Morning Report: Delinquencies rebound

Vital Statistics:

 

Last Change
S&P futures 2683 19
Eurostoxx index 354.73 1.46
Oil (WTI) 66.9 0.07
10 year government bond yield 3.12%
30 year fixed rate mortgage 4.93%

 

Stocks are higher this morning despite a huge sell-off in Asian shares last night. Bonds and MBS are flat.

 

Stocks got walloped yesterday yet again, making this month the worst since the bad days of the financial crisis. There really isn’t much of a catalyst to hang your hat on – just general overseas selling and the risk-off trade. I think part of this is a rotation back into the short term interest rate market. CDs are now paying over 2%, after having paid nothing for years. A moribund asset class is coming back, and stocks are going to feel the brunt of it.

 

With the NASDAQ officially down 10% from the high, and the S&P 500 pushing close to it, where do you think the VIX is? Just over 25, which isn’t even the high for the year. If you are hoping we have hit capitulation, we haven’t.

 

Home price appreciation decelerated in August, according to the FHFA House Price index. Prices rose 0.3% MOM and 6.1% YOY. The red-hot Pacific and Mountain MSAs have decelerated, while many of the laggards (Mid-Atlantic) are seeing improved performance.

 

New Home Sales fell dramatically in September on both a month-over-month and annual basis. They fell to a seasonally-adjusted annual rate of 553,000, which is down 5.5% MOM and over 13% YOY. With current inventory at 327,000 units, we have over 7 month’s worth of inventory, which would be characterized as a buyer’s market (6 – 6.5 months is considered “balanced.”). Note that new home sales can be extremely volatile but it confirms what we have been seeing in the homebuilder ETF – affordability is beginning to deter buyers.

 

“Modest to moderate.” was how the Fed’s Beige Book characterized economic growth. “Modest to moderate” was pretty much how the Fed characterized everything from 2010 to 2016. This is a downgrade from “brisk,” “solid” or “strong” – words the Fed has been using recently to characterize the economy.  The Beige Book is a more qualitative assessment of the economy, so parsing the language is about the only thing you have to work with.  The Fed has been expecting the economy to slow due to trade wars. If the economy is beginning to slow, the Fed might want to take a breather and let the recent rate hikes take effect before making any further moves. The Fed also noted that housing continues to underperform.

 

The sell off has affected the Fed Funds futures market. A week ago, the markets were handicapping a 80% chance for a hike. It is now down to 74%. A March 2019 hike is now a coin toss.

 

Delinquencies spiked in September, rising 13% for the biggest jump since November 2008. Hurricane Florence hit areas saw DQs rise by 38%, although there is a seasonal aspect to DQs – they typically rise during September and January.

 

Black Knight Financial delinquencies

 

 

13 Responses

  1. That’s some civility right there.

    Liked by 1 person

  2. A useful reality check on the bombings:

    “Taibbi: Is It Fair to Blame Trumpism for These Latest Explosive Devices?
    Matt Taibbi
    October 24, 2018 5:12PM ET”

    https://www.rollingstone.com/politics/politics-features/explosive-devices-trumpism-746826/

    Like

  3. Worth a read:

    “The US is stopping trade talks with China
    President Trump’s negotiating strategy requires him “to condition expectations with the American people and ask them to sacrifice,” an expert says.

    By Alex Ward
    Oct 25, 2018, 1:10pm EDT”

    https://www.vox.com/2018/10/25/18022518/usa-china-trade-war-trump-xi-talks-g20

    Like

  4. Good piece:

    “Nihilist Nation
    The empty core of the Trump mystique
    By Garret Keizer
    October 25, 2018

    If you think Donald Trump is wrecking the republic and wonder why so many Americans can’t see that he is, you may be asking the wrong question. What if they see the same thing you do and happen to like what they see?”

    https://newrepublic.com/article/151603/nihilist-nation-empty-core-trump-mystique

    Liked by 1 person

    • My strong suspicion is that along with the undoubted racists and xenophobes in the Trump camp are a number of uneducated white voters who do not hate blacks, Muslims, or Mexicans but rather the educated white liberals whom they suspect of caring more about blacks, Muslims, and Mexicans than about uneducated whites.

      It couldn’t possibly be that educated white liberals have open contempt for them and perhaps the feeling is now mutual.

      I guess having complete control of the media makes you self-unaware.

      Liked by 1 person

  5. I did not know about this:

    “President Trump Signs OTC Hearing Aid Legislation into Law

    Published on August 19, 2017”

    http://www.hearingreview.com/2017/08/president-trump-signs-otc-hearing-aid-legislation-law/

    Like

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