US housing construction is not keeping up with population growth

The Daily Shot: 19-Oct-23
The United States
The United Kingdom
The Eurozone
Asia-Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Alternatives
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. Treasury yields continue to surge.
 
The 10-year yield is nearing 5%, …
 

 
… and the long bond is already there.
 

 
Here is the 2-year note.
 

 
Bear steepening continues.
 

 
Financial conditions are tightening.
 

 
The 30-year mortgage rate hit 8%, according to Mortgage News Daily.
 
Source: Mortgage News Daily  

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2. Next, we have some updates on the housing market.
 
Mortgage applications continue to weaken.
 

 
While the weekly seasonal adjustments on this index tend to be unreliable, it’s worth noting that the adjusted index of mortgage demand reached a multi-year low last week.
 

 
Source: @markets   Read full article  
 
Housing starts got a boost from single-family home construction last month, …
 

 
… which is up 9% vs. last year.
 

 
Source: Reuters   Read full article  
 
Building permits softened, …
 

 
… with multifamily activity struggling (2 charts).
 

 

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Unlike many other advanced economies, the United States has not seen a commensurate increase in the number of homes to match its population growth.
 
Source: @financialtimes   Read full article  
 
How much do new homebuyers need to earn to afford a median-priced home?
 
Source: Redfin  
 
This has been a challenging year for existing-home sales.
 
Source: @WSJ   Read full article  
 
The duration of Americans residing in their homes has extended.
 
Source: @financialtimes   Read full article  

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3. The Fed’s Beige Book suggests a relatively stable growth.
 
Source: @economics   Read full article  
 
Sentiment is weaker but above recessionary levels, according to Oxford Economics.
 
Source: Oxford Economics  
 
Businesses were very concerned about rising rates.
 
Source: Oxford Economics  

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4. Business inventories jumped in August.
 

 
5. Consumer sentiment deteriorated further this month, according to the Penta-CivicScience Economic Sentiment Index.
 
Source: Penta/CivicScience  


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The United Kingdom

1. The CPI report was a bit firmer than expected.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Core inflation is holding above 6% (year-over-year), …
 

 
… boosted by services inflation, …
 

 
… particularly rent (2 charts).
 

 
Source: @financialtimes   Read full article  
 
Retail inflation is moderating but is still near 9%.
 

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2. The official measure of home price appreciation held in positive territory in August (the market expected a decline.)
 

 
3. Job vacancies continue to trend lower.
 


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The Eurozone

1. Euro-area bond yields are climbing, with the French 10-year rate reaching the highest level in over a decade.
 

 
Italian bond spreads have been widening.
 

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2. The final CPI report confirmed moderating core inflation.
 

 
The market sees little chance of another ECB rate hike.
 


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Asia-Pacific

1. Japan’s trade deficit was narrower than expected last month, …
 

 
… as exports hit a record high.
 

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2. The Australian employment report was disappointing, revealing a significant drop in the number of full-time positions.
 

 
The unemployment rate remains very low.
 

 
Labor force participation declined.
 

 
Nonetheless, the 10-year government bond yield hit a multi-year high.
 

 
The Aussie dollar softened.
 

 
3. The Kiwi dollar is tumbling vs. USD.
 


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China

1. Market rates are rising, which further tightens China’s financial conditions.
 
The 10-year yield:
 

 
The 1-year interest rate swap:
 

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2. The Shanghai Shenzhen CSI 300 Index is nearing 3,500. Will we see a much more forceful stock market intervention from Beijing at that level?
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Stocks are falling in Hong Kong as well.
 

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3. China reported its fourth consecutive decline in new home prices.
 


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Emerging Markets

1. Asian currencies are under pressure.
 
The Indonesian rupiah:
 

 
Source: @economics   Read full article  
 
The Malaysian ringgit:
 

 
Source: @markets   Read full article  
 
The Vietnamese dong:
 

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2. Thai bond yields continue to climb.
 

 
3. South Africa’s September core inflation was below forecasts.
 

 
Retail sales are rebounding.
 

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4. The Mexican peso is rolling over.
 

 
Source: FXS   Read full article  
 
Brazil and Mexico are now the top oil producers in the LatAm region.
 
Source: Americas Quarterly   Read full article  

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5. Brazil’s retail sales have been slowing.
 

 
Services output declined in August.
 

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6. MRB Partners expects EM sovereign bond spreads to tighten further as central banks cut rates in the context of “higher-for-longer” rates in developed markets.
 
Source: MRB Partners  


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Cryptocurrency

1. Bitcoin Cash (BCH) and BTC have outperformed other top cryptos over the past week.
 
Source: FinViz  
 
By the way, BCH has improved the most in Kaiko’s liquidity rankings over the past quarter.
 
Source: @KaikoData  

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2. A record 76% of the Bitcoin network is locked up with long-term holders (based on their average cost basis recorded on the blockchain).
 
Source: @caprioleio  
 
3. Bitcoin’s correlation with the MSCI World Index increased over the past few months.
 
Source: @KaikoData  


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Commodities

1. Gold broke above the 200-day moving average this week.
 
Source: barchart.com  
 
How did gold perform during previous geopolitical events?
 
Source: @JeffreyKleintop  
 
2. Silver held resistance at the 200-day moving average.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. Lithium shares are under pressure, …
 

 
Source: Morningstar   Read full article  
 
… as lithium prices keep moving lower.
 

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4. This chart shows Ukraine’s and Russia’s wheat production.
 
Source: Capital Economics  


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Energy

1. US crude oil and refined product stockpiles declined more than expected last week.
 
Oil (week-over-week, mm bbl):
 

 
Gasoline:
 

 
Distillates:
 

 
Inventories at Cushing, OK, the settlement hub for NYMEX crude (WTI), are at multi-year lows.
 

 
This chart shows total crude inventories.
 

 
Implied crude oil demand jumped last week.
 

 
Refinery runs were back near last year’s levels.
 

 
Gasoline demand has recovered.
 

 
Measured in days of supply, gasoline inventories are easing but remain well above last year’s levels.
 

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2. Oil prices jumped on Wednesday.
 

 
Source: Reuters   Read full article  

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3. Crack spreads remain depressed globally.
 
US:
 
Source: @EIAgov  
 
Europe and Asia:
 
Source: @EIAgov  

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4. China’s petroleum product demand has been outpacing economic activity.
 
Source: Capital Economics  
 
5. US natural gas production is now below last year’s levels.
 
Source: @HFI_Research  


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Equities

1. Let’s begin with sector performance over the past five business days.
 
Consumer discretionary:
 
Source: The New York Times   Read full article  
 
Retail:
 

 
Semiconductors:
 
Source: CNBC   Read full article  
 
Industrials:
 

 
Transportation:
 
Source: CNBC   Read full article  
 
Housing:
 

 
REITs:
 

 
Energy:
 

 
Defensives have been outperforming.
 
Healthcare:
 

 
Consumer staples:
 

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2. The Russell 2000 Index is trading at the bottom of its year-long price range.
 
Source: @NautilusCap  
 
Microcaps are nearing the recent lows.
 

 
Small-cap implied volatility is at the highest level since May.
 

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3. The average S&P 500 stock valuation is reasonable, with the forward P/E ratio for the equal-weighted index below 15x. Of course, with Treasury yields at 5%, valuations may need to be even lower.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
The valuation distortions come from the tech mega-caps.
 
Source: Goldman Sachs  

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4. CTAs are very bearish.
 
Source: Goldman Sachs; @dailychartbook  
 
Fund manager cash levels remain relatively high, which could support risk appetite into year-end.
 
Source: BofA Global Research  

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5. VIX has been below 20 for 105 days in a row.
 

 
6. Share buybacks are elevated but are running below 2022 levels (for this time of the year).
 
Source: Goldman Sachs; @MikeZaccardi  


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Alternatives

1. The number of hedge funds focused on foreign exchange has been steadily declining over the past decade.
 
Source: @markets   Read full article  
 
2. US private equity deal-making declined further in Q3 (2 charts).
 
Source: PitchBook  
 
Source: S&P Global Market Intelligence  
 
Exits slowed again.
 
Source: @WSJ   Read full article  
 
3. With leverage costs at multi-year highs, growth deals outpace buyouts.
 
Source: @WSJ   Read full article  
 
4. Here is a look at private debt fundraising activity.
 
Source: Goldman Sachs  
 
5. Startups valued between $10 and $100 million devote more of their payroll to engineering than any other function. Engineering and product development are the only two functions where the percentage of payroll is higher than the percentage of headcount.
 
Source: Carta  


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Credit

1. US corporate investment-grade spreads remain subdued despite the rise in Treasury yields.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
2. US total bank credit continues to decline on a year-over-year basis.
 

 
3. Direct lending strategies have been outperforming since the financial crisis.
 
Source: Goldman Sachs  
 
4. How much will office property prices decline in major US metropolitan areas?
 
Source: Capital Economics  
 
Office vacancy rates are at multi-year highs.
 
Source: Goldman Sachs; @TheTranscript_  
 
Opportunities ahead for distressed commercial real estate buyers?
 
Source: @theleadleft  


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Rates

1. The drawdown in longer-dated Treasuries now exceeds 50%.
 

 
2. Pressure on Treasuries is no longer just about the Fed and inflation risks.
 
Source: @economics   Read full article  
 
3. Who has been buying Treasuries?
 
Source: Capital Economics  
 
Here is a look at Treasury ownership over time.
 
Source: Goldman Sachs; @MikeZaccardi  

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4. US real yields are above the real potential GDP growth.
 
Source: BCA Research  


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Global Developments

1. Momentum behind the dollar’s recent rally has slowed.
 
Source: @DavidCoxRJ  
 
2. According to Oxford Economics, EM equities and US high-yield bonds are likely to deliver the highest returns over the next five years.
 
Source: Oxford Economics  


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Food for Thought

1. Reducing spending to cover student loan payments:
 
Source: @CivicScience   Read full article  
 
2. The composition of US federal revenue:
 
Source: Wells Fargo Securities  
 
3. Changes in transportation energy consumption:
 
Source: @EIAgov   Read full article  
 
4. CO2 emissions:
 
Source: @financialtimes   Read full article  
 
5. Carbon credits vs. carbon emissions (see comment):
 
Source: @davidfickling, @opinion   Read full article  
 
6. Adoption of new technologies:
 
Source: Goldman Sachs  
 
7. Bedtimes and wake-up times around the world (local time):
 
Source: The Economist   Read full article  
 

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