Deflationary Cracks Surface in the Housing Market

Global markets are mixed; housing troubles take center stage.

Key Takeaways

• Bond Yields Stuck, Fed Comments Ignored: Bond yields remain rangebound. Comments from New York Fed President, John Williams, to the effect that “R-star” (the neutral interest rate) will remain depressed for a prolonged period (he was speaking at a conference in Germany) have fallen on deaf ears.

• Payrolls Delayed, Housing Weakness Persists: We were supposed to be getting October nonfarm payrolls this morning but will obviously not (however, we can glean Canada’s jobs data today at 8:30 a.m. ET), though we did receive a macro theme this morning, which was “pushing on a string” — something we have discussed for many months — in the form of the page B10 article in today’s WSJ titled Mortgage Discounts Don’t Tempt Buyers.

• Capex Slumps, GDP Flat, and Profits Stagnant: Excluding the AI spending spree, capex volumes have declined at a -3% annual rate this year, and real GDP growth has been completely flat. Excluding Tech/Communication Services, National Account economy-wide profits have declined by -5% year-over-year, and they have practically flatlined since the first quarter of 2023. Stripping out Tech and Communication Services, the market cap for the S&P 500 is up by less than +6% over the year and has posted little change at all since the middle of September.

While We Were Sleeping

U.S. futures are pointing to just a modestly positive open after yesterday’s sharp giveback (the Nasdaq tumbled by -1.9% as its forward P/E multiple pressed against a nosebleed 30x valuation — Health Care has overtaken Tech as the market leader this week). European markets were flat in the hours after they opened, but have since pulled back by -0.3%; the U.K.’s FTSE 100 is off by -0.5%. Asia sputtered once again: Korea (-1.8%), Japan’s Nikkei 225 (-1.2%), Hong Kong (-0.9%), Taiwan (-0.9%), Thailand (-0.6%), and China’s Shanghai Composite (-0.3%) were all down. India and Singapore were both flat. In sum, both the Asia-Pacific and EM indices are on pace to drop by nearly -1.0% for the day. The markets there didn’t seem to like the Chinese data too much as exports contracted in October for the first time in eight months (-1.1% YoY — consensus was +2.9% — as a +3.1% uptick to non-U.S. customers could not overcome a -25% plunge to the U.S.).