Markets are higher this morning after the People’s Bank of China cut interest rates and required reserves. Bonds and MBS are down.
The Chinese Government is going back to the big levers to try and support asset prices – using rate cuts and reserve requirement cuts. They are also using pension fund money to buy stocks and have prohibited insiders and large investors from selling. John Hilsenrath from the Wall Street Journal described China this way: China is like a CDO. You don’t know what’s inside, how well it performs or where the leverage is until it’s under stress. I think that is a very apt description.
New Home sales rose to an annualized pace of 507k in July, slightly lower than expectations. Surprisingly, consumer confidence rose in a big way to 101.5 from 91.
McMansion builder Toll Brothers reported numbers this morning which missed analyst estimates. Revenues and deliveries both declined. Average selling prices actually declined – first time we have seen that out of the builders. That said, signed contracts were up 30% in dollars and 12% in units as ASPs rise to $834k from $717k last year at this time. The stock is up half a buck pre-open, but then again pretty much everything is green this morning.
During the big sell-off in the markets, Treasuries only moved grudgingly higher. I had been reading that the Middle East (which is getting crushed by low oil prices) was selling the 10 year in a big way. Interestingly, TBAs and mortgage rates have been fading the move in the bond markets. People have been moving back their timing estimates for the first rate hike and bonds are not reacting much to it.
For those that are market history buffs, here is a cool chart showing the economy from the American Revolution through WWII.
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