Connect with us

Real Estate

Existing home sales data continues to outperform

Lead Analyst Logan Mohtashami explains NAR’s existing home sales data, which is above 6.2 million for the third month in a row.
The post Existing home sales data continues to outperform appeared first on HousingWire.

Published

on

The National Association of Realtors reported that existing home sales for November came in hot at 6.46 million. This number is above my sales trend peak of 6.2 million, which means we have now had three straight months of sales of over 6.2 million.

Early in the year, I wrote that if existing home sales stay in a range between 5.84 million and 6.2 million, that would mean it’s a good year for housing demand. We ended 2020 with 5.64 million, so every single existing home sales print in 2021 has been higher than what we closed in 2020 — which was higher than any single year from 2008 to 2019.

Regarding the sales range for 2021, I had anticipated a few prints under 5.84 million and we only had one print under that number. Now, sale trends are growing into 2022 with a more positive tone. The housing crash addicts in America had a terrible 2020 and 2021: I have always stressed that these people are professional grifters, not housing analysts.

However, before we go into this report, I have to explain why so many people missed this surge in demand in the second half of 2021. It’s the same reason I have given for many years: the American bears who are typically housing crash addicts can’t read data correctly, and the mortgage purchase application data just proved my point once again.

Early in the year, I talked about how the purchase application data would be negative year over year in the second half of 2021 due to the make-up demand in 2020 creating abnormal high comps. Typically, volumes always fall after May, but of course 2020 was an abnormal year.

Knowing that the housing crash addicts on YouTube, Twitter, Facebook, and Clubhouse would incorrectly push the negative year-over-year data spin, I wanted to get ahead of that narrative. Then everyone went crazy on investors and iBuyers, suggesting that these people were holding up the entire housing market. I understand that grifters have to keep the grift going, but not even the Joker would say that the housing market lives off investors and not mortgage buyers.

What has happened is that purchase application data made a noticeable push higher in the year-over-year data starting 16 weeks ago. So for four months, this data line was getting better and better, and so many people ignored it because they didn’t know where to look. Since September, we have had a double-digit year-over-year growth trend, which is a big deal in this data line while the data was still showing negative growth year over year.

This would have been easy to spot if you had made COVID-19 adjustments to the data and recognized that the year-over-year declines were getting much less. Now, we can see why existing home sales, pending home sales, builders confidence, housing starts, and housing permits look better toward the end of the year: we are back to that 300 level in the MBA index that I have often talked about.

As you can see below, we don’t have a booming credit housing market as we saw from 2002-2005; we have steady replacement buyer demand. In 2020-2024, we just have that kick from the most prominent housing demographic patch ever recorded in history, as ages 28-34 are the biggest in America and need somewhere to live. You don’t need to make it any more complicated than that.



All this information was available for people to read in the Census data — it wasn’t hidden. I can understand if this was the 1500s and you needed to dispatch horses to get information that might come to you many months or years later. However, it’s 2021. We have the internet, access to census data is open to the public, and reading is a good thing.



This is why I stress my two rules always when talking about economics:

  • Economics done right, should be boring
  • You always want to be the detective, not the troll.

Anyone who has been predicting a housing crash every year from 2012-2019, then went all-in during 2020, only to double down in 2021 and push for a second-half crash in 2021 — you have all lost your privileges to talk about housing ever again.

Now on to the report and some of the details from NAR.

Home sales

From NAR: Total existing-home sales completed transactions that include single-family homes, townhomes, condominiums, and co-ops, grew 1.9% from October to a seasonally adjusted annual rate of 6.46 million in November.

As discussed, sales trends are now above my 6.2 million level for three straight months, aligning with the better mortgage demand growth that we saw for four months. Typically, purchase application data looks out 30-90 days, and we know that we will be dealing with COVID-19 comps to mid-February. One last item with existing home sales, our best sales prints the previous year, this year, and even in the previous expansion have all come in the winter and fall, not the spring or summer. This is a fact that not many people consider.

Home prices and days on market

From NAR: In November, the median existing-home price for all housing types was $353,900, up 13.9% from November 2020 ($310,800), as prices increased in each region, with the highest pace of appreciation in the South region.


For every positive, we do have a negative, and as we can see, the housing world is just different in the years 2020-2021 than what we saw from 2008-2019 regarding home prices. While the growth rate or pricing is slowing because we don’t have a credit boom in housing, the increase in prices in the first two years of my 2020-2024 time period has reached my comfort zone of cumulative price growth of 23%. Higher mortgage rates would create more days on the market, but this would mean the 10-year yield getting above 1.94% with duration in 2021, which wasn’t part of my forecast in 2021 and 2022.

A positive outcome for me in 2022 would be to see days on the market grow above the teenager age. More choices are better for homebuyers and sellers who need to buy a home typically as well.

From NAR: First-time buyers were responsible for 26% of sales in November; Individual investors purchased 15% of homes; All-cash sales accounted for 24% of transactions; Distressed sales represented less than 1% of sales; Properties typically remained on the market for 18 days.

Now for the real bad news, which is still a first-world problem, but the big concern for me during 2020-2024: inventory.

Seasonality has kicked in with inventory already, which is expected every year. However, I had hoped that we wouldn’t start spring 2022 with all-time lows in inventory. Unfortunately, that can’t be ruled out anymore and we might have a shot at a fresh new all-time low going into the spring of 2022 with mortgage rates under 4% still. Yikes!

The target level for me to stop talking about the unhealthiness of this housing market is to see inventory levels between 1.52 – 1.93 million. While this is still meager inventory historically, it will bring more balance into the market, and I can call it a B&B market: boring and balanced. Until then, it’s still the hunger games for housing.

As we end the year on a positive note and we still have one more existing report month left, we can clearly see that housing is driven by demographics and mortgage rates and those who pushed terrible Forbearance Crash narratives didn’t even get coal for Christmas.

If you want to read about my 2022 Housing and Economic Forecast you can find that here, or if you would rather listen than read, I provided an overview of the forecast on this episode of the HousingWire Daily podcast.

The post Existing home sales data continues to outperform appeared first on HousingWire.

Read More

Continue Reading

Bonds

Futures Jump Amid Optimism China’s Covid Lockdowns Are Ending

Futures Jump Amid Optimism China’s Covid Lockdowns Are Ending

Another day, another dead cat-bouncing, bear market rally.

After Monday’s flattish…

Published

on

Futures Jump Amid Optimism China's Covid Lockdowns Are Ending

Another day, another dead cat-bouncing, bear market rally.

After Monday's flattish session which saw tech names slump on fresh inflation fears, Nasdaq futures rebounded on Tuesday, setting up technology stocks for solid gains after a six-week rout as investors were encouraged by China's easing covid lockdowns and amid speculation that Beijing regulators may ease a yearlong clampdown on internet companies at an upcoming meeting with tech executives. Nasdaq 100 futures jumped 2% by 7:00 a.m. in New York after the underlying gauge sank on Monday on concerns about a slowdown in economic growth; S&P 500 futures rose 1.6%. Treasury yields rose modestly above 2.90%, and the dollar retreated. Bitcoin managed to rebound back over $30K.

Confirming what we said almost three weeks ago, Shanghai reported three days of zero community transmission, a milestone that could lead officials to start unwinding a punishing lockdown. However, flareups elsewhere in China showed how hard it is to tackle the omicron strain.

Among notable moves in US premarket trading, Twitter shares fell 3.3%, set to extend declines for an eighth straight session amid uncertainties around the deal with Elon Musk, while Citigroup rose 4.9% after Warren Buffett’s Berkshire Hathaway unexpectedly disclosed a new stake in the lender, a return to banks for the billionaire who purged many of his bank holdings several years ago. Tech names including Advanced Micro Devices, Tesla and Nvidia were among the biggest premarket gainers as growing recession concerns prompt markets to reasses just how many rate hikes the Fed will pull off before it is forced to reverse. Cryptocurrency-exposed stocks climbed as Bitcoin rose above $30,000 on Tuesday in cautious trading, with the fallout from a collapsed stablecoin continuing to keep sentiment in check. Chinese stocks in US jumped across the board in premarket trading on speculation that regulators may ease a yearlong clampdown on internet companies at an upcoming meeting with tech executives. Here are the most notable premarket movers:

  • Twitter (TWTR US) shares fell 2.4% in premarket trading, on course to extend their seven-day streak of declines, as uncertainties around a deal by buyer Elon Musk weigh on the stock. Tesla (TSLA US) shares rallied 3% in premarket trading.
  • Chinese stocks in US jump across the board in premarket trading on speculation that regulators may ease a yearlong clampdown on internet companies at an upcoming meeting with tech executives. Alibaba (BABA US) +6.2%, JD.com (JD US) +5.6%, Pinduoduo (PDD US) +7% and Baidu (BIDU US) +3.6%
  • Cryptocurrency-exposed stocks climb in US premarket as Bitcoin rises above $30,000 on Tuesday in cautious trading, with the fallout from a collapsed stablecoin continuing to keep sentiment in check. Riot Blockchain (RIOT US) +7.8%; Coinbase (COIN US) +6.8%; Marathon Digital (MARA US) +6.1%
  • Advanced Micro Devices (AMD US) upgraded to overweight from neutral at Piper Sandler, which says in note that the company’s core businesses are running well and mid-to-long-term catalysts remain intact. Stock gains 3.6% in New York premarket trading.
  • United Airlines Holdings’ (UAL US) updated second-quarter guidance is “a solid step in the right direction,” Citi says. United’s shares gained 4.3% in premarket trading.
  • Bird Global (BRDS US) shares jump as much as 40% in US premarket trading with DA Davidson noting management’s announcement of a plan to streamline operations.
  • Take-Two (TTWO US) reported better-than-expected fourth-quarter earnings helped by popular video games like NBA 2K22. The company’s shares rise 5.4% in premarket trading.
  • Global-e Online (GLBE US) shares slump as much as 30% in US premarket trading as analysts slash their price targets on the e-commerce software firm after it lowered its full-year guidance for revenue and gross merchandise value.
  • Imperial Petroleum (IMPP US) shares plunge 48% in US premarket trading. The shipping company priced an underwritten public offering of 72.7m units at $0.55 per unit, with expected gross proceeds of ~$40m.

US stocks have been roiled in the past six weeks as the combination of high inflation and hawkish central banks fueled fears of a potential recession. While some strategists including Morgan Stanley’s Michael Wilson expect equities to fall further before finding a floor, they don’t foresee a recession as their base case. The main focus today will be on US retail sales data, which are expected to show a rise of 1% in April.

“Investors’ appetite for riskier assets is on the rise after many welcomed today’s positive unemployment and GDP figures” from the eurozone and UK, said Pierre Veyret, an analyst at ActivTrades Plc. “The improving virus situation in China is also blowing a wind of relief in investors’ trading minds.”

A challenging global economic outlook amid elevated food and record fuel costs, and tightening monetary settings continues to shape sentiment.  Oil has jumped to about $114 a barrel and an index of agricultural prices is at a record high. But one bond-market measure - the five-year breakeven rate - is signaling inflation has peaked, while the latest virus developments raised hopes China’s damaging lockdowns may soon be eased.

On Monday, New York Fed President John Williams on Monday downplayed deteriorating liquidity conditions in financial markets, saying it was to be expected as investors grapple with uncertainty over global events and shifting U.S. monetary policy. No less than six Fed speakers - including Chair Jerome Powell - are due to speak later Tuesday.

In Europe, technology and basic-resources stocks led a broad-based advance of the Stoxx Europe 600 following a rally in Chinese tech shares on optimism Beijing may ease up on a yearlong clampdown. Italy's FTSE MIB adds 1.6%, FTSE 100 lags, adding 0.7%. Miners, financial services and banks are the strongest-performing sectors. Equities were also buoyed by data showing the euro-area economy expanded more than initially estimated at the start of the year as the region moved past a wave of Covid-19 infections and defied headwinds from the early days of the war in Ukraine. Here are the biggest European movers:

  • Clariant shares rise as much as 8.7% after the specialty chemical company announced its governance agreement with SABIC will expire at the June 24 AGM, and won’t be renewed.
  • Imperial Brands climbs as much as 7.9% after the tobacco company reduced its losses from next-generation products and continued on a turnaround plan.
  • Daimler Truck gains as much as 7.8% in Frankfurt; Oddo BHF notes strong 1Q report that will reassure in the current environment, while Citi says the company delivered an “encouraging” set of results.
  • Engie rises as much as 6.9%, hitting the highest since March 1, after the French energy company boosted its profit guidance on higher European energy prices.
  • CaixaBank advances as much as 5.4% after the Spanish lender released a new strategic plan that predicts a jump in a key profitability metric and announced a EU1.8b share buyback program.
  • Prosus and Naspers both raised to overweight from neutral at JPMorgan following the broker’s upgrade of Tencent. Prosus shares gain as much as 6.5% in Amsterdam, Naspers climbs as much as 6.7% in Johannesburg.
  • ContourGlobal gains as much as 34% after US private equity firm KKR agreed to buy the power generation business for 263.6p/share in cash, representing a premium of 36% to Monday’s close.
  • Vodafone erases losses after dropping as much as 4.2% as the telecom operator’s forecast for adjusted Ebitda after-leases missed consensus estimates at mid- point.

Earlier in the session, Asian stocks advanced for a third day -- its longest winning streak since mid-March -- amid a jump in some technology firms on the back of hopes for an unwind of Chinese lockdowns that have hurt the global economic outlook as well as a dialing back of Beijing’s regulatory crackdowns. The MSCI Asia-Pacific Index climbed as much as 1.5%, on track for a third day of gains. Chinese tech giants Tencent and Alibaba contributed most to the gain, while chipmakers TSMC and Samsung also helped. Shanghai reported no new Covid infections in the broader community for a third day, hitting a crucial milestone toward reduced restrictions. China’s top political advisory body is hosting a meeting Tuesday with some of the nation’s largest private-sector firms, sparking hopes for an improved business climate. 

“The mood in Asia is risk on,” said Xue Hua Cui, a China equity analyst at Meritz Securities in Seoul. “Whether this remains a dead cat bounce or not depends on how quickly demand recovers following the end of Shanghai lockdowns.” Hong Kong outperformed, with the Hang Seng Index rising more than 3%. Benchmarks in India also advanced more than 2%, even as state-run insurer Life Insurance Corporation of India dropped in its Mumbai trading debut after a record initial public offering for the nation. 

Japanese equities gained with Asian peers amid hopes that China will ease up on Covid lockdowns and regulatory crackdowns. The Topix rose 0.2% to close at 1,866.71. Tokyo time, while the Nikkei advanced 0.4% to 26,659.75. Recruit Holdings contributed the most to the Topix gain, rising 2% after its earnings report. Out of 2,172 shares in the index, 1,164 rose and 932 fell, while 76 were unchanged.

Australia's S&P/ASX 200 index rose 0.3% to close at 7,112.50, taking its winning run to a third session. Miners and banks contributed the most to the gauge’s advance. Beach Energy was among the top performers, climbing with other energy shares as oil rallied. Brambles was the biggest laggard after saying CVC won’t be putting forward a proposal for the pallet maker. Investors also assessed minutes from the RBA’s May meeting. The central bank said it considered three options for the size of its first interest-rate increase since 2010. In New Zealand, the S&P/NZX 50 index fell 0.2% to 11,137.88.

India’s key gauges surged on Tuesday, boosted by Reliance Industries Ltd. which climbed the most since early March. Still, Life Insurance Corp. of India, the country’s biggest listing so far, slumped on debut. The S&P BSE Sensex rose 2.5%, its biggest jump in three months, to 54,318.47 in Mumbai, while the NSE Nifty 50 Index advanced 2.6%. All of the 19 sector sub-indexes compiled by BSE Ltd. climbed, led by a gauge of metal companies. Reliance Industries advanced 4.2%, providing the biggest boost to the Sensex, which had all 30 members trading higher.  “It’s a much-needed breather for the bulls after five weeks of slide and we may further rise,” said Ajit Mishra, vice-president research at Religare Broking Ltd. “Since all the sectors are participating in the rebound, we suggest focusing more on stock selection. Despite strong gains in the broader market, shares in the state-controlled insurer plunged 7.8%, following a $2.7 billion IPO, India’s biggest on record. The stock trimmed losses from the low, but failed to touch the listing price in the session. LIC’s first-day performance makes for the second-worst debut among 11 global companies that listed this year after raising at least $1 billion through first-time share sales. 

In FX, the Bloomberg Dollar Spot Index fell a third consecutive day and the greenback weakened against all of its Group-of-10 peers apart from the yen. The pound lead G-10 gains followed by Scandinavian and Antipodean currencies. The pound rallied and gilts slumped across the curve after a stronger-than-expected reading of the UK employment data stoked speculation that a tighter labor market may prompt the BOE to continue its monetary tightening cycle beyond a widely expected rate rise next month. Average weekly earnings surged 7% in the three months through March, compared to the 5.4% figure economists had expected. The euro rose on the back of a broadly weaker dollar. Bunds slid as haven demand was unwound. Italian bonds also tumbled as money markets wagered on up to 98bps of ECB hikes by December. The Aussie strengthened for a third day while Australia’s sovereign bonds fell after minutes from RBA’s May meeting indicated the central bank considered an outsized rate hike. The RBA said it considered three options for the size of its first interest-rate increase since 2010, according to minutes of its May 3 policy meeting, when it raised the cash rate by 25 basis points. The Australian and New Zealand dollars also benefitted from expectations that Covid lockdowns in Hong Kong and Shanghai will be lifted. The yen gave up earlier gains as US yields resumed their climb, which also weighed on Japan government bonds.

In rates, yields rose as Treasuries cheapened with losses led by front-end of the curve, following a sharper bear flattening move across EGBs after ECB Governing Council member Klaas Knot said he supports a quarter-point increase in interest rates in July and that a bigger move may be justified if data show inflation worsening. US Treasury yields cheaper by up to 5.5bp across front-end of the curve, the 10Y TSY trading at 2.91% last and flattening 2s10s spread by 2.2bp on the day; 2-year German yields cheaper by 23bp on the day following Knot comments while German 10s are cheaper by 4bp vs. Treasuries. In U.S. session, focus on a stacked Fed speaker slate led by Chair Jerome Powell who will be interviewed during a Wall Street Journal live event in the afternoon. The Dollar issuance slate includes Export Development Canada 5Y SOFR, OKB 3Y SOFR and JICA 5Y SOFR; six deals priced $9.1n Monday in order books that were 3.3x oversubscribed

In commodities, WTI drifts 0.2% higher to trade at around $114. Spot gold rises roughly $3 to trade above $1,825/oz. Base metals are mixed; LME tin falls 1.6% while LME zinc gains 2.4%. European gas prices hit four-week low after EU revised guidelines for purchases of Russian supplies.

To the day ahead now, and there’s an array of central bank speakers including Fed Chair Powell, along with the Fed’s Bullard, Harker, Kashkari, Mester and Evans, ECB President Lagarde and BoE Deputy Governor Cunliffe. Data releases include US retail sales, industrial production and capacity utilisation for April, along with the NAHB’s housing market index for May. Elsewhere, there’s also the UK unemployment reading for March. Finally, earnings releases include Walmart and Home Depot.

Market Snapshot

  • S&P 500 futures up 1.3% to 4,057.75
  • STOXX Europe 600 up 1.6% to 440.47
  • MXAP up 1.4% to 162.83
  • MXAPJ up 2.2% to 535.18
  • Nikkei up 0.4% to 26,659.75
  • Topix up 0.2% to 1,866.71
  • Hang Seng Index up 3.3% to 20,602.52
  • Shanghai Composite up 0.6% to 3,093.70
  • Sensex up 2.1% to 54,080.42
  • Australia S&P/ASX 200 up 0.3% to 7,112.53
  • Kospi up 0.9% to 2,620.44
  • German 10Y yield little changed at 0.99%
  • Euro up 0.4% to $1.0480
  • Brent Futures up 0.3% to $114.53/bbl
  • Gold spot up 0.2% to $1,827.11
  • U.S. Dollar Index down 0.42% to 103.75

Top Overnight News from Bloomberg

  • The euro-area economy grew more than initially estimated at the start of the year as the region moved past a wave of Covid-19 infections and defied headwinds from the early days of the war in Ukraine. Economic output rose 0.3% in the first quarter, exceeding a flash reading of 0.2%, according to Eurostat data released Tuesday. Employment, meanwhile, gained 0.5% during same period
  • The UK will lay out its plan to amend its post-Brexit trade deal Tuesday in a direct challenge to the European Union, which is insisting that Prime Minister Boris Johnson must honor the agreement he signed
  • China’s main bond trading platform for foreign investors has quietly stopped providing data on their transactions, a move that may heighten concerns about transparency in the nation’s $20 trillion debt market after record outflows
  • The American and European Union chambers of commerce in separate briefings said their members are rethinking their supply chains and whether to expand investment in the face of China’s zero tolerance approach to combating Covid-19
  • Turkish President Recep Tayyip Erdogan said he won’t allow Sweden and Finland to join NATO because of their stances on Kurdish militants, throwing a wrench into plans to strengthen the western military alliance after Russia’s invasion of Ukraine

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks were positive but with gains capped after the uninspiring lead from Wall St and growth concerns. ASX 200 was kept afloat by strength in the commodity-related sectors after recent gains in underlying prices. Nikkei 225 traded marginally higher with Japan seeking to pass an extra budget by month-end and will begin permitting entry to a small number of tourists. Hang Seng and Shanghai Comp were both firmer with tech spearheading the outperformance in Hong Kong amid hopes of an easing of the crackdown on the sector, while the mainland lagged amid economic concerns and despite Shanghai reporting no cases outside of quarantine for a 3rd consecutive day.

Top Asian News

  • China's state planner said China's economy faces increasing downward pressure, while it will step up support for manufacturing companies, contact-intensive services, small companies and home businesses, according to Reuters.
  • Senior Chinese officials are to meet with tech industry chiefs today amid talk of crackdown easing, according to Nikkei. It was later reported that China's top political consultative body began a conference on promoting the sustainable and healthy development of the digital economy, according to state media.
  • Hong Kong Chief Executive Carrie Lam said they will proceed with the planned COVID curbs easing on May 19th, according to Bloomberg.
  • BoJ Deputy Governor Amamiya said it is important to continue current powerful easing to firmly support the economy and that long-term interest rates have been stable since the adoption of fixed-rate operations, while he added that if monetary easing is reduced now, it would make the 2% price goal an even more distant target, according to Reuters.
  • Japan is to permit small groups of tourists to visit this month as a trial ahead of its border reopening, according to Japan Times.

European bourses are firmer across the board, Euro Stoxx 50 +1.7%, taking impetus from and extending on a positive APAC handover as the regions COVID situation improves. Stateside, futures are firmer across the board, ES +1.8%, following yesterday's  relatively lacklustre session with participants awaiting numerous Fed speak, including Chair Powell. Twitter (TWTR) prospective purchaser Musk says that his offer was based on the Co.'s SEC filing being accurate, however, yesterday the CEO refused to show proof of less than 5% of fake/spam accounts; deal cannot move forward until this has been disclosed. -3.5% in the pre-market. Home Depot Inc (HD) Q1 2023 (USD): EPS 4.09 (exp. 3.67/3.67 GAAP), Revenue 38.9bln (exp. 36.71bln); Raises Fiscal 2022 Guidance. +2.5% in the pre-market

Top European News

  • UK Foreign Secretary Truss is to declare her intention to bring forward legislation that rips up parts of the post-Brexit trade deal on Northern Ireland, according to LBC. Expected around 12:30BST/07:30ET
  • Irish Foreign Minister Coveney says he spoke with UK Foreign Minister Truss on Monday, notes the EU and UK sides haven't met since February and says it is "time to get back to the table"
  • ECB is expected to raise the deposit rate in July according to 39 out of 39 respondents in a Reuters survey, while 26 out of 48 economists see the deposit rate at 0% in Q3 and 21 out of 48 see the deposit rate at 0.25% in Q4.

FX

  • Pound the standout G10 performer in wake of outstanding UK labour report; Cable clears string of resistance levels on the way towards 1.2500 and EUR/GBP probes 0.8400 after breaching technical supports .
  • Kiwi and Aussie relish renewed risk appetite and latter also helped by hawkish RBA minutes; NZD/USD above 0.6350 and 1.3bln option expiries at 0.6300, AUD/USD back on 0.7000 handle.
  • Greenback concedes ground ahead of top tier US data and raft of Fed speakers including chair Powell, DXY down to 103.470 vs 104.320 at best; latest session low in wake of ECB's Knot.
  • Franc, Euro and Loonie all up at the expense of the Buck but latter also fuelled by WTI topping USD 115/bbl; USD/CHF sub-parity, EUR/USD surpassing 1.05 in wake of hawk-Knot and USD/CAD near 1.2800.
  • Yen lags as risk sentiment improves and yields outside of Japan rebound firmly; USD/JPY rebounds through 129.00 and just over 129.50.
  • Norwegian Crown boosted by Brent in stark contrast to crude import dependent Turkish Lira and Indian Rupee; EUR/NOK under 10.1500, USD/TRY touches 15.8850 and USD/INR crosses 78.0000 to set fresh ATH

Fixed Income

  • Bonds make way for risk revival and brace for US data amidst a raft of global Central Bank speakers.
  • Bunds down to 152.74, Gilts hit 119.25 and 10 year T-note as low as 119-08 before paring some heavy declines
  • UK DMO gets welcome reception for 2015 issuance, but new German Schatz receives cold shoulder even before hawkish comments from ECB's Knot not ruling out a 50 bp July hike if data warrants more than 25 bp
  • China's main bond trading platform is said to have stopped the reporting of bond trades by foreigners following the market downside, according to Bloomberg.

Commodities

  • WTI and Brent are firmer in-fitting with broader risk appetite and the aforementioned China COVID improvement; posting gains of circa USD 0.80/bbl.
  • However, upside remains capped amid the ongoing standoff between the EU and Hungary over a Russian import embargo.
  • Iran set June Iranian light crude price to Asia at Oman/Dubai + USD 4.25/bbl, according to a Reuters source
  •  
  • OPEC+ production was 2.6mln below quotas in April, according to a report cited by Reuters; Russian production 1.28mln below the required level in April, sources add.
  • Spot gold is firmer, taking impetus from the USD pressure; though, the yellow metal is yet to move out of earlier ranges.
  • Base metals are bid on risk while Wheat declined amid reports that India is easing some of its export restrictions.

Central Banks

  • ECB's Knot says a 25bp hike in July is realistic; says a 50bp rate hike should not be excluded if data in the next few months suggests that inflation is broadening and accumulating.
  • NBH's Virag says they will increase rates further, via Reuters citing slides.
  • NBP's Kotecki says that interest rates will continue to move higher but it is currently difficult to define their target level.

US Event Calendar

  • 08:30: April Retail Sales Advance MoM, est. 1.0%, prior 0.5%, revised 0.7%
    • April Retail Sales Ex Auto MoM, est. 0.4%, prior 1.1%, revised 1.4%
    • April Retail Sales Ex Auto and Gas, est. 0.7%, prior 0.2%, revised 0.7%
    • April Retail Sales Control Group, est. 0.7%, prior -0.1%, revised 0.7%
  • 09:15: April Industrial Production MoM, est. 0.5%, prior 0.9%
  • 09:15: April Manufacturing (SIC) Production, est. 0.4%, prior 0.9%
  • 10:00: March Business Inventories, est. 1.9%, prior 1.5%
  • 10:00: May NAHB Housing Market Index, est. 75, prior 77

Fed Speakers

  • 08:00: Fed’s Bullard Discusses Economic Outlook
  • 09:15: Fed’s Harker Discusses Healthcare as Economic Driver
  • 12:30: Fed’s Kashkari Takes Part in a Moderated Townhall Discussion
  • 14:00: Powell Interviewed During Wall Street Journal Live Event
  • 14:30: Fed’s Mester Gives Opening Remarks to Panel on Inflation
  • 18:45: Fed’s Evans Discusses the Economic Outlook

DB's Jim Reid concludes the overnight wrap

Recession fears have continued to dominate markets over the last 24 hours, but Deutsche Bank Research is still the only bank to actually forecast one in the US. The tone was set for the day after some incredibly weak data out of China that we discussed yesterday, but that was then followed up with disappointing survey data from the US, which arrived ahead of an array of central bank speakers today (including Fed Chair Powell).

Although markets in Asia are bouncing a little this morning, the S&P 500 (-0.39%) last night followed up its run of 6 consecutive weekly declines with a further loss. It was another volatile day that saw stocks trade in a 1.5% range, including going into positive territory briefly in the afternoon before slipping into the close. Sector dispersion was pretty wide, with energy shares gaining +2.62% and consumer discretionary stocks falling -2.12%, led by Tesla retreating -5.88%. Tech was the next biggest laggard, with the NASDAQ (-1.20%) and FANG+ index (-1.34%) underperforming the broader universe. That still leaves the S&P 500 index around 2% above its recent closing low on Thursday, but remember that if we get another week in negative territory, it would still be the first time since 2001 that the S&P has posted 7 consecutive weekly declines. After opening the week much lower, the STOXX 600 did recover through that day to post a slight +0.04% gain yesterday, continuing its recent outperformance.

The prevailing risk-off mood meant that longer-dated sovereign bond yields also ended the day lower for the most part. Those on 10yr Treasuries were down -3.6bps to close at 2.88%, having already fallen by -20.8bps over the previous week as investors priced in a growing risk of recession over Fed and inflation concerns. The decline was split between breakevens and real yields. To be fair 10yr yields have gained +3.3bps this morning in Asia, thus almost reversing yesterday's losses so far.

At the short-end, the amount of tightening priced in over the near-term has subsided somewhat of late, as it seems investors are searching high and low for a Fed put following a poor run of risk asset performance and the prior relentless repricing towards a more aggressive monetary tightening. Indeed if you were to stop the month right now, it would be the first month in 10 that the rate priced in by the December 2022 meeting has actually fallen rather than risen. That’s been echoed further out the curve as well, with investors now barely expecting the Fed Funds rate to get above 3% in 2023 at all, even though inflation has proven much stickier than the consensus expected over recent months. As Chair Powell put it in an interview last week, getting inflation back to target will “include some pain”. Markets are starting to price some of that out though.

Over in Europe longer-dated sovereign bond yields also moved slightly lower, including those on 10yr bunds (-0.8bps), OATs (-1.4bps) and BTPs (-0.8bps). That came as we heard from Bank of France Governor Villeroy, who said to expect “a decisive June meeting, and an active summer”, which fits into the broader debate recently whereby markets are increasingly expecting an initial hike as soon as July. This saw the 2yr bund increase +3.0bps to 0.12%. Another point of interest were also his comments on the exchange rate, saying that “A euro that is too weak would go against our price-stability objective”.

In line with the broader theme this year, one asset class that wasn’t impacted by the risk-off tone was commodities, and both Brent crude (+2.41%) and WTI (+3.36%) moved back above $114/bbl yesterday. This morning, both are seeing slight losses though (-0.36% and -0.46%, respectively). There were major gains for wheat futures (+5.94%) too, which saw a significant daily rise following India’s move over the weekend to restrict their exports. And that went alongside other rises in agricultural goods yesterday including corn (+3.6%) and sugar (+2.66%), which is an incredibly important story for emerging markets in particular given the much higher share of disposable income that consumers put towards food in those countries.

Another asset class that has had a bad time of late is Bitcoin, shedding another -3.58% to $29,909 yesterday. This morning it is climbing back above the $30k threshold. Marion Laboure in my team published a piece yesterday looking at the recent selloff in crypto, adding some much needed context for what this means for broader adoption efforts. See here for more.

Overnight in Asia, it has been a good start for the Hang Seng (+2.23%) amid optimism that today’s meeting between China’s corporates and regulators may lead to an easing of draconian measures on tech companies. Hong Kong is also on track to ease covid curbs on May 19th, a theme that also lifted the Shanghai Composite (+0.29%) after the city reported a third day of no new infections in the broader community, a threshold that allows it to roll back some of the restrictions. The sentiment is upbeat elsewhere in Asia too, with the Nikkei (+0.35%) and the KOSPI (+0.80%) also rising. This optimism is shared by S&P 500 futures, up +0.31%.

Elsewhere, it’s likely that Brexit will be back in the headlines today as UK Foreign Secretary Liz Truss is expected to make a statement to parliament announcing a new law that would override parts of the Northern Ireland Protocol. For reference, the Protocol is a part of the Brexit deal which the UK and the EU agreed ahead of the UK’s departure, but has been a persistent source of controversy since. Northern Irish unionists view it as undermining their place in the UK because it places an economic border between Northern Ireland and Great Britain, and the DUP (the second-largest party in the Northern Ireland Assembly) are refusing to help form an executive following their recent elections unless action is taken on the Protocol. The EU have continued to warn the UK against any unilateral action, and there’s been fears of an UK-EU trade war if the row gets worse.

There wasn’t much in the way of data yesterday, although the Empire State manufacturing survey for May underwhelmed with a reading of -11.6 (vs. 15.0 expected), which was beneath every estimate in Bloomberg’s survey. There was some easing in the prices paid index though, which fell to a 14-month low of 73.7.

To the day ahead now, and there’s an array of central bank speakers including Fed Chair Powell, along with the Fed’s Bullard, Harker, Kashkari, Mester and Evans, ECB President Lagarde and BoE Deputy Governor Cunliffe. Data releases include US retail sales, industrial production and capacity utilisation for April, along with the NAHB’s housing market index for May. Elsewhere, there’s also the UK unemployment reading for March. Finally, earnings releases include Walmart and Home Depot.

Tyler Durden Tue, 05/17/2022 - 07:43

Read More

Continue Reading

Economics

Morgan Stanley: SPX could return to its pre-pandemic 3,400 level

The S&P 500 index could return to its pre-pandemic 3,400 level in the coming months that translates to another 15% downside from here, warned a Morgan…

Published

on

The S&P 500 index could return to its pre-pandemic 3,400 level in the coming months that translates to another 15% downside from here, warned a Morgan Stanley analyst on Monday.

Don’t be fooled by the bear market rally

Michael Wilson dubs the recent bounce (about 4.0%) in U.S. equities a “bear market rally” and says investors should brace for more pain ahead as inflation and supply constraints remain a significant headwind. In his note, the analyst said:

With valuations now more attractive, equity markets so oversold an rates potentially stabilizing below 3.0%, stocks appear to have begun another material bear market rally. After that, we remain confident that lower prices are still ahead.

Last week, the U.S. Bureau of Labour Statistics said inflation stood at 8.30% in April – a marginal decline versus the prior month but still ahead of the Dow Jones estimate.

How to navigate the current environment?

Wilson continues to see a recession as unlikely, but agrees that the risk of such an economic downturn has certainly gone up. The U.S. economy unexpectedly shrank 1.40% in the first quarter of 2022.

That is just another reason why equity risk premium is too low, and stocks are still overpriced. The bear market won’t be over until valuations fall to levels (14 – 15x) that discount the kind of earnings cuts we envision, or earnings estimates get cut.

He recommends increasing exposure to real estate, health care, and utilities stocks to navigate the current environment, while tech and consumer discretionary stocks remain a big “no” for him.

The post Morgan Stanley: SPX could return to its pre-pandemic 3,400 level appeared first on Invezz.

Read More

Continue Reading

Real Estate

Is investor appetite for non-QM changing?

HousingWire chats with Steven Schwalb, Managing Partner of Angel Oak Lending about the changes investor appetite for non-QM products.
The post Is investor…

Published

on

In 2022’s changing market, non-QM has been a hot topic for many. HousingWire recently caught up with Steven Schwalb, managing partner of Angel Oak Lending, about the changes investor appetite has gone though for non-QM.

HousingWire: What is the investor appetite for non-QM and how has that changed over the past few years?

Steven Schwalb: The investor appetite continues to be strong even in today’s volatile market. Non-QM securitizations had their biggest supply year on record in 2021 and we are still hitting records today. In fact, in the first quarter of 2022, non-QM securitizations totaled $11 billion. Of that volume, $6.2 was in March. March just so happened to be a record month for Angel Oak as well.

As a leader in bringing back this asset class, we have continued to see more and more investors look to non-QM. One common criticism of these loans in the past was that they were not stress-tested and no one knew how they would perform under those conditions. Well, the COVID pandemic brought about economic conditions that tested the performance of non-QM and they came out quite well. Since then, we have seen more and more insurance companies and money managers become interested in investing with Angel Oak and the non-QM space. This bodes especially well for the future and non-QM’s anticipated growth.

HousingWire: With so many new lenders getting into non-QM, why is it more important than ever to work with the right non-QM lender?

Steven Schwalb: Non-QM is where we play, and we have laid a solid foundation as the leaders in non-QM. Angel Oak Mortgage Solutions focuses exclusively on non-QM and we have been setting records in volume. As an organization, Angel Oak has originated over $12B in non-QM. Recently we have seen an increased focus on non-QM, which has led a number of Agency lenders attempt to get into the space.

Since there are so many more options, it is more important than ever to work with the right firm. As we always say, wouldn’t you rather work with someone who has done 10,000 non-QM loans rather than 10? The key is to understand the important questions to ask. How long have they been doing non-QM? What percentage of their overall business is non-QM? What is their origination model? Do they need a pre-closing investor review? Those are but a few important ones.

Choosing the wrong lender puts not only your reputation at risk, but the relationship with your referral partner as well! What happens when the lender tells you they can do the loan with 20% down and then at the last minute, their end investor says no? They come back saying the borrower needs to put down 30%. We’ve heard many stories of that happening. How does that impact your relationship with that referral source? These examples do not happen at Angel Oak. Our vertical integration means our affiliate, Angel Oak Capital Advisors is the end investor. We know what they’re looking for when we issue a pre-qual, and we stand behind that. This relationship allows us to write our own guidelines and quickly update them based on market conditions. Our model is to originate to retain, not to sell. As well, we do not have to seek third party approval to do a loan – we are the end investor. Surety of execution, consistently enhancing guidelines and offering flexibility through our non-QM products sets us apart. Make sure to ask lenders you are considering these types of questions.

HousingWire: Non-QM is expected to grow significantly in 2022, where is that growth going to come from?

Steven Schwalb: A couple of areas. First, with increased education and awareness, more originators are beginning to offer non-QM. That means more opportunities for these underserved borrowers to qualify for a loan.

Second is from the significant growth in the number of borrowers who need it. Increased fees from the GSEs for second homes and high balance loans have borrowers looking for more affordable options. There is also a large population of self-employed in the U.S. today. Self-employed borrowers often need Bank Statement loans because they can’t qualify using tax returns. The Department of Labor estimates 30% of the U.S. workforce is self-employed. That is around 59 million people including gig economy workers. And this demographic continues to grow at a rapid rate. We also work with originators who close deals for real estate investors who own many properties and need options outside of Agency.

HousingWire: How have the changes in the agency space (GSEs/FHFA) impacted non-QM?

Steven Schwalb: A couple of changes have impacted the non-QM space. First, stricter guidelines including condos have caused more borrowers to fall out of Agency. We are seeing more condos deemed non-warrantable and we are helping originators with these fall-out scenarios. As well, Agency has increased fees for second homes and high-balance loans. As a result, our non-QM volume is increasing with originators looking for alternative solutions to get their deals closed. After all, this is what we do – helping borrowers left outside of Fannie Mae and Freddie Mac and giving them another chance. At the moment, the population of borrowers in this situation is increasing.

The bottom line is that our originator partners are telling us that Angel Oak and non-QM is providing them an opportunity in today’s market to capture more purchase volume. Investors see the growth and they feel more confident investing in our non-QM borrowers. There is ample growth ahead of us!

The post Is investor appetite for non-QM changing? appeared first on HousingWire.

Read More

Continue Reading

Trending