Home Sales Extend Slump Despite Economic Strength Existing-home sales slipped 0.6% in June from the previous month
Existing-home sales slipped 0.6% in June from the previous month to a seasonally adjusted annual rate of 5.38 million, the National Association of Realtors said Monday. Compared with a year earlier, sales in June declined 2.2%.
Home sales have now declined on an annual basis in five of the first six months this year, a worrying trend since housing is considered a crucial indicator of overall economic health, economists say. (…)
Housing contributes about 15% to 18% of gross domestic product. (…)
Mortgage-application volume decreased 2.5% in the week ending July 13, compared with a week earlier, including a 5% decline in purchase applications, according to an index put out by the Mortgage Bankers Association last week. (…)
Realtors say some buyers have grown weary of the run-up in prices, especially after mortgage rates increased. (…)
The average interest rate on a 30-year fixed-rate mortgage already has risen to 4.57% in June from 4.03% in January, according to Freddie Mac. (…)
The median sale price for an existing home in June hit a new all-time high of $276,900, up 5.2% from a year earlier, according to NAR. (…)
There were 1.95 million existing homes available for sale last month, up 4.3% from the prior month and 0.5% from a year ago. That is the first yearly inventory increase since the middle of 2015, according to Lawrence Yun, the trade group’s chief economist.
Housing is local but the slowdown is seen everywhere as this Haver Analytics chart illustrates. YoY, sales are down in each of the four regions except the South (+0.4%).
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US housing affordability is now at a decade low. (The Daily Shot)
Europe will not give in to U.S. threats on trade: Germany European Commission President Jean-Claude Juncker is due to meet U.S. President Donald Trump to discuss the imposition of U.S. tariffs
Meanwhile, China is preparing for the trade war, trying to stimulate a slowing economy while attempting to deleverage its real estate and financial sectors. Tough balancing act!
China Stimulates Again, but Don’t Expect Fireworks A stronger economy and political distaste for leverage could keep the lid on China’s latest stimulus package
Cash-strapped Chinese companies surviving on a wing and a prayer received welcome news from on high today: Beijing is yet again kicking the stimulus engine into gear.
The country’s main stock benchmark was up 1.6% Tuesday, after a call from China’s cabinet overnight for more fiscal spending, abundant liquidity, and—perhaps most significant—support for the “reasonable” fundraising needs of local governments’ notorious off-balance-sheet financing vehicles, a key locus of bad debt. The announcement follows a half-trillion yuan ($74 billion) central bank injection into the banking system Monday and, according to local media, incentives for banks to buy low-rated corporate bonds.
The yuan was the most immediate casualty: It hit another one-year low against the dollar Tuesday, bringing its decline since May to more than 6%. Commodities could eventually benefit. Copper prices, down nearly 20% since mid-June, have shown signs of stabilizing in recent days.
What form will the jolt take? A cut to the benchmark one-year policy rates still isn’t that likely because, following years of interest-rate liberalization, it isn’t as relevant. The weighted average bank lending rate was 1.6 percentage points above the benchmark rate in the first quarter, while a full 74% of loans were executed above the benchmark rate in March: both record highs. A benchmark rate cut would also leave egg on the face of President Xi Jinping, a strong advocate of a tougher stance on debt.
Instead, the central bank will likely try to lower banks’ funding costs more discreetly while amped up fiscal spending supports infrastructure build—and the balance sheets of indebted downstream industrial companies. One possibility is cheaper loans from the central bank’s key lending facility. (…)
Still, the odds remain good that this round of stimulus will be smallish, both because the economy is in better shape than in 2015, and because “deleveraging” has gained political traction under Mr. Xi. The statement Monday night emphasized that policy makers wouldn’t “inundate” the economy with stimulus. Yuan bears and commodity bulls shouldn’t get too excited yet.
J Capital:
The underlying efficiency of the Chinese economy is declining, meaning that more credit is required each year to refinance the old. The preferential direction of credit to government (and this has accelerated this year, with credit pouring into local governments and shunning smaller, private companies) further erodes efficiency. The resulting sluggishness makes the bankers cautious and companies less and less responsive to credit. The Chinese government would have to reverse its public stance and pour money on the property sector in order to reverse the defaults, and that seems unlikely.
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Chinese Momentum Slows to a 15-Month Low
Fathom Consulting’s measure of China’s economic activity, its CMI 2.0, continued its descent in May, slowing to a 15-month low of 6.2%.
Global Central Bank Chatter Rattles Bond Market Government bond prices tumbled Monday after reports that central banks could be close to policy changes
News reports that the Bank of Japan might consider changing its interest-rate targets helped push the yield on the 10-year Japanese government bond as high as 0.09% in Monday trading in Tokyo from 0.03% late Friday. (…) it was the largest one-day move higher for the Japanese bonds in nearly two years. (…)
The yield on the 10-year U.S. Treasury note, a global benchmark that influences borrowing costs for corporations and individuals, followed other global sovereign debt yields higher, rising recently to 2.963%, its highest in roughly six weeks. Yields, which generally rise as bond prices fall, also climbed in Germany and the U.K. (…)
FYI, from Grant’s:
Thus, on June 26, Nikkei reported that thanks to ¥25 trillion ($227 billion) and counting in ETF purchases under QE, the BoJ has become a top-10 shareholder in nearly 40% of listed companies in Japan.
Global airfares, hotel rates to rise in 2019: industry forecast A strong global economy and rising oil prices are expected to push up the cost of air travel in 2019, with fares seen rising 2.6 percent and hotel rates up 3.7 percent, although there are downside risks from a trade war, according to an industry forecast.
EARNINGS WATCH
Beat After Beat Launches Markets to Higher Ground: Taking Stock
(…) Of the 104 companies in the S&P 500 that have already released results, 90% have reported earnings beats, keeping up with the 94% rate that we saw on Friday. Tech is now a perfect 14 for 14 while numbers from the financials and industrials sectors have also come in impressively against the expectations. (…)
Hmmm…most aggregators have the beat rate in the low 80’s.
Actually, Thomson Reuters says that of the 90 results in so far, 82% beat with a $.9% surprise factor.
Harley-Davidson profit tops estimates on overseas sales
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Harley-Davidson Cuts Profit Margin Forecast on Tariff Hit The company added to its predictions of damage done by Donald Trump’s trade war.
(…) Operating margin will drop to between 9 percent and 10 percent this year due to the expected impact of tariffs, the Milwaukee-based manufacturer said in a statement Tuesday. The company had been projecting a margin of as much as 10.5 percent. (…)
Whirlpool launched the trade wars:
- Whirlpool, for one, is feeling the burn as the Trump administration’s global trade war heats up. The home appliance maker said rising raw material costs hurt results in three out of four of its regional markets in the second quarter, including North America, Asia and its struggling Europe, Middle East and Africa division. Those higher costs contributed to weaker-than-expected sales and earnings.
- Whirlpool (WHR) shares tumbled 8% in after-hours trading on Monday after missing Wall Street expectations for a host of factors, including weakness in international markets and rising costs that have likely been exacerbated by U.S. tariffs. The company cut its earnings-per-share expectations for 2018 to a range of $14.20-$14.80, down from earlier guidance of $14.50-$15.50.
- Whirlpool second-quarter posted EPS of $3.20 after excluding one-time items, compared with Wall Street expectations for $3.69.
- In North America, sales slipped 2.2% as the company shipped lower volumes of products but sold more higher-priced goods. Raw materials costs rose, likely impacted by the Trump administration’s tariffs on steel and aluminum. Whirlpool has benefited on the one hand from the administration’s tariffs on washing machines, but has been hurt by the steel and aluminum tariffs.
- If one is searching for it, the potential silver lining is the strong price and stable margin performance in North America in the context of a 9% y/y decline in unit shipments.
BTW, the strong price in NA is courtesy of Trump’s tariffs which WHR used to raise its prices more than its foreign competitors.
A recent WSJ analysis revealed that,
Whirlpool’s least-expensive model among a group tracked by Thinknum jumped from an average price of $329 in January to $429 in June [+$100 or +30%]. Samsung’s rose from $494 to $582 [+$88 or +18%], while LG’s rose from $629 to $703 [+$74 or +12%].