THE DAILY EDGE (30 August 2017)

Growth in U.S. Home Prices Accelerated in June Limited inventory and strong buyer demand are pushing up prices faster than wages

The S&PCoreLogic Case-Shiller Indices, which cover the entire nation, rose 5.8% in the 12 months ended in June, up slightly from a 5.7% year-over-year increase reported in May. The 10-city index gained 4.9% over the year, down from 5% in May. The 20-city index gained 5.7%, identical to the previous month. (…)

After seasonal adjustment, the national index rose 0.4 % month-over-month, the 10-city index remained flat and the 20-city index rose 0.1%.

After seasonal adjustment, 14 out of 20 cities saw prices rise in June. (…) (Charts from The Daily Shot)

• What is Causing the Lean Inventory of Houses?

• How Government Regulation Affects the Price of a New Home

Hurricane Harvey will be most expensive U.S. natural disaster at up to $160 billion: AccuWeather

Will hurricane season derail growth?

Just a couple of weeks ago, the National Oceanic and Atmospheric Administration warned that due to warmer sea surface temperatures “the 2017 hurricane season could be the strongest since 2010”, with two to five major hurricanes expected before the end of November. As hurricane Harvey just showed, one can expect tragic loss of lives and significant damage to property. Does that mean hurricane season will derail U.S. economic growth this year?

U.S. real GDP growth and employment creation indeed tend to soften a bit on average in the quarter during which the hurricane event takes place. But as today’s Hot Charts show, the economy bounces back sharply in subsequent quarters in part due to reconstruction efforts. So, hurricane season won’t sway the Fed as it attempts to normalize monetary policy. Instead, what could restrain the Fed is the ongoing political storm brewing over Capitol Hill which has potential to precipitate a government shutdown or even a U.S. sovereign default. (NBF)

• But where will they find the construction workers for the reconstruction?

Fallout From Harvey to Disrupt Energy Markets Around the World Tropical Storm Harvey is upending the flow of oil and petroleum all around the world—a consequence of the growing influence of the U.S. in the global energy industry.

(…) The area has become an increasingly critical link in the global energy chain. Shipments from the region now satisfy 6% of global demand for oil and other liquid petroleum fuels—twice as much as in 2012, according to Barclays PLC.

That means Harvey, which was the most powerful storm to hit Texas in half a century, is likely to cause shortages that affect consumers from Houston to Beijing. Countries like Mexico, which relies on the U.S. for as much as half of the gasoline it consumes, according to the U.S. Energy Information Administration, are the most likely to feel the effects, analysts said. (…)

Some 17% of gasoline made at the Gulf Coast and 39% of the diesel produced there this year has been exported, according to consultancy Turner, Mason & Co.

Exports of crude oil itself, which were largely banned before 2015, have grown from a trickle to surpass 1 million barrels a day at times this year, winding up in China, the Netherlands and Peru.

Harvey has shut off much of that flow. Ports along the Texas coast, including Houston and Corpus Christi, have been closed, and now some in Louisiana are shut as well. (…)

More than 15% of oil refining capacity has been shut due to the storm, and that number is climbing as Harvey has started to track eastward, threatening more plants. The storm has choked off crude supplies to the plants that have continued to run. (…)

It isn’t clear how disruptive Harvey will prove to be. If refineries sustain significant damage, they could be down for months. But even if producers, pipelines and fuelmaking plants can ramp up relatively quickly, analysts said its effects may linger. (…)

• Harvey’s Widespread Destruction Tests U.S. Shale The tropical storm is the biggest to hit the sector since shale drilling took off a decade ago; production may be slow to bounce back

(…) As the storm’s widespread devastation has come into focus, several analysts say that much, if not most, of the 1.4 million barrels of oil produced daily in the Eagle Ford shale of South Texas has been cut off and may not return for weeks. The Eagle Ford, which is on the doorstep of Corpus Christi where the storm made landfall, is second in output in the state only to the Permian Basin of West Texas.

Early indications from a handful of companies are that the severity of the storm was much greater than expected but damage to fields was moderate, according to Paul Sankey, an equities analyst with Wolfe Research. Many big shale producers in the Eagle Ford shut their oil and gas wells before Harvey made landfall as a hurricane Friday. (…)

“The effect to shale could linger given the extent and catastrophic level of forecasted flooding, which interferes with shale logistics,” said Benny Wong, an analyst with Morgan Stanley . (…)

More than 15% of U.S. refining capacity is closed in the wake of the storm. That prompted crude prices to drop more than 2.5% since Friday to $46.44 a barrel, largely because closed plants don’t need to buy any crude.

If they stay shut, or if the ports where they are located sustained damage that takes weeks to repair, producers won’t be able to turn their spigots back on. Prolonged refinery outages could lead to fuel shortages in different parts of the country. (…)

Restarting wells may not guarantee that they resume flowing at the same rate, he said. On a technical level he fears that shale wells, once shut off, could lose pressure. Most of his company’s production wasn’t shut in as it lies in areas west of the storm’s path.

“It’s not just a matter of flipping a switch,” he said. “There is significant risk in those wells not coming back to previous levels.” (…)

WE’RE BACK UP THERE!

Source: S&P Global Market Intelligence (Via The Daily Shot)

These borrowers must be hoping this won’t happen:

• Republican Tax Plan Poses Risk to U.S. Bond Market Republican plans to scale back tax deductions on corporate interest risks pushing more borrowing overseas, say experts, eroding the competitive advantage of the mammoth U.S. bond market.

(…) Rep. Kevin Brady (R., Texas), chairman of the House Ways and Means Committee, said this month he wanted to curtail companies’ capacity to deduct net interest payments from taxable income to pay for tax cuts. The comments virtually ensure the topic will feature prominently in the coming tax debate, expected to begin in earnest after Labor Day. (…)

Ending or limiting that deduction is key to funding the House tax plan. Repeal would raise $1.5 trillion over a decade to replace some of the revenue lost from a corporate rate cut and immediate deductions of capital expenses, according to the Tax Foundation, a conservative-leaning think tank. (…)

Now, that won’t happen, nor will much really happen:

• One for you, 19 for me: Trump and tax

President Donald Trump launches his tax-reform agenda today in Springfield, Missouri. As a candidate he promoted a mix of corporate and individual rate-cuts and deduction rises; the Tax Policy Centre, a think-tank, estimated those would reduce federal revenue by $6.2trn while increasing the federal debt by $7trn within a decade. Most agree that America’s byzantine tax system needs overhauling, but the devil is in the details: one reason that no major tax reform has been accomplished since 1986 is that the trade-offs are both mathematically and politically difficult. But Mr Trump, still smarting from Congress’s failure to repeal Obamacare and lacking any significant legislative achievements so far, needs a win. That makes the president’s Twitter attacks on Mitch McConnell and Paul Ryan, Republican congressional leaders whose support he needs, all the more baffling. Perhaps he reckons his base prizes the spectacle of him fighting the establishment more than any actual achievements. (The Economist)

• From David Rosenberg: