and 17 and up to $300 per child under age 6, based on their ages at the end of 2021. The payments will be made on the 15th of every month, …Unless Congress extends the program, it will expire at the end of December. … The credit isn’t just larger. Congress made two other changes, …First, it made the credit fully refundable, … In addition, Congress ordered the IRS to begin regular payments of the credit, turning the lump-sum refunds during tax season into a routine benefit for 2021.” The credits are subject to certain income limitations.


Clarida Keeps Call for Transitory Inflation: After several days to digest the dynamics underlying April’s inflation, Clarida said again he expects unusually high inflation readings to be temporary. Officials will remain “attuned and attentive” to the economic data and he has “no doubt we would use our tools” if inflation expectations become unanchored and begin to move higher. Shifting to employment, April’s jobs report showed the economy has “not made substantial further progress” towards the Fed’s goal and, as a result, tapering of asset purchases is not yet appropriate.

Bostic Balks at the Idea of Lessening Accommodation with More than 8 Million Jobs Still Missing: Atlanta Fed President Bostic said on CNBC that the Fed expects the next several inflation reports to be volatile, making it difficult to discern the actual underlying trend of consumer prices. However, considering the labor market is still lacking more than 8 million jobs relative to its pre-pandemic level, “now is not the time” to shift away from the Fed’s accommodative policy stance.

CORONAVIRUS UPDATE  (VS Coronavirus Chartbook – PDF)

While some countries continue to battle brisk paces of new infections – Taiwan implemented new restrictions on Monday to fight its current wave – others are taking steps to restart their economies in response to recent improvements. The U.K. eased some restrictions Monday and Italy said it would began to phase out and fully remove its national curfew in June. In the U.S., California said it will adopt updated CDC guidance on masks for the fully vaccinated a month from now and Massachusetts said it plans to lift all virus restrictions on May 29. Many of the strides towards reopening have been credited to rising vaccinations. The White House announced Monday it will send around 20 million vaccine doses abroad by the end of June, in addition to the 60 million AstraZeneca shots already pledged. Germany said it plans to lift vaccine prioritizations on June 7.

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