U.S. Housing Starts Fell to Lowest Level Since October Home building in the U.S. slowed in March to its lowest level since October—falling 8.8% from February—as the housing market searched for firm footing in the first quarter.
The monthly fallback retraces some of February’s gains, leaving the overall trend for the first quarter largely flat compared to the previous year’s pace.
Housing starts fell 8.8% from a month earlier to a seasonally adjusted annual rate of 1.089 million in March, the Commerce Department said Tuesday. (…)
Much of the slowdown was concentrated in the Midwest, while groundbreaking on new homes picked up in the Northeast, suggesting that some of March’s mixed performance was weather-driven. (…)
Starts on single-family homes, which account for roughly two-thirds of the market, fell 9.2% in March to 764,000 from an upwardly revised February rate that represented a multiyear high.
Starts on multifamily buildings with five or more units, which include apartments and condominiums, fell 8.5% to a rate of 312,000 in March from the prior month. (…)
New applications for building permits, a bellwether for forthcoming construction, fell 7.7% to 1.086 million, from a revised February rate of 1.177 million. (…)
Housing starts in March were 14.2% higher than in March last year, and permits were up 4.6% from a year before. For the first three months of the year, housing starts are up 14.5% compared with the year-earlier period.
Housing starts in structures with five or more apartments rose 0.3% in March compared with March 2015. Single-family housing starts were up 22.6% in March from a year earlier. (…)
In reality, the problem is in Multifamily (charts from Haver Analytics):
Single-family permits: slow but steady:
Mortgage demand breaking out? (Chart from CalculatedRisk)
UNCERTAINTY SPREADING
Canada’s Poloz Cautious on Economy
Canada’s adjustment to lower commodity prices will continue to restrain the country’s economic growth over the coming years and there is a risk that the global economy could disappoint further, Bank of Canada governor Stephen Poloz said Tuesday.
Speaking before a parliamentary committee, Mr. Poloz said new fiscal measures planned by the federal government should help to support Canada’s economic growth. But he said it is difficult to assess how much of an impact those measures will have, in part because increasingly indebted Canadians may be more inclined to save additional money than spend it.
“There is, of course, greater uncertainty as to how the budget measures will affect growth in the longer term, particularly since they will need to work their way through the household sector,†Mr. Poloz said to the House of Commons Standing Committee on Finance. (…)
The Bank of Canada’s most recent forecast, issued last week, called for growth of 1.7% for 2016, up from its January forecast of 1.4%. That forecast, issued last week, is higher than the central bank’s January forecast of 1.4%, reflecting the fiscal measures in the budget.
“While recent economic data have been encouraging on balance, they’ve also been quite variable,†Mr. Poloz said Tuesday.
Kuroda Sees Yen’s Rise as Threat to Inflation Goal
BOJ Gov. Haruhiko with The Wall Street Journal, noted how the Fed’s plans to raise interest rates more gradually have helped drive up the value of the yen and could undermine the BOJ’s efforts to stoke inflation in Japan.
“Many market economists say that the Federal Reserve’s monetary policy, particularly its…slower pace of interest hikes in coming months and quarters may have affected the exchange rate of the dollar,†Mr. Kuroda said in the Saturday session.
“We…continue to carefully monitor and assess its impact on the inflation trend,†Mr. Kuroda said, referring to the yen’s appreciation. “We would not hesitate to further ease our monetary conditions.†(…)
Japan’s central bank finishes its monetary-policy meeting on April 28, and a growing number of BOJ watchers expect fresh easing measures to counteract the yen’s rise this year against the dollar—of 10%—as well as against other currencies, including the euro.
A rising yen hurts Japanese exporters and puts downward pressure on import prices, which holds down inflation.
“If excessive appreciation continues, that could affect not just actual inflation, but even the trend in inflation through its impact on business confidence, business activity, and even through inflation expectations,†Mr. Kuroda said. (…)
“Although our monetary policy is not targeted to the exchange rate, we continue to carefully monitor exchange-rate movements. And as I always emphasize, if necessary to achieve 2% inflation target at the earliest possible time, we would not hesitate to take further easing measures,†he said. (…)
“No, we have no intention to employ helicopter money, anything like that,†Mr. Kuroda said, because it would blur the division of responsibilities between the parliament, which is responsible for fiscal policy, and the central bank, which independently sets monetary policy.
Helicopter money, also called monetary finance, gets its name from an academic paper by the late Nobel-prize-winning economist Milton Friedman which asserted that dropping newly printed money from helicopters was guaranteed to raise inflation. Former Fed Chairman Ben Bernanke revived the idea in 1999 when he was still a Princeton University academic as a solution to Japan’s deflation and again in 2002 as a Fed governor.​ (…)
“Without hesitation, we would adopt additional monetary easing by way of quantity, quality and interest rate, individually or collectively,†he said.
Spain to Overshoot Budget Deficit Target Again
Eurozone credit conditions ease
(…) The eurozone lenders polled said the terms and conditions they apply to business loans, known as credit standards, eased more dramatically than they expected three months ago. Net easing, the sum of banks easing credit standards against those tightening or leaving them unchanged, was 6 per cent overall and 38 per cent in Italy. The easing trend was expected to continue in the months ahead.
Demand for business loans, mortgages and other forms of personal borrowing rose, driven by the low level of interest rates and consumer spending.
Lending standards for mortgages tightened, driven by a change in European rules, which had a big effect in Germany where there are fears of a bubble in city property prices. German banks are thought to be increasingly cautious in extending credit to part-time workers and older people. Eurozone lenders expected this tightening in the standards applied to mortgage loans to continue over the coming quarter.
Other forms of credit became easier for eurozone households to access, a trend that was expected to continue into the spring. (…)
The 141 banks polled said the asset purchases by the central bank had freed up liquidity for loans, but had also eroded their profit margins because of the impact the bond-buying has had in lowering longer-term interest rates. Negative interest rates had boosted growth in loans to households, while reducing profitability. (…)
EARNINGS WATCH
- 60 companies (17.3% of the S&P 500’s market cap) have reported. Earnings are beating by 4.5% while revenues surprised by 0.1%. Expectations are for a decline in revenue, earnings, and EPS of -1.4%, -9.2%, and -6.9%. EPS is on pace for -3.2%, assuming the current beat rate for the remainder of the season. This would be +1.8% excluding Energy.
- One-third of the companies that have reported so far are Financials (by market cap). This group has beaten by 3.8% vs. 5.0% for all other names. Their beat rate is a low 56%.ï‚·
Intel to cut up to 12,000 jobs as PC industry swoons Intel Corp said on Tuesday it would cut up to 12,000 jobs globally, or 11 percent of its workforce, as it refocuses its business towards making microchips that power data centers and Internet connected devices and away from the declining personal computer industry it helped found.
OPEC stands aloof of oil price regulation: Russian energy minister Decision-making within the OPEC has become more complicated and since 2008 the international oil cartel has taken no action to regulate the global oil market, Russian Energy Minister Alexander Novak said on Wednesday.
Gundlach’s Bond Market Outlook (and a Warning for Junk Bonds)
The first third of 2016 has been good for bond investors, but don’t expect that performance to continue for the remainder of the year, according to Jeffrey Gundlach. It has left many sectors of the bond market overvalued. In particular, junk bond investors should be wary of pending defaults and lower recovery rates. (…)
Core CPI is now about 2.3%, he said, and CPI growth has been zero over the last eight months. Gundlach predicted that the CPI might be the same or lower over the next four months. “I really question whether the inflation trade makes sense,†Gundlach said, in response to some investors who have shifted allocations in anticipation of spiking inflation. (…)
Gundlach has been following a new metric – the U.S. unemployment versus its 12- month moving average; when the former drops below the latter, it is indicative of an oncoming recession. For the past eight months, unemployment has been between 4.9% and 5.1%, and Gundlach said if it moves up a couple of tenths in the next couple of months, “we will be on recession watch.†(…)
The slides from his presentation are available here. I bring your attention to slides on p. 11 and particularly p.16.
Google eyed: antitrust in Europe
Barring last-minute hiccups, today the European Commission will charge the tech giant with illegally tying Android, the market-leading mobile operating system, to smartphone apps such as YouTube and Google Maps, giving them an edge over competitors’ offerings. The case will drag on for years, but expect a result similar to that of the previous big European antitrust suit, against Microsoft: Google will be told to unbundle its products and pay a big fine. It could be as much as $7.4 billion, 10% of the firm’s 2015 revenue, but will probably be lower: in 2012 Microsoft ended up paying €860m (then $1.1 billion)—small change compared with Android’s earnings. Google doesn’t state these, but a complainant’s lawyer in a patent case in California claimed that since 2008 the operating system and related apps had brought in $31 billion in revenue and $22 billion in profit. (The Economist)
