Morning Report: Markets optimistic as Britain votes 6/23/16

Posted on June 23, 2016 by Brent Nyitray

Markets are higher this morning as the Brexit vote happens in the UK. Bonds and MBS are down.

Last night, the Sporting Index Brexit Markets were tilted towards Remain at 53-47. If the UK leaves, it probably won’t have much of an effect on the US economy, however it will probably cause a flight to safety, meaning US Treasury yields would fall.

New Home Sales fell to an annualized pace of 551k in May. This is down on a sequential basis but is still up 9% YOY. April was revised lower as well. The median new home price was $290,400 and the average sale price was $358,900. At the end of May there were 244,000 new homes for sale, which represents a 5.3 month supply. I plotted new home sales going back to the early 1960s, and put a trend line in so you can see how much of a deficit we have, and where that number should be (about 50% higher)

Tight supply of starter homes are pushing prices up 9% per year in that segment, more than double the price appreciation at the high end. This is a combination of lower foreign demand for luxury homes and increasing demand by Millennials who want to buy.

Initial Jobless Claims fell to 259k last week. For all the talk about a slowdown in the labor markets, you aren’t seeing any evidence of layoffs.

The Chicago Fed National Activity Index turned negative last month, while the Kansas City Fed Index turned positive.

Finally, the Index of Leading Economic Indicators turned negative last month.

The 20 hottest real estate markets, according to Realtor.com. No, it isn’t Phoenix, Palm Springs, Vegas, and Orange County. Note how many are in the Rust Belt! The D is supposedly a hot market – I thought they were going to abandon about 1/3 of the city and turn it back into farmland.

Filed under: Economy, Morning Report |

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7 Responses

  1. Kevin S. Willis, on June 23, 2016 at 11:07 am said:

    Frist!

    No Brexit coming, I guess, but the UK still isn’t going to adopt the Euro!

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  2. Kevin S. Willis, on June 23, 2016 at 11:16 am said:

    The constitution was intended to give the government more power, not protect people or something:

    http://www.washingtonexaminer.com/house-dem-constitution-was-designed-to-increase-government-power/article/2594606?custom_click=rss

    Yes, that’s why there was an American Revolution: so the government would have the power to levy taxes and function effectively.

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    • jnc4p, on June 23, 2016 at 12:24 pm said:

      His point is valid vis the Articles of Confederation, but as he himself notes, the Bill of Rights was added to make sure that people like himself didn’t get confused on things like free speech, searches, and gun ownership down the line.

      I think the Feds have taxes pretty well covered.

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    • ScottC, on June 23, 2016 at 12:37 pm said:

      KW:

      The constitution was intended to give the government more power, not protect people or something:

      Nadler is apparently too dim to grasp the idea that the Constitution was written to both increase the power of the feds relative to what it had under the Articles of Confederation, while also being designed to limit that power to specific functions, to the exclusion of all others.

      edit: I haven’t been corked like that in ages.

      Liked by 1 person

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  3. jnc4p, on June 23, 2016 at 12:58 pm said:

    Worth a read:

    “The Fed’s mistake is that it’s not hiking rates fast enough
    By Steven Pearlstein
    June 16”

    https://www.washingtonpost.com/news/wonk/wp/2016/06/16/the-feds-mistake-is-that-its-not-hiking-rates-fast-enough/

    I’d also like to see him revisit his bear market prediction from January of this year:

    “Feeling a little jumpy about the markets? Here’s what’s going on.

    When we look back to this time, we are likely see that the long bull market ended in February 2015, and we are now a year into a bear market.

    By Steven Pearlstein
    January 15

    …
    The smart money guys at the hedge funds and Wall Street trading desks have known this day was coming for a while. They’ve been happy to trade the market up and down over the past two years as the Dow fluctuated between 16,000 and 18,000. But now that the 16,000 floor has been breached — a level first reached more than two years ago, in November 2013 — the smart money guys have begun to head for the exits to wait out the storm. Already last year, hedge funds lost money, the bottom fell out of the junk bond market and company earnings growth slowed — all fairly reliable leading indicators of a broader stock decline. Another is the fact that 20 percent of the stocks on the New York exchange are trading below their recent 200-day average.

    When we look back to this time, we are likely see that the long bull market ended in February 2015 and we are now a year into a bear market, where selling will beget more selling and stock prices will fall 20 percent from their peak. Such a bear market would mean the Dow would fall at least to 14,000, which would be a good time to begin buying again. It’s likely to be a bumpy ride until then.”

    https://www.washingtonpost.com/business/the-bear-market-may-have-already-begun/2016/01/15/f524e948-bba7-11e5-829c-26ffb874a18d_story.html

    As of 1:58 PM today, the Dow is 17,938.26.

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    • markinaustin, on June 23, 2016 at 3:32 pm said:

      As of 1:58 PM today, the Dow is 17,938.26.

      Asset chasing while world interest rates are suppressed by central banking systems?

      I doubt Pearlstein figured the world would go all in on negative interest gummint bonds.

      Rosanne and I are chasing rental property – I don’t see why folks who know various assets wouldn’t chase them now.

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