Morning Report: Risk-on feel as China and US strike a trade deal

Vital Statistics:

 

Last Change
S&P futures 3088 12.25
Oil (WTI) 57.27 0.94
10 year government bond yield 1.88%
30 year fixed rate mortgage 3.97%

 

Stocks are higher this morning after the US and China agree to remove tariffs. China also made some high profile arrests to stem the tide of fentanyl coming into the US. The fentanyl issue was a key part of the US’s issues with China. Bonds and MBS are down on the “risk-on” trade.

 

After a dismal start to the year, the luxury end of the market (homes over $1.5 million) rebounded in the third quarter as rates fell. Prices rose 0.3% on average, but they had been falling since 2018. Manhattan was hit particularly hard on the new mansion tax. Florida was the beneficiary as prices rose over 100% in West Palm and some of the other nearby areas. Previously hot markets like San Diego also remained in the losing category. “Because recession fears peaked over the summer, I expected luxury home prices and sales to dip. But it appears that nerves alone weren’t enough to scare off wealthy homebuyers,” said Redfin chief economist Daryl Fairweather. “The U.S. economy grew faster than expected in the third quarter, partly as a result of healthy consumer spending. Those results, along with flat luxury home prices and rising sales, go to show that Americans are basing their spending habits on their own personal financial situation rather than concerns about global economic tensions. For many, that means strong incomes and good employment prospects.”

 

Fannie Mae is out with their housing forecasts for 2020. They anticipate the 30 year fixed rate mortgage will continue to fall, hitting 3.5% by the end of 2020, and home prices will rise about 4%. Interestingly, they do not anticipate any sort of pickup in housing starts – in fact they anticipate they will be flat with 2019. Despite the drop in rates, they anticipate origination volumes will fall to 1.86 trillion from 2.04 trillion as the refinance share of the market falls from 37% to 31%.

 

New York Fed President John Williams said that the FOMC sees no reason to cut interest rates further: “The three rate cuts we did were very effective at managing the risks” slowing global growth and trade uncertainty present to the U.S. economy, New York Fed President John Williams said at a Wall Street Journal event in New York. Chicago Fed President Charles Evans echoed the same sentiment.

 

Finally, we know that gathering strength in the US economy is helping push rates higher. It is important to note that rising rates is not simply a US phenomenon. US Treasuries don’t trade in a vacuum – they are always going to be subject to moves in overseas rates. For now, the key overseas interest rate to watch is the yield on the German Bund, which has increased by 45 basis points since early September. The Bund still has a negative yield, but it is now -27 basis points after bottoming at -72 basis points 2 months ago.

 

bund

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Morning Report: Hamptons Real estate is for sale

Vital Statistics:

 

Last Change
S&P futures 2931.75 0.7
Eurostoxx index 390.26 -0.72
Oil (WTI) 66.21 0.32
10 year government bond yield 2.53%
30 year fixed rate mortgage 4.23%

 

Stocks are lower after 3M missed earnings. Bonds and MBS are flat as well. We will get Amazon.com and Ford after the close.

 

Durable Goods orders came in way higher than expected for March – increasing 2.7% versus expectations of 0.8%. Much of this was transportation-related. Ex transports, they rose 0.4%, which still beat the 0.2% forecast. Nondefense capital expenditures rose 1.3%, again better than the 1.2% expectation. We might see some estimates for Q1 GDP get taken up on these numbers.

 

Initial Jobless Claims rose 38k to 230,000. This is the highest print in a while, but it is too early to get a read on whether the labor market is changing. FWIW, organized labor has been scoring some victories lately as worker shortages have given them the upper hand.

 

Homebuilder D.R. Horton disappointed the street with their earnings this morning. Homebuilding revenue increased 8% YOY and homes closed increased 10% in units. Forward guidance was the issue as its revenue forecast came in light despite the sales estimate coming more or less as expected. The stock is down about 4% pre-open.

 

More problems with luxury real estate: a glut of inventory in the Hamptons. There are 869 homes for sale in the tony NYC summer vacation location, which is the highest since at last 2012. This seems to mirror the glut of luxury homes in Fairfield County CT as the market seems to be finally meeting its day of reckoning, which was pushed off in the immediate aftermath of the financial crisis. Most people had the wherewithall to wait out the market, hoping for a recovery that never really came. Now, they are getting impatient and it looks like this sector of the market will finally clear.

 

hamptons

 

Fed pick Steven Moore is in hot water, not for his ideology (though left econ has been piling on), but for calling Cleveland OH and Cincinnati OH “armpits” of America. This is probably a non-controversial opinion to most non-Ohians, but Sherrod Brown (D-OH) thinks this should disqualify him. Note the Washington post is miffed about some humor columns that he wrote in the past too. Herman Cain has withdrawn his application, and it looks like Moore might be on the ropes as well.