The Market Today
Yields Pull Back Ahead of Quiet Economic Calendar
by Craig Dismuke, Dudley Carter
Leading Index and Davos WEF: The only report on today’s calendar is the December Leading Index. The index, scheduled for 9:00 a.m. CT, is expected to rise 0.8% MoM. The World Economic Forum continues in Davos, Switzerland today with ECB president Lagarde and U.S. Treasury Secretary Yellen both scheduled to speak.
OTHER ECONOMIC NEWS
Existing Home Sales Slumped in December to Wrap Up Best Year Since 2006: Existing home sales slid 4.6% in December to 6.18 million annualized units, disappointing expectations for a 0.6% decline to 6.42 million units. The miss was only partially offset by a positive revision that lifted November’s 1.9% gain to 2.2%. December’s drop was the sharpest since February and spread across all four geographic regions, with particular weakness in the South and West. Sales had rebounded in recent months, rising 10.2% from August to November. The NAR said “the lack of inventory is hindering some of the sales activity,” a statement supported by a drop in inventory to 1.8 months of supply, the lowest on record. After slowing steadily since May, the median annual price increase has picked up the last couple of months to 15.8% in December, the strongest since July. The NAR said “the fact that prices are showing this strength is showing that buyers are there.” Despite continued tension between supply and demand and pricing headwinds, sales totaled 6.1 million for the full year in 2021, the strongest year for sales in fifteen years.
Stocks Erased Early Gains to Send Treasury Yields To Close at Session Lows: Stocks were on pace for a solid recovery Thursday before a steep afternoon sell-off pushed the three major indices solidly lower to a close near session lows. Many analysts credited the initial strength for equities to a technical bounce and some overnight relief from this year’s surge in interest rates. The Nasdaq had closed Wednesday in correction territory and below its 200-day moving average, lending support to the idea that some investors may have been lured back in to take advantage of a lower entry point. The 10-year Treasury yield had moved lower heading into U.S. trading after touching 1.90% on Wednesday. The support for equities, however, faded abruptly early in the afternoon, sending the S&P 500 sliding 1.1% to close at a three-month low. The Dow fell 0.9% while the Nasdaq led losses with a 1.3% decline, settling at its lowest level since June. Equities’ veer southward enhanced a bid for Treasurys and pushed yields down further to close at session lows. The 2-year ended 3.2 bps lower at 1.03% while the 5-year and 10-year yields dropped 6.1 bps to 1.59% and 1.80%, respectively. The 77 bps of spread between the 2-year and 10-year yields marked the lowest level of 2022.
Equities and Sovereign Yields Fall Friday: Those second-half trends spread globally on Friday, knocking equities and sovereign yields lower around the world. Stocks fell around 1% in Asia before Europe’s Stoxx 600 tumbled 1.8%, on pace for its worst performance since late November. Tech shares were the biggest drag on the European index, although all sectors were weaker with most falling by at least 1%. The Nasdaq continued to underperform in pre-market trading, sliding 1.0% before 7 a.m. CT. Netflix reported better-than-expected earnings after Thursday’s closing bell but subscriber growth slowed and the outlook for new customer sign-ups this quarter was just 40% of expectations. The company’s shares were down 20% in overnight trading, exacerbating the rate-related headwinds for the tech sector. Equities’ retreat was a windfall for sovereign debt, driving prices higher and yields lower. The U.K.’s 10-year yield was 4.1 bps lower at 1.18% and leading broad declines across the Atlantic. Data showed U.K. retail sales excluding gasoline fell 3.6% in December, worse than the 0.8% decline anticipated. At 7:30 a.m. CT, S&P 500 futures were 0.6% lower, the 2-year Treasury yield was 2.1 bps lower at 1.00%, and the 5-year (1.56%) and 10-year (1.77%) yields were down around 3.0 bps.