Mortgage rates hit 7%

The Daily Shot: 28-Sep-22
The United States
The United Kingdom
The Eurozone
Japan
Asia – Pacific
China
Emerging Markets
Commodities
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. Let’s begin with the housing market.
 
As the 10-year Treasury yield reaches 4%, …
 

 
Source: @WSJ   Read full article  
 
… and MBS spreads remain elevated, …
 
Source: Wells Fargo Securities  
 
… mortgage rates hit 7%, according to the Mortgage News Daily index.
 
Source: Mortgage News Daily  
 
July home price data surprised to the downside, with key indices dropping sharply.
 

 
Based on Zillow’s data, August wasn’t any better.
 

 
Here is the Case-Shiller index on a year-over-year basis.
 

 
Morgan Stanley sees a 20% decline from the peak.
 
Source: Morgan Stanley Research; @Scutty  
 
However, inventories remain tight relative to price changes.
 
Source: Calculated Risk  
 
Active listings are back to last year’s levels as sellers go on strike.
 
Source: Redfin  
 
The current housing market reflects a similar demographic demand and lack of supply as the 1970s.
 
Source: SOM Macro Strategies  
 
New home sales were shockingly strong last month. This improvement will likely be reversed shortly.
 

 
Source: MarketWatch   Read full article  
 
This chart shows sales of new homes that haven’t been started yet.
 

 
The number of home completions remains low.
 
Source: SOM Macro Strategies  
 
Inventories of new homes are rising (in terms of the number of units).
 
Source: @calculatedrisk   Read full article  
 
Here is a look at inventories measured in months of supply.
 

 
This chart shows the distribution of new home sales prices.
 
Source: @calculatedrisk   Read full article  
 
The Evercore ISI homebuilder sentiment index continues to deteriorate.
 
Source: Evercore ISI Research  
 
Builders are walking away from land deals as demand softens.
 
Source: @RickPalaciosJr  
 
Bidding wars hit the lowest level since April 2020.
 
Source: Redfin  
 
For now, there are very few distressed home sales.
 
Source: Arcano Economics  

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2. Commercial property prices have been declining in recent months, and there is more to go.
 
Source: Green Street Advisors  
 
Cap rates are very low.
 
Source: Wells Fargo Securities  
 
Surging Treasury yields made commercial real estate much less attractive. As the economy slows, cap rate increases will be driven by lower property prices.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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3. The Conference Board’s consumer confidence index jumped in September …
 

 
… and inflation expectations declined in response to lower gasoline prices.
 
Source: Pantheon Macroeconomics  
 
However, gasoline prices are rising again.
 

 
Here are the contributions to the consumer confidence index.
 
Source: Mizuho Securities USA  

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4. Next, we have some updates on the labor market.
 
The Conference Board’s labor differential remains elevated.
 

 
Consumers are not worried about losing their job and place a greater probability on leaving their job voluntarily, according to a Fed survey.
 
Source: Federal Reserve¬†Bank of¬†New York  
 
For now, the labor market remains tight.
 
Source: Mizuho Securities USA  
 
But the stock market is signaling some softening ahead.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

——————–

 
5. Durable goods orders are holding up, with capital goods demand surprising to the upside (2nd panel). It suggests that business investment remains robust.
 

 
Source: MarketWatch   Read full article  
 
This chart shows nominal and real capital goods orders.
 

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6. The Citi Economic Surprise Index is back in positive territory.
 

 
7. Financial conditions continue to tighten as yields and the dollar climb while the stock market sinks.
 
Source: @GregDaco, @EY_Parthenon, @EY_US  


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The United Kingdom

1. Gilt yields are soaring, …
 

 
Source: @julianHjessop  
 
… as the market anticipates a surge in supply due to the latest fiscal stimulus announcement.
 
Source: Deutsche Bank Research  
 
The debt-to-GDP ratio is now expected to breach 100%, according to Deutsche Bank.
 
Source: Deutsche Bank Research  
 
The sovereign CDS spread continues to climb.
 

——————–

 
2. Here is GBP/USD going back to the late 1700s.
 
Source: @axios   Read full article  
 
The pound’s weakness is not just about the dollar’s strength.
 
Source: @reutersMikeD  
 
Britons have been buying bitcoin as the pound tanks.
 
Source: James Butterfill  

——————–

 
3. The UK rate hike expectations are now well above those in the US.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Is the market too hawkish? Here is a forecast from Capital Economics.
 
Source: Capital Economics  


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The Eurozone

1. Let’s begin with Germany.
 
Bund yields keep climbing, pushing up yields across Europe.
 

 
What does the PPI spike tell us about Germany’s CPI in the months ahead?
 
Source: Danske Bank  
 
Shares of a German homebuilder, HELMA Eigenheimbau, took a hit on poor results as the nation’s housing market struggles.
 

 
This chart shows Germany’s electricity production by source.
 
Source: Deutsche Bank Research  

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2. The Italy-Germany bond spread keeps widening.
 

 
3. Sentiment continues to weaken across the Eurozone.
 
Belgium:
 

 
Finland:
 

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4. The euro area’s energy trade deficit has reached 5% of GDP.
 
Source: Deutsche Bank Research  
 
5. The broad money supply expansion surprised to the upside.
 

 
Loan growth has been robust, especially in the Eurozone’s business sector.
 


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Japan

1. Another intervention on the way? USD/JPY is once again bumping up against the 145 level.
 

 
This chart shows the success rates of Japanese currency interventions.
 
Source: TS Lombard  

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2. Next, we have the contributions to Japan’s CPI.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
And here is a comparison of the CPI weights to the EU and the US.
 
Source: ING  


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Asia – Pacific

1. Asian currencies have resumed their declines.
 

 
2. Next, we have some updates on South Korea.
 
Here is the won vs. USD. Will we see an intervention?
 

 
Currency reserves have declined to reduce the drop in the Korean won. However, rising prices of imported goods, especially energy, have placed South Korea’s import cover ratio at decade lows.
 
Source: PGM Global  
 
South Korea’s current account is still holding up, mostly due to the accumulation of corporate profits, according to PGM Global. Meanwhile, the trade balance has deteriorated.
 
Source: PGM Global  
 
Retail sales were robust in August.
 

 
South Korea’s earnings and exports are rolling over.
 
Source: PGM Global  

——————–

 
3. Australian retail sales surprised to the upside.
 


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China

1. The PBoC has lost control of the renminbi.
 

 
The offshore renminbi hit a record low.
 

 
Source: @WSJ   Read full article  
 
The renminbi drawdown has been unprecedented.
 

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2. Inflation has decelerated rapidly. Will we see deflation?
 
Source: BCA Research  
 
3. The declines in property sales have been broad.
 
Source: CreditSights  


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Emerging Markets

1. Asian currencies are sinking, which could keep inflation elevated.
 
The Indian rupee:
 

 
The Malaysian ringgit:
 

 
The Philippine peso:
 

——————–

 
2. South Africa saw significant job losses last quarter.
 

 
3. The Hungarian central bank took its benchmark rate to 13%.
 

 
4. Mexico’s trade deficit is holding near record levels.
 

 
5. This chart shows equity markets’ PE ratios vs. historical ranges.
 
Source: Goldman Sachs; @AndreasSteno  


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Commodities

1. The US dollar continues to surge, …
 

 
… putting pressure on commodity markets.
 

 
Here is Bloomberg’s industrial metals index.
 

 
2. Gold is buckling as the dollar and real yields surge.
 

 
3. Chicago hog futures took a hit amid softer demand from Asia.
 
Source: @WSJ   Read full article  
 


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Equities

1. Stock futures point to a seventh consecutive day of losses for the S&P 500.
 

 
Here is the percentage of days with a negative return.
 
Source: S&P Dow Jones Indices  

——————–

 
2. The S&P 500 has only given up 1.8 years of gains so far.
 
Source: @WolfvRotberg  
 
3. Hard or soft landing? Below is a forecast from Goldman.
 
Source: Goldman Sachs; @carlquintanilla  
 
4. Spooked investors have been flooding into cash-equivalent ETFs
 
Source: PGM Global  
 
5. Earnings downgrades continue.
 
Source: Yardeni Research  
 
6. Traders have been buying VIX call options, preparing for another leg down in stock prices.
 
Source: @WSJ   Read full article  
 
7. The VIX curve has finally inverted.
 

 
Here is the spread between VXV (3-month vol index) and VIX (1-month vol index).
 

——————–

8. Millennials have been active traders.
 
Source: @MikeZaccardi   Read full article  


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Credit

1. Corporate funding costs are surging as bond prices tumble.
 

 
Here is the drawdown for LQD.
 

——————–

 
2. High-yield spreads are too tight relative to equities.
 
Source: Alpine Macro  
 
The US high-yield market is discounting a slowdown, not a recession.
 
Source: MRB Partners  
 
3. The US corporate debt servicing capacity is very strong.
 
Source: MRB Partners  
 
4. The MBS index underperformance has been extreme, putting upward pressure on mortgage rates.
 
Source: Morgan Stanley; @tracyalloway  


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Rates

1. A weak auction sent the 5-year Treasury yield surging. Is it time to buy?
 

 
2. Here is the price performance of Treasuries over the past decade.
 

 
This year’s decline has been extreme.
 
Source: Oxford Economics  

——————–

 
3. US rate markets’ implied volatility is surging.
 


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Global Developments

1. FX implied volatility keeps rising.
 

 
2. A race to the top …
 
Source: BCA Research  
 
3. Central banks’ balance sheets continue to shrink.
 
Source: Arcano Economics  
 
4. Global risk appetite is back at the June lows, according to Longview Economics.
 
Source: Longview Economics  


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Food for Thought

1. US lithium-ion battery imports:
 
Source: S&P Global Market Intelligence  
 
2. Commercial real estate vacancy rates in the US:
 
Source: Moody’s Investors Service  
 
3. Russian anti-mobilization protests:
 
Source: Statista  
 
Russians heading to Finland:
 
Source: Statista  

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4. NATO’s job approval in Finland and Sweden:
 
Source: Gallup   Read full article  
 
5. Support for nondemocratic norms in the US:
 
Source: @axios   Read full article  
 
6. The oldest Congress in history (2 charts):
 
Source: Insider   Read full article  
 
Source: The Economist   Read full article  

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7. Will Charles make a good king?
 
Source: @thetimes  

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