New Home Sales rose a magnificent (seasonally-adjusted annualized rate) 18% in August - the biggest monthly rise since January 1992 albeit with a 16.3 90% confidence interval, meaning the final number may well be +1.7%. At 504k, new home sales are back at May 2008 levels (though obviously massively below the 1.4 million homes sold at the peak in 2005). As a reminder, May's 504K new home sales print was later revieed later to 458K. But even more stunning, new home sales in The West rose a mind-numbing 50% in August (and up 84.4% YoY - nearly double). And just to confuse matters, the average new home sale price rose to a new record high of $347,900. So as existing home sales are sliding (and prices dropping), new home sales are surging (to new record highs) - makes perfect sense. We await the extrapolations for how great this move is. (or the realization that it is entirely seasonal-adjustment-biased and unsustainable given the realities of mortgage applications).
Believing they are filling the macroeconomic bathtub with aggregate demand and full-employment jobs, Janet Yellen and her merry band of Keynesian money printers are simply blowing chronic, giant, dangerous bubbles on Wall Street. Easy money is always the wrong medicine, but most especially for an economy that is already and self-evidently saturated with too much debt. The implication of all of this, of course,is that our monetary politburo is out of business; that “monetary accommodation” is nothing more than a one time parlor trick of central bankers.
One look at the August housing starts and permits data, and one will wonder just how is it possible that yesterday NAHB homebuilder confidence rose to a 9 year high, when according to the US Department of Commerce both Housing Start and Permits tumbled in the past month, with the housing "leading indicator" that is Permits sliding 5.6% from 1040K to 998K, and declining sequentially in every region of the US, with double digit drops in the Northeast and the Midwest, while Housing Starts tumbled by 14.4% from 1117K, to only 956K, wildly missing Wall Street expectations of "only" a 5.2% drop to 1037K.
- House votes to arm Syrian rebels (Reuters).... aka ISIS
- Fed Plots Cautious Course on Rate Rises (Hilsenrath)
- Scots vote in independence referendum to seal the United Kingdom's fate (Reuters)
- Yes or No, the Winner of the Referendum Is Brand Scotland (BBG)
- Draghi Loan Plan Missing Estimates Hampers ECB Stimulus (BBG) - get with the spin, it simply means "Moar QE"
- Obama Plans to Tightly Control Strikes on Syria (WSJ)
- IMF warns of risks from 'excessive' financial market bets (Reuters)
- Russia Praises Ukraine's Autonomy Law for Rebel Areas (WSJ)
Yesterday's market reaction to Yellen's commentary was curious: there was none, because when all was said and done the S&P and DJIA traded precisely where they traded just before the show began. Which, of course, was unacceptable, because one way or another the hawkish for the USD - the USDJPY just traded at the highest since 2008 - statement and conference had to be promptly interpreted for the algos as dovish for stocks - Futures are again just why of record highs - if not so much for the Fed-hated bonds, and sure enough, European equities traded in the green from the get-go even as RanSquawk notes, "there has been no major fundamental catalyst behind the spike higher seen in the morning, although do note that the move comes in the backdrop of the positive close on Wall Street which saw the S&P 500 (+0.13%) touch record highs before paring a large portion of the gains." In other words, the upside volatility in the intraday move is now a bullish catalyst, closing print notwithstanding. And what did US equity futures do? Why they followed Europe higher, with the ES now +8, on what is "explained" as a European move to intraday US futures previously. That, ladies and gentlemen, means we may have finally achieved perpetual motion, because all that would take to send the market higher is... for the market to go higher, etc, ad inf.
US Industrial Production and the NY Fed Empire State Manufacturing survey are the two main releases for the US. In Europe, the euro area trade balance will be the notable print. Beyond today, US PPI, German ZEW and UK CPI are the main economic reports tomorrow. Wednesday will see the release of BOE’s meeting minutes, the US CPI, and the Euro area inflation report. On Thursday, President Obama will host Poroshenko and on the data front we have Philly Fed, initial claims, and building permits to watch out for, but the biggest market moving event will surely be the Scottish independence referendum. German PPI will be the key release on what will otherwise be a relatively quiet Friday.
One of the more amusing comments overnight came from Bank of America, which now predicts that China's export growth will be boosted by iPhone 6 by 1% per month through year-end. Whether or not this is accurate is irrelevant, but we are happy that unlike before, BofA has finally figured out that iPhone sales are positive for Chinese GDP, not US, which was the case with the release of the iPhone 4 and 5, when clueless strategists all came out boosting their US (!) GDP forecasts on the iPhone release. We note this because the long-awaited release of Apple's new iPhone will certainly grab some attention tomorrow. According to a BofA poll last week and of the 124 respondents surveyed, 66% of those have noted that they are going to buy the new iPhone and of those planning to buy 75% of those will be replacing their iPhone 5/5s.
Following last week's housing starts data, everyone was expecting a new home sales number that was even better than the consensus 430K. Instead, the July print of 412K was not only the 5th miss in the last 6 prints, but also the lowest number since March's 403K. The biggest drop took place in the Northeast where the sequential plunge was some 31% to just 18K new houses, and a whopping 44% from a year ago. There were declines in the Midwest which dropped 8.8% and in the West, which dropped 15.2%, while the only increase was recorded in the South which rose 8.1%. In fact, of all regions, only the South posted an increase from July 2013, surging by 33%, with new home sales in all other regions dropping.
Key highlights in the coming week: US Durable Goods, Michigan Conf., Services PMI, PCE, and CPI in Euro area and Japan. Broken down by day: Monday - US Services PMI, New Home Sales (Consensus 4.7%); Singapore CPI; Tuesday - US Durable Goods (consensus 7.5%) and Consumer Confidence; Wednesday - Germany GfK Consumer Confidence; Thursday - US GDP 2Q (2nd est., expect 3.70%, below consensus) and Personal Consumption; Euro area Confidence; CPI in Germany and Spain; Friday - US Michigan Conf. (consensus 80.1), PCE (consensus 0.10%), Chicago PMI; Core CPI in Euro area and Japan (consensus 2.30%). Additionally, with a long weekend in the US coming up, expect volumes into the close of the week to slump below even recent near-record lows observed recently as the CYNKing of the S&P 500 goes into overdrive.
The econ data this week signal the US Economy is in a bull market (not the same as the Fed -roided stock and commodity markets), now let`s hope we can keep inflation from spoiling the party!
While everyone's (algorithmic) attention will be focused on today's minutes from the July 29-30 FOMC meeting for views on remaining slack in U.S. economy following recent changes in the labor market (especially a particularly solid JOLTS report which indicates that at least on the openings front, there is no more) and any signal of policy change by the Fed ahead of Fed Chair Janet Yellen’s speech in Jackson Hole on Aug. 22, a curious thing happened overnight when a few hours ago the BoE's own minutes show the first vote split since 2011, as Weale and McCafferty argue for a 0.75% bank rate. Then again, if the Russians are finally bailing on London real estate, the inflationary pressures at the top of UK housing may finally be easing. In any event, every FOMC "minute" will be overanalyzed for hints of what Yellen's speech on Friday morning will say, even if stocks just shy of all time highs know quite well she won't dare say anything to tip the boat despite her warnings of a biotech and social network bubble.
After June's very disappointing housing starts and permits numbers, which plunged to 893K and 963K respectively well below consensus expectations, it was time for the Department of HUD to show how it's done, and moments ago the July housing starts and permits data literally blew away Wall Street expectations, as Starts soared from an upward revised 945K to 1093K, the highest print since November 2013, while permits surged from an also upward revised 973K to 1052K, smashing expectations of 1000K and the biggest beat since October. Why? Multi-family housing is back with a vengeance with "rental" permits and starts soaring by 24% and 33% respecitvely in the month of July.
- Just how many rats are there? Steven Cohen's Firm Loses Another Top Executive (WSJ)
- Iceland Sees a Potential Volcanic Eruption, and Airlines Cower (Bloomberg)
- Iraqi forces battle to drive jihadists from Saddam's home town (Reuters)
- Israel, Palestinians Agree to Extend Gaza Truce for 24 Hours (BBG)
- Pimco now buying junk (BusinessWeek)
- Pakistan arrests 147 in Punjab towns as protests in capital continue (Reuters)
- Ex-Rabobank Employee Pleads Guilty in Libor-Rigging Probe (BBG)
- Ebola Orphans Targeted by Aid Groups as Newest Victims (BBG)
- Two California youths accused of plotting high school shooting spree (Reuters)
- Only Rich Know Wage Gains With No Raises for U.S Workers (BBG)
A quick reminder of how geopolitics governs markets: on Friday, the market plunged 0.005% over fears Ukraine and Russia may be about to go at it all out after a fake report Ukraine shelled a Russian military convoy. On Monday, the same "market" soared just under 1% as the news that had caused the "crash" was refuted. That has been the dominant rinse, repeat theme for the past month and will continue to be well after Yellen's Friday speech at Jackson Hole (although one does wonder why she is not speaking on Wednesday when the symposium begins). Not surprisingly, with only modest re-escalation news overnight (that Russia is preparing further retaliatory sanctions against the West), which is simply "pent up de-escalation" in the eyes of Keynesian algos, futures are again up a solid 0.2% and rising, and the way the rampy USDJPY is being manipulated before its pre-market blast off, we may well see the S&P hit 1980, if not a new all time high before 9:30am, let alone during today's cash session. In any event, whatever you do, don't you dare suggest that algos should care one bit about Ferguson and its implications for US society.
The main event of the week will be Yellen's long awaited speech at the Jackson Hole 3-day symposium taking place August 21-23. The theme of this year's symposium is entitled "Re-Evaluating Labour Market Dynamics" and Yellen is expected to deliver her keynote address on Friday morning US time. Consensus is that she will likely highlight that the alternative measures of labour market slack in evaluating the ongoing significant under-utilisation of labour resources (eg, duration of employment, quit rate in JOLTS data) have yet to normalise relative to 2002-2007 levels. Any sound bite that touches on the debate of cyclical versus structural drivers of labour force participation will also be closely followed. Unlike some of the previous Jackson Hole symposiums, this is probably not one that will serve as a precursor of any monetary policy changes but the tone of Yellen's speech may still have a market impact and set the mood for busier times ahead in September.