A look at the day ahead in U.S. and global markets by Mike Dolan
A renewed surge in long-term Treasury yields is stifling world markets yet again as Federal Reserve officials hang tough on one more rate rise, some $134 billion of new government debt sales hit this week and a government shutdown looms.
The yield spike has supercharged the U.S. dollar worldwide – both a reflection and aggravator of mounting financial stress far and wide.
Despite wariness of Bank of Japan intervention, the dollar/yen exchange rate hit its highest for the year on Tuesday – as did the dollar’s DXY (.DXY) index and the dollar’s rate against the South Korea’s won . Sterling hit a 6-month low.
Treasury tremors continue to reverberate from last week’s upgraded Fed forecasts, its insistence on signalling one more rate rise in the current tightening cycle and an uncompromising ‘higher-for-longer’ mantra.
Short term Fed futures haven’t moved much. All the action is in longer-dated U.S. Treasuries, which may now be repricing the economy’s resilience over multiple years and more persistent inflation pressures.
Ten-year Treasury yields , which have added a whopping 25 basis points in just a week, hit another 16-year high at 4.5660% early on Tuesday. As Deutsche Bank notes, this is historically significant territory as the average of the 10-year yield going back to 1799 is around 4.50%.
Thirty-year bond yields , meantime, have jumped over 30bp in a week to a 12-year high of 4.6840%.
And as an indication of how the long-term sustainable interest rate structure as whole is being re-thought, the 10-year real, inflation-adjusted yield has also leaped 26bp to 2.20% – its highest since 2009.
Significantly, this is shifting the deeply-inverted 2-to-10 year yield gap – which has for more than a year indicated recession ahead but which now looks to be closing that negative spread to its smallest since May.
The latest wobble – which has seen exchange-traded funds in U.S. Treasuries deepen year-to-date losses to more than 6% and losses over three years to more than 20% – comes as another heavy supply of new paper goes up for auction this week.
The Treasury sells $48 billion in two-year notes on Tuesday, $49 billion in five-year paper on Wednesday and $37 billion in seven-year notes on Thursday.
A government shutdown from this weekend is still looming with no budget deal in Congress yet to avert it and Moody’s warning of sovereign credit rating implications.
The Fed seems in no mood to calm the horses.
Minneapolis Fed Bank President Neel Kashkari said on Monday the Fed probably needs to raise borrowing rates further.
“If the economy is fundamentally much stronger than we realized, on the margin, that would tell me rates probably have to go a little bit higher, and then be held higher for longer to cool things off,” Said Kashkari.
Even a typically more dovish Chicago Fed boss Austan Goolsbee sounded hawkish. “The risk of inflation staying higher than where we want it is the bigger risk,” he said, adding the Fed would now have to “play by ear” in conducting policy.
Private sector bankers are starting to brace for the worst, with JP Morgan chief Jamie Dimon reported overnight as warning: “I am not sure if the world is prepared for 7% (Fed rates).”
Even though the European Central Bank seems shier of even higher rates, the higher-for-longer message there too is clear. ECB chief Christine Lagarde said on Monday the central bank can meet its 2% inflation target if record high rates are maintained for “a sufficiently long duration.”
In a thin data diary on Monday, the Dallas Fed’s September manufacturing survey showed a deterioration of activity there this month. The Chicago Fed’s national business poll for August also fell.
And a retreat in energy prices would have soothed some inflation worries, with U.S. crude falling back to $88 per barrel for the first time in almost two weeks,
Nationwide consumer confidence tops the slate on Tuesday.
Despite a late rally in Wall St stocks on Monday, futures are back about 0.5% in the red – as were bourses in Asia and Europe as the end of the third quarter hoves into view on Friday.
China Evergrande (3333.HK) shares slid for a second day, dropping as much as 8% after a unit of the embattled property developer missed an onshore bond repayment.
There was no sign of a breakthrough in the widening U.S. autoworkers labor dispute, seen as inflationary by some due to potential supply outages.
Key developments that should provide more direction to U.S. markets later on Tuesday:
* US Sept consumer confidence, US Aug new home sales, July house prices, Richmond Fed Sept business survey, Dallas Fed Sept service sector survey, Philadelphia Fed Sept services survey
* Federal Reserve Board Governor Michelle Bowman gives pre-recorded remarks to Washington conference
* U.S. Treasury auctions $48 billion of 2-year notes
* U.S. corporate earnings: Costco, Cintas
Reporting by Mike Dolan; Editing by Christina Fincher
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
Paramilitary police officers stand guard in front of the headquarters of the People’s Bank of China, the central bank (PBOC), in Beijing, China September 30, 2022. REUTERS/Tingshu Wang/File Photo Acquire Licensing Rights
Sept 15 (Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.
Asian markets are set to end the week strongly following risk-friendly moves in the U.S. and Europe on Thursday, although a deluge of top-tier economic data from China on Friday could sour the mood at a stroke.
The latest indicators from the region’s largest economy to be released include house prices, fixed asset investment, retail sales, industrial production and unemployment, all for August.
The annual pace of retail sales and industrial production growth is expected to pick up, but fixed asset investment growth is predicted to slow to a new low of 3.3% going back to the 1990s, if pandemic-related distortions in early 2020 are excluded.
The People’s Bank of China insists it will take “appropriate” steps to support the economy, although a growing number of economists are skeptical Beijing will meet its 5% GDP growth target this year and many are cutting their 2024 outlooks.
The PROC on Thursday announced its second 25-basis point cut to banks’ reserve requirement ratio this year. Unsurprisingly, the move stopped the yuan’s recent mini-revival in its tracks, and pressure on the currency on Friday will probably be to the downside again.
China’s deteriorating trade relations with the West, meanwhile, is a darkening cloud that shows no sign of lifting.
Beijing has hit back at a European Commission probe into China’s electric vehicle subsidies as protectionist, warning it would damage economic relations, and analysts have warned that if the probe results in punitive tariffs, Beijing will take retaliatory action.
However, all that could be parked for another day if investors decide to run with Thursday’s bullish momentum.
It was a case of ‘good news is good news’ for Wall Street as investors welcomed hot U.S. retail sales and accelerating producer prices as a sign of economic resilience rather than fret about the hawkish rate implications.
Coupled with falling euro zone bond yields and implied rates after the European Central Bank’s ‘dovish hike’ – perhaps the central bank’s last in the cycle – risk assets got a shot in the arm, paving the way for a positive open in Asia on Friday.
The big three U.S. indexes rose between 0.8% and 1.0%, European stocks had their best day in six months and the MSCI Asia ex-Japan Index had its best day in 10 days on Thursday. The rise in oil to new 2023 highs and another dollar surge failed to dampen investors’ mood.
Another positive portent for Asian markets on Friday: the VIX gauge of implied S&P 500 equity volatility – Wall Street’s so-called ‘fear index’ – registered its lowest close on Thursday since before the pandemic.
Here are key developments that could provide more direction to markets on Friday:
– China ‘data dump’ (August)
– Indonesia trade (August)
– New Zealand manufacturing PMI (August)
By Jamie McGeever; Editing by Josie Kao
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
by Calculated Risk on 9/14/2023 12:00:00 PM
Today, in the Calculated Risk Real Estate Newsletter: Part 2: Current State of the Housing Market; Overview for mid-September
A brief excerpt:
Yesterday, in Part 1: Current State of the Housing Market; Overview for mid-September I reviewed home inventory and sales.
…
Most measures of house prices have shown an increase in prices over the last several months, and a key question I discussed in July is Will house prices decline further later this year? I will revisit this question soon.Other measures of house prices suggest prices will be up YoY over the next few months in the Case-Shiller index. The NAR reported median prices were up 1.9% YoY in July, up from a 0.9% YoY decline in June. Black Knight reported prices were up 2.3% YoY in July to new all-time highs, and Freddie Mac reported house prices were up 2.9% YoY in July, up from 1.6% YoY in June – and also to new all-time highs.
Here is a comparison of year-over-year change in the FMHPI, median house prices from the NAR, and the Case-Shiller National index.
The FMHPI and the NAR median prices appear to be leading indicators for Case-Shiller. Based on recent monthly data, and the FMHPI, the YoY change in the Case-Shiller index will turn positive in the report for July.
There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/
A man walks along a wall overlooking the central Mumbai’s financial district skyline, India, March 9, 2017. REUTERS/Danish Siddiqui/File Photo Acquire Licensing Rights
BENGALURU, Sept 1 (Reuters) – Home prices in India are set to rise steadily in single digit percentages over the coming years along with economic growth, according to a Reuters poll of property analysts who expect affordability for first-time buyers to worsen.
Following a relatively modest 250 basis points of interest rate rises from the Reserve Bank of India to 6.50%, expectations of a resilient economy have underpinned property market strength, along with relentless demand for housing.
Average home prices were expected to rise 7.0% nationally this year and next, according to the Aug. 14-31 Reuters poll of 12 property analysts, up from 6.0% and 5.5% in a June poll.
The outlook was more upbeat and stable compared with companion polls of property markets in developed economies, where house prices are expected to fall or stagnate after surging as much as 50% during the COVID-19 pandemic.
There was no such panic buying of property in India during the past three years, with modest rises of 2-3% annually leaving more room for house prices to climb.
“Multiple factors are driving the real estate market in India: a healthy economy, market optimism, higher estimated GDP, economic diversification…(and) inflation is under control, which is adding to renewed optimism,” noted Ankit Kansal, managing director of 360 Realtors.
While July consumer price inflation was running well above the top end of the RBI’s 2-6% tolerance range, it is expected to ease back over coming months as food price inflation subsides. The RBI is set to hold rates until next year, with a modest 25 basis point reduction due by Q1 FY 2024/25, a separate Reuters poll showed.
While demand for housing was never a problem in a country of 1.4 billion people, the most populous in the world, lack of supply, especially of affordable housing, remains a challenge. India shares this in common with most developed economy markets.
A strong 64% majority of respondents, seven of 11, who answered an additional question said affordability for first-time homebuyers would worsen over the coming year.
“There is a visible demand outstripping supply and this will dent the overall affordability,” added 360 Realtors’ Kansal.
That is likely to push more people to rent, which is also forecast to get more expensive. All 12 respondents who answered a separate question said average rents for the rest of the year will rise, including one who said significantly.
“With employees returning to offices, there has been a significant surge in demand and rental rates…(and) given that rents have already increased significantly, we will see a moderate increase,” noted Anuj Puri, chairman of ANAROCK.
(For other stories from the Reuters quarterly housing market polls:)
Reporting by Milounee Purohit
Polling by Devayani Sathyan and Veronica Khongwir
Editing by Ross Finley and Frances Kerry
Our Standards: The Thomson Reuters Trust Principles.
A residential neighbourhood of Auckland, New Zealand, is seen from the air, July 8, 2017. REUTERS/Jason Reed/File Photo Acquire Licensing Rights
BENGALURU, Aug 30 (Reuters) – New Zealand house prices are forecast to rise again next year due to an ongoing supply shortage and expectations for interest rate cuts, according to a Reuters poll of property market analysts.
The Reserve Bank of New Zealand (RBNZ) likely ended a 20-month tightening cycle in May after taking the overnight cash rate from near-zero to 5.50%, a campaign that helped bring down the average house price by 15% compared with the price peak in November 2021.
That is short of a roughly 20% correction most property analysts predicted in May following a pandemic-era boom that boosted prices by more than 40%. Prices have started to rise again on returning demand meeting limited available supply.
New Zealand house prices were expected to decline 4.8% this year, the latest Reuters poll of 11 property market analysts taken Aug. 14-28 showed. That predicted decline was about half of the 8.0% fall forecast in a May poll.
Average property prices were then expected to rise 5.0% and 6.0% in 2024 and 2025, respectively, an upgrade from 3.4% and 5.0% in the previous poll.
“Whether or not we’re entering a new FOMO-style state in the housing market is yet to be revealed, but our money is on this not being the case, or at least, that it will not persist,” said Miles Workman, senior economist at ANZ, referring to the “fear of missing out” that drove a market frenzy during the pandemic.
“But as we get into 2024, we think the reality of higher-for-longer interest rates will set in, and that still-stretched affordability and rising unemployment will culminate in a very subdued pace of expansion in house prices,” he said.
A recent Reuters poll of economists predicted the RBNZ was done raising the overnight cash rate and would leave it unchanged at 5.50% until early next year, lowering it to 4.50% by year-end.
While lower interest rates will provide some relief to home buyers, their impact on purchasing affordability among first-time homebuyers was less clear.
There was a near split among 11 analysts who answered an additional question on affordability, with six saying it would improve over the coming year and five saying it would worsen.
The International Monetary Fund said this week that house prices could stabilise next year, but affordability would remain a concern despite the decline in prices as mortgage rates stayed high and low supply added to price pressures.
There was also no respite for potential homebuyers looking to rent instead.
All but one of 11 analysts who answered a separate question said average rents for the rest of 2023 will either rise slightly (6) or significantly (4). Only one said average rents would fall slightly.
Reporting by Anant Chandak in Bengaluru
Polling by Susobhan Sarkar
Editing by Ross Finley and Matthew Lewis
Our Standards: The Thomson Reuters Trust Principles.
A sign is seen outside the 11 Wall St. entrance of the New York Stock Exchange (NYSE) in New York, U.S., March 1, 2021. REUTERS/Brendan McDermid Acquire Licensing Rights
A look at the day ahead in U.S. and global markets from Mike Dolan
World markets stayed remarkably buoyant even as the chances of one more U.S. interest rate hike have moved firmly onto the radar, with China’s bourses extending Monday’s rally and the state of U.S. employment now top of mind.
For the first time since before the regional banking crisis in March, U.S. futures now see more than a 50% chance of yet another Federal Reserve rate rise to 5.5-5.75% – where the median of Fed policymaker forecasts from their June meeting still lies. Early Tuesday, futures priced almost a two-thirds chance of that additional quarter-point move in November.
After almost two months of stability in assuming peak rates would be where they are now, the chances of another tightening have been creeping higher again over the past 10 days and appear to be cementing following Fed Chair Jerome Powell’s relatively hawkish speech at Jackson Hole on Friday.
And yet – perhaps with the uncertainty dissipating, the economy still robust and bond markets better priced – world markets appear to be taking the tighter odds in their stride.
Wall St’s S&P500 (.SPX) clocked only its second-consecutive gain of the month so far on Monday, while MSCI’s all-country index (.MIWD00000PUS) is on course for its sixth gain in seven trading days.
More impressively in the circumstances, restive bond markets calmed down and bond yields continued to dial back from their highest in over a decade last week. Two-year Treasury yields fell back below 5%, with 10-year yields eyeing their lowest in almost two weeks at 4.17% and equity risk gauges such as the VIX (.VIX) of implied volatility touching two-week lows too.
The dollar (.DXY) was firm, but stayed off last week’s near three-month high.
With the Atlanta Fed’s real-time estimate of quarterly real GDP growth running as high as 5.9% – about 9% in nominal terms – the Fed will likely need to see some considerable softening of incoming economic data to prevent it moving again.
This week the onus falls largely on the labor markets, with the national payrolls report due Friday but with July readings on job openings due later on Tuesday – alongside August consumer confidence numbers and June house price data.
Friday’s August payrolls report is expected to show a slowdown in monthly hiring to about 150,000 but an unchanged unemployment rate of just 3.5%.
Overseas, China’s embattled stock markets managed to advance for a second day – lifted by a series of support measures and hopes of some detente in the economic and financial standoff between Washington and Beijing amid a three-day visit to China by U.S. Commerce Secretary Gina Raimondo.
Although it gave back the bulk of Monday’s 5% early surge by the close of business, China’s CSI300 (.CSI300) push 1% higher again on Tuesday after weekend measures to slash stamp duty on stock purchases and limit new stock listings. With tech and healthcare sectors leading the way, foreigners were net buyers again on Tuesday.
Just how cash-strapped embattled Country Garden Holdings (2007.HK) is will be the focus when China’s largest private property developer is due to report its first-half results on Wednesday.
Asia bourses more widely and European indices were higher, while Wall St futures were flat ahead of the open.
Tropical Storm Idalia closed in on Florida’s Gulf Coast on Tuesday after skirting past Cuba, headed for a U.S. landfall as a powerful Category 3 storm, prompting authorities to order evacuations of vulnerable shoreline areas.
Events to watch for on Tuesday:
* U.S. August consumer confidence, July JOLTS job openings data, June house prices, Dallas Fed Aug service sector survey
* Federal Reserve Vice Chair for Supervision Michael Barr speaks
* U.S. Treasury auctions 7-year notes
* U.S. corporate earnings: Best Buy, HP, JM Smucker, Catalent, Pinduoduo
By Mike Dolan, editing by Susan Fenton <a href=”mailto:mike.dolan@thomsonreuters.com” target=”_blank”>mike.dolan@thomsonreuters.com</a>. Twitter: @reutersMikeD
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
by Calculated Risk on 8/26/2023 08:11:00 AM
The key report this week is the August employment report on Friday.
Other key indicators include the second estimate of Q2 GDP, Personal Income and Outlays for July, the August ISM manufacturing index, August auto sales, and Case-Shiller house prices for June.
—– Monday, August 28th —–
10:30 AM: Dallas Fed Survey of Manufacturing Activity for August. This is the last of the regional Fed manufacturing surveys for August.
—– Tuesday, August 29th —–
9:00 AM: S&P/Case-Shiller House Price Index for June.
This graph shows the year-over-year change in the seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the most recent report (the Composite 20 was started in January 2000).
The consensus is for a 1.1% year-over-year decrease in the Comp 20 index for June.
9:00 AM: FHFA House Price Index for June. This was originally a GSE only repeat sales, however there is also an expanded index.
10:00 AM Job Openings and Labor Turnover Survey for July from the BLS.
This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.
Jobs openings decreased in June to 9.58 million from 9.62 million in May.
The number of job openings (black) were down 13% year-over-year and Quits were down 9% year-over-year.
—– Wednesday, August 30th —–
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.
8:15 AM: The ADP Employment Report for August. This report is for private payrolls only (no government).
8:30 AM: Gross Domestic Product, 2nd quarter 2022 (second estimate). The consensus is that real GDP increased 2.4% annualized in Q2, unchanged from the advance estimate of 2.4% in Q2.
10:00 AM: Pending Home Sales Index for July. The consensus is for a 0.8% decrease in the index.
—– Thursday, August 31st —–
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 235 thousand initial claims, up from 230 thousand last week.
8:30 AM: Personal Income and Outlays, July 2023. The consensus is for a 0.3% increase in personal income, and for a 0.7% increase in personal spending. And for the Core PCE price index to increase 0.2%. PCE prices are expected to be up 3.0% YoY, and core PCE prices up 4.1% YoY.
9:45 AM: Chicago Purchasing Managers Index for August.
—– Friday, September 1st —–
8:30 AM: Employment Report for August. The consensus is for 187,000 jobs added, and for the unemployment rate to be unchanged at 3.5%.
There were 187,000 jobs added in July, and the unemployment rate was at 3.5%.
This graph shows the jobs added per month since January 2021.
10:00 AM: ISM Manufacturing Index for August. The consensus is for the ISM to be at 46.6, up from 46.4 in July.
10:00 AM: Construction Spending for July. The consensus is for a 0.5% increase in construction spending.
All Day: Light vehicle sales for August. The consensus is for light vehicle sales to be 15.4 million SAAR in August, down from 15.7 million in July (Seasonally Adjusted Annual Rate).
This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the sales rate for last month.
[1/3]A woman walks along Petticoat Lane street market, where discounted clothing is on sale, in London, Britain, August 23 2023. REUTERS/Peter Nicholls Acquire Licensing Rights
LONDON, Aug 23 (Reuters) – Britain’s economy is slowing and might be heading for a recession as it feels the impact of 14 back-to-back interest rate increases by the Bank of England to fight high inflation.
Despite being buffeted by Brexit, the COVID-19 pandemic and last year’s surge in energy prices, the British economy has defied forecasts of contraction so far this year.
But signs of a slowdown are mounting, highlighting the BoE’s dilemma as it continues to grapple with inflation.
A survey published on Wednesday showed activity among businesses shrank by the most since January 2021, when Britain was still in a coronavirus lockdown.
The housing market is weakening and the jobless rate is up.
But the BoE looks set to keep on raising rates with inflation still more than three times its 2% target. Core inflation in July held close to its highest in more than 30 years.
Most worrying for Governor Andrew Bailey and his colleagues, pay growth is at its fastest since at least 2001, raising the risk of persistently high inflation.
Below are key readings of Britain’s economy that the BoE will assess before its next scheduled announcement on interest rates on Sept. 21.
BUSINESSES FEEL THE STRAIN
Britain’s economy is on course to shrink during the current quarter and risks falling into a recession, the preliminary S&P Global/CIPS Purchasing Managers’ Index for August showed.
The composite reading – covering firms in services and manufacturing – of 47.9 raised the risks of a recession in the second half of 2023.
But S&P also said its survey suggested inflation would cool to 4% in the coming months, earlier than the BoE’s forecast.
HOUSING MARKET LOSES STEAM
House prices as measured by mortgage lenders Nationwide and Halifax have fallen by the most in annual terms in more than a decade, although they remain about 20% above levels before the pandemic, when demand for properties surged.
The BoE acknowledges that much of the impact on the housing market from its rate hikes has yet to be felt because most mortgages in Britain are short-term fixed-rate deals which are now renewing at higher rates.
Of nearly 7 million fixed-rate mortgages, which account for 80% of residential home loan deals, around 800,000 end in the second half of 2023 and a further 1.6 million deals end in 2024.
LABOUR MARKET
Employers struggled to fill jobs when the number of people available for work contracted after the pandemic and Britain’s exit from the European Union. Basic wages in the three months to June rose at the fastest pace on record.
But there are also signs that the labour market is losing some of its inflationary pressure with the unemployment rate unexpectedly rising in the last two monthly data sets and vacancies steadily dropping over more than a year.
CONSUMERS KEEP ON SPENDING
Retail sales volumes fell in July from June but it was only the second month-on-month drop so far in 2023 and much of the weakness was due to unusually heavy rain which kept shoppers at home. But many analysts expect the lagged impact of the BoE’s rate rises to hit spending soon, adding to the drag on the economy.
Consumer confidence, as measured by polling firm GfK, fell in July from a 17-month high in June. It remains below levels seen for much of the past 10 years.
INFLATION FALLS, BUT STILL TOO HIGH
Britain’s headline rate of consumer price inflation has fallen from over 11% last October to just under 7% in July but that is still the highest among the world’s major economies and more than three times the BoE’s 2% target. Core inflation, which gives a better signal of underlying inflation, has barely fallen from a three-decade high.
GDP HAS HELD UP, SO FAR
Britain’s economy has defied forecasts that it would fall into a recession in 2023 and has grown in four of the first six months of the year, helped by the still low unemployment and savings built up by households during the pandemic. Many economists think the delayed impact of higher interest rates and still elevated inflation will hit growth in the coming months.
A Reuters poll of analysts in July showed a minority expected a recession to start before the end of the year.
Britain is the only Group of Seven (G7) economy yet to recover its pre-pandemic size.
Graphics by Sumanta Sen; Editing by Devika Syamnath
Our Standards: The Thomson Reuters Trust Principles.
A woman walks past a man examining an electronic board showing Japan’s Nikkei average and stock quotations outside a brokerage, in Tokyo, Japan, March 20, 2023. REUTERS/Androniki Christodoulou/File Photo
SYDNEY, Aug 15 (Reuters) – Asian stock markets wallowed at one-month lows on Tuesday and the yuan struggled as China cut interest rates as another round of disappointing data underscored its economic malaise.
Cuts to China’s one-year loans to financial institutions, at 15 basis points, were the largest since the outset of the COVID pandemic. Industrial output and retail sales growth both slowed from a month earlier to a year-on-year pace of 3.7% and 2.5% respectively, missing expectations.
The yuan dropped to its lowest in 9-1/2 months, and sources told Reuters that China’s major state-owned banks stepped into the spot market to steady the currency. After that, it hit 7.2743 per dollar, having been as low as 7.2875.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) edged down 0.1% to 509.12, not far from a one-month low on Monday of 506.3 as worry about China’s frozen property sector swept across regional markets.
Property investment, sales and fundraising extended their slide in July, the data on Tuesday showed. New construction starts by floor area are down nearly 25% year-on-year and highlight how there is neither the appetite nor funds to build or buy.
“We reckon that markets still underestimate the aftermath of the significant collapse in China’s property sector, which accounts for more than half of global new home sales,” said analysts at Japanese bank Nomura.
“The chain reaction triggered by slumping new home sales may lead to a rising number of developers’ defaults, a sharp contraction of government revenue, falling demand for construction materials, declining wages… weaker consumption, and faltering financial institutions.”
Hong Kong’s Hang Seng (.HSI) fell 0.8% to within a whisker of Monday’s one-month low. Chinese blue chips (.CSI300) fell 0.2%.
Chinese government bonds rallied, driving 10-year and five-year yields to their lowest since 2020 at 2.56% and 2.35%, respectively. With U.S. yields rising, the gap over Chinese yields at the 10-year tenor hit its widest in 16 years at 168.8 bps.
Shares in under-pressure developer Country Garden (2007.HK) bounced 5% to HK$0.83. The once-sound developer is struggling to make debt repayments and its woes are a chilling signal for the broader market. In January 2020 the shares traded at HK$13.
Contagion concerns grew as Zhongrong International Trust Co, a major trust company traditionally exposed to real estate, missed repayment obligations on some investment products.
J.P. Morgan analysts warned of a “vicious cycle” of real estate financing challenges and said trust defaults could wipe 0.3% to 0.4% from China’s growth directly.
JAPAN GDP JUMPS
China’s weak data overshadowed a surprise in Japan, where tourism and car exports sent annualised growth surging to 6% in the second quarter, well above the 3.1% analysts had expected. That lifted the Nikkei (.N225) by 0.8%.
“The export news was heartening and bodes well for Japan’s continued trade competitiveness,” said John Vail, chief global strategist at Nikko Asset Management in Tokyo, though he cautioned that domestic consumption indicators were soft.
The yuan’s woes, however, kept the U.S. dollar pretty firm and the yen showed little reaction. The yen hit a nine-month low of 145.60 to the dollar, capped as controlled Japanese yields leave a wide gap on rising U.S. yields.
In Australia, wages growth came in steady for the last quarter, just below expectations, and added to the case for a pause in interest rate hikes for the time being.
The Aussie dollar and the kiwi held steady just above major support levels.
The euro recovered slightly from overnight losses to $1.0909.
Wall Street indexes rose on Monday, led by tech shares and especially chipmaker Nvidia (NVDA.O), which jumped 7.1% after Morgan Stanley analysts called it a “top pick”.
Nasdaq 100 futures were up 0.2% in the Asia session. The S&P 500 (.SPX) rose 0.6% overnight and futures rose 0.1% in Asia. European futures rose 0.4%.
In bond markets, benchmark 10-year Treasury yields rose 2 basis points to 4.20% on Tuesday. Two-year yields were steady at 4.97%.
Brent crude futures were steady at $86.30 a barrel.
Reporting by Tom Westbrook; Editing by Jamie Freed
Our Standards: The Thomson Reuters Trust Principles.
by Calculated Risk on 8/14/2023 03:52:00 PM
Today, in the Calculated Risk Real Estate Newsletter: Part 2: Current State of the Housing Market; Overview for mid-August
A brief excerpt:
On Friday, in Part 1: Current State of the Housing Market; Overview for mid-August I reviewed home inventory and sales.
…
Most measures of house prices have shown an increase in prices over the last several months, and a key question is Will house prices decline further later this year?Other measures of house prices suggest prices will be up YoY soon in the Case-Shiller index. The NAR reported median prices were down 0.9% YoY in June, smaller than the 3.0% YoY decline in May. Black Knight reported prices were up 0.8% YoY in June to new all-time highs, and Freddie Mac reported house prices were up 1.7% YoY in June, up from 0.8% in May.
Here is a comparison of year-over-year change in the FMHPI, median house prices from the NAR, and the Case-Shiller National index.
The FMHPI and the NAR median prices appear to be leading indicators for Case-Shiller. Based on recent monthly data, and the FMHPI, it seems likely the YoY change in the Case-Shiller index will turn positive this summer.
There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/