New Home Sales
The coming week will be busy in terms of data releases in the US; highlights include an improvement in consumer confidence, anemic 1Q GDP growth, and solid non-farm payrolls (consensus expects 215K). Wednesday brings advanced 1Q GDP - consensus expected a pathetic 1.1% qoq, on the back of what Goldman scapegoats as "weather distortions and an inventory investment drag", personal consumption (consensus 1.9%), and FOMC (the meeting is not associated with economic projections or a press conference). Thursday brings PCE Core (consensus 0.20%). Friday brings non-farm payrolls (consensus of 215K) and unemployment (6.6%). Other indicators for the week include pending home sales, S&P/Case Shiller home price index, Chicago PMI, ADP employment, personal income/spending, and hourly earnings.
This week saw yet another nail in the coffin of the 'hope-strewn housing-recovery escape-velocity growth engine of America' meme when new home sales collapsed. Homebuilder stocks, while volatile, have been trending lower recently (notably underperforming the S&P) as macro disappointments continue but, as Stone-McCarthy notes, it is the moves in lumber prices (the prime material used in home construction) that is of particular concern.
The similarities between 2007 and 2014 continue to pile up. And you know what they say - if we do not learn from history we are doomed to repeat it. Just like seven years ago, the stock market has soared to all-time high after all-time high. Just like seven years ago, the authorities are telling us that there is nothing to worry about. Unfortunately, just like seven years ago, a housing bubble is imploding and another great economic crisis is rapidly approaching.
While events in Ukraine have once again broken out into lethal fighting, and in a surprise development the Chinese Yuan crossed the 6.25 line for the first time in two years threatening to accelerate the unwind of carry trades which have a 6.25-6.30 point of max pain, futures remain completely focused solely on the strong after-hours results from Apple and Facebook which have helped push Spoos overnight to near record levels once again. The biggest push was given to NASDAQ futures which are back up 1% with optimism for US tech returning with the material earnings beats from both Apple ($11.62 EPS vs Est $10.17 EPS) and Facebook ($0.34 Adj EPS vs $0.24 forecast). Shares in both companies rose in afterhours trading with Facebook up +5% and Apple up more than +7% (supported further by the announcement that the company was expanding its share buyback plan to $90bn from $60bn). Not even the Nikkei being down 1%, the SHCOMP down 0.5% and the USDJPY once again treading water could put a dent in the tech-driven euphoria, which somehow also managed to slam gold and silver to month lows.
This is our best attempt at playing clueless propaganda cheerleaders also known as economists:
Q. Why did new home sales crash in all regions except the traditionally coldest, wettest, and snowiest Northeast, where sales rose?
A. Uhm, because it obviously snowed everywhere except in the Northeast.
And there you have it: spin 101 for braindead zombies and vacuum tubes.
New Home Sales collapsed 14.5% month-over-month to its lowest since July 2013. A mere 384k versus 450k expectations is the biggest miss since July. So much for the Spring buying season... This is a 7 standard deviation miss against the smart economists' estimates! Whocouldanode that when the free-money sponsored fast money leaves the game that real people with real debt and real wages are simply priced out of buying a new home? Supply of unsold new homes jumps to 6 months, its highest since Oct 2011 (as once again the visible hand's interference has produced yet another mal-investment boom as the 'if we build it, they will come' builders face an ugly reality).
- Ukraine's leaders say have U.S. backing to take on 'aggressors' (Reuters)
- Goldman Sachs Stands Firm as Banks Exit Commodity Trading (BBG)
- Obama reassures Japan, other allies on China as Asia trip begins (Reuters)
- China Challenges Obama’s Asia Pivot With Rapid Military Buildup (BBG)
- Google’s Stake in $2 Billion Apple-Samsung Trial Revealed (BBG)
- No bubble here: Numericable Set to Issue Record Junk Bond (WSJ)
- 'Bridgegate' scandal threatens next World Trade Center tower (Reuters)
- Supreme Court Conflicted on Legality of Aereo Online Video Service (WSJ)
- Barclays May Cut 7,500 at Investment Bank, Bernstein Says (BBG)
It has been exactly six days in which algos, reversing the most recent drop in the S&P with buying sparked by a casual Nikkei leak that the BOJ may, wink wink, boost its QE (subsequently denied until such time as that rumor has to be used again), have pushed the market higher in the longest buying streak since September, ignoring virtually every adverse macroeconomic news, and certainly ignoring an earnings season that is set to be the worst since 2012. Today, the buying streak may finally end on rumors even the vacuum tubes are scratching their glassy heads if more buying on bad or no news makes any sense now that even the likes of David Einhorn is openly saying the second tech bubble has arrived. Keep an eye on the USDJPY which has had seen some rather acute "trapdoor" action in early trading and is approaching 102 after breaching its 55-DMA technical support of 102.38. If the support is broken here we go again on the downside. Keep an eye on biotechs and GILD in particular - if the early strength reverts into more selling again (after the two best days for the biotech space in 30 months), the most recent euphoria phase is now over.
Moving onto overnight markets, apart from China we are seeing broad based gains across most Asian equities. Bourses in Japan, Korea and Australia are up +0.2%, +0.2% and +0.5% respectively whereas the Hang Seng and the Shenzhen Composite indices are down -0.2% and -1.1% as we type. The gains in broader Asia Pacific followed what was another constructive session for risk assets yesterday during US trading hours. The S&P 500 (+0.38%) rose for its 5th consecutive day partly driven by better corporate earnings from the likes of GE and Morgan Stanley. Staying on the results season, we’ve had 70 of the S&P 500 companies reporting so far and the usual trend is starting to emerge in which earnings beats are faring better than revenue beats. Indeed the beat:miss ratio for earnings has been strong at 77%:23% whereas revenue beats/misses are more balanced at 50%:50%. Looking ahead, markets should get ready for another big week of US earnings.
It was only a matter of time before, as we said last month, January's reported surge in New Home Sales soared by 10% to 468K (well above the 400K then expected) would be revised lower. This just happened, when moments ago the Census Bureau lowered the January number from 468K to 455K. But what's worse is that last month's seasonally abnormal print was obviously an aberration due to the law of small numbers (explained here in detail), February's print was even worse, printing at 440K, below the 445K expected, and the lowest monthly print since September. Then again looking at the chart below shows why 20K houses up or down is absolutely meaningless in the grand scheme of things, as New Home Sales is the one category that resolutely refuses to bounce from the Depression lows.
- Putin Threatened With More Sanctions as Russia Out of G-8 (BBG)
- China Faces ‘Mini Crisis’ on Debt Defaults, Ex-PBOC Adviser Says (BBG)
- Don't laugh too hard: Obama to propose ending NSA bulk collection of phone records (Reuters)
- SEC Is Probing Dealings by Banks and Companies in Loan Securities (WSJ)
- Japan GPIF asset review not aimed at supporting domestic stocks (Reuters)
- Chinese families clash with police, slam Malaysia over lost plane (Reuters)
- Russian Capital Flight Surges in First Quarter, Fueled by Ukraine Crisis (WSJ)
- Democrats ditch Nate Silver after data whiz predicts dismal midterm outcome (DN)
- China’s Urbanization Loses Momentum as Growth Slows (BBG)
With another session in which US futures levitate into the open, despite a modest drop in the Nikkei225 (to be expected after the president of Japan’s Government Pension Investment Fund, the world’s largest pension fund, said that a review of asset allocations into stocks is not aimed at supporting domestic share prices) and an unchanged Shanghai Composite while the currency pair du jour, the USDCNY, closes higher despite tumbling in early trade (which also was to be expected after a former adviser to the People’s Bank of China said China is headed for a “mini crisis” in its local- government debt market as economic reforms lead to the first defaults) everyone is asking: will it be deja vu all over again, and after a solid ramp into 9:30 am, facilitated without doubt by the traditional Yen carry trade, will stocks roll over as first biotech and then all other bubble stocks are whacked? We will find out in just over two hours.
Dispassionate look at next week's calendar.
Yesterday's "better than expected" New Home sales served as the "good news" pre-market boost to send futures ramping higher once again, if not enough to cause a fresh all time high. Here is what really happened when one spreads the numbers, courtesy of Mark Hanson's housing blog. "If all of the 4 regions were in this morning's New Home Sales print were rounded down to the nearest thousand by the Census Bureau vs up, it would subtract 4k sales, or about 12%. Even with the massive January seasonal adjustments, this would result in a SAAR headline print of 428k, or flat YoY vs the up 10% reported. If only the South was flat YoY like the other regions, the same thing would occur. "
Three unlucky attempts in a row to retake the S&P 500 all time high may have been all we get, at least for now, because the fourth one is shaping up to be rather problematic following events out of the Crimean in the past three hours where the Ukraine situation has gone from bad to worse, and have dragged the all important risk indicator, the USDJPY, below 102.000 once again. As a result, global stock futures have fallen from the European open this morning, with the DAX future well below 9600 to mark levels not seen since last Thursday. Escalated tensions in the Ukraine have raised concerns of the spillover effects to Western Europe and Russia, as a Russian flag is lifted by occupying gunmen in the Crimean (Southern Ukrainian peninsula) parliament, prompting an emergency session of Crimean lawmakers to discuss the fate of the region. This, allied with reports of the mobilisation of Russian jets on the Western border has weighed on risk sentiment, sending the German 10yr yield to July 2013 lows.