Dow slid back 50, decliners over advancers 3-2 & NAZ was off 39. The MLP index fell 2+ to the 212s & the REIT index was up 1+ to the 452s Junk bond funds were in demand & Treasuries saw heavy buying, reducing yields (more below). Oil dropped 3+ to the 88s & gold dropped 22 to 1792.
AMJ (Alerian MLP index tracking fund)
Builder sentiment in the market for single-family homes fell into negative territory in Aug, as builders & buyers struggle with higher costs. The National Association of Home Builders/Wells Fargo Housing Market Index (NAHB) dropped 6 points to 49 this month, its 8th straight monthly decline. Anything above 50 is considered positive. The index has not been in negative territory since a very brief plunge at the start of the Covid pandemic. Before that, it hadn't been negative since 2014. “Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” said NAHB Chief Economist Robert Dietz. Of the index's 3 components, current sales conditions dropped 7 points to 57, sales expectations in the next 6 months fell 2 points to 47 & buyer traffic fell 5 points to 32. Despite higher costs for land, labor & materials, about 1 in 5 builders in Aug reported lowering prices in the past month in an effort to increase sales or limit cancellations. The average drop reported was 5%. The biggest hurdle for buyers right now is affordability. Home prices have been climbing since the start of the pandemic, & the average rate on the 30-year fixed mortgage, which had hit historic lows in the first part of the pandemic, is nearly twice what it was at the start of this year. Home price growth has cooled somewhat in recent weeks, while mortgage rates have come down from highs. “The total volume of single-family starts will post a decline in 2022, the first such decrease since 2011. However, as signs grow that the rate of inflation is near peaking, long-term interest rates have stabilized, which will provide some stability for the demand-side of the market in the coming months,” Dietz said.
Homebuilders say U.S. is in a ‘housing recession’ as sentiment turns negative
Bonds yields slipped, as investors digested the previous week's wave of data releases & questioned whether the Federal Reserve may slow its tightening cycle on improved inflation news. The yield on the benchmark was last down 7 basis points at 2.775%, while the yield on the dipped 5 basis points to 3.069%. The yield on the 2-year Treasury note moved about 6 basis points lower to 3.195%. Yields move inversely to prices & a basis point is equal to 0.01%. The previous week brought a raft of economic data, including more positive news on inflation than many in the markets were expecting. Data last week revealed imports down slightly more than expected, lower export prices & higher-than-forecast consumer sentiment in a preliminary Aug reading from the University of Michigan's index. The steady climb in US consumer prices also slowed to an 8.5% year-over-year rise in Jul, data from last week showed, which was slightly less than expected due to a decrease in oil prices. Still, the Fed has yet to adopt the bond market's apparent outlook that the rate hiking cycle is almost over.
Treasury yields slip as investors digest recent U.S. inflation data
China's economy stumbled in Jul as a 2-month boost from easing lockdowns faded, prompting the country's central bank to unexpectedly cut 2 key interest rates in an effort to shore up faltering growth. A raft of data today showed economic activity slowed across the board in Jul, including factory output, investment, consumer spending, youth hiring & real estate, highlighting the breadth of the economic challenge facing policy makers in a politically sensitive year for leader Xi Jinping, who is expected to break with recent precedent & seek a 3rd term in power this fall. The fresh evidence of China's slowdown adds to the headwinds facing the global economy this year, which is already reeling from the fallout from Russia's invasion of Ukraine & efforts by central banks in the US, Europe & beyond to tame rocketing inflation by jacking up borrowing costs. One stark sign of China's economic malaise: One in 5 Chinese youth (19.9%) was unemployed in Jul, the highest level since China started publishing such data in 2018. Today, the People's Bank of China cut by 0.1 percentage point 2 key interest rates & pumped the equivalent of $59B into the financial system to rev up lending & wider economic growth. The unexpected move marked a small step toward more support for China's economy & may foreshadow further cuts to borrowing costs in the months ahead, some economists said. But overall, officials have signaled they are unpersuaded by the need for more forceful policy action, mindful of risks such as rising inflation & ballooning debt. Senior Chinese leaders have effectively dropped a growth target of around 5.5% for the year & the question now for many economists is just how feeble growth is likely to get.
China growth slows across all fronts in July, prompting unexpected rate cut
Adding to the gloom in the large home building sector, investors are worried about slowing growth in the Chinese economy. During the "good old days," a few years ago, the Chinese economy had growth rates above 8%. Oil is weak on concerns about less demand from the leading importer of oil. The US is the largest customer for China, so there are also implications for the US economy,
Dow Jones Industrials
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