U.S. New Home Sales Unexpectedly Jump in October

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Published Date 11/27/2017

Early this morning, stock indexes flat from Friday, 10 yr. note rate down 1 bp at 2.33%, FNMA price +6 bps from Friday’s close.

This morning it’s as always on the Monday following Black Friday: comparing shopping and focusing on Cyber Monday estimated sales. Early reports have been encouraging, with the increase in online sales compared to big box stores. Reports that brick and mortar stores held well compared to the worries that grew prior to last week.

Besides Holiday shopping, this week has a full calendar to think about. Janet Yellen set to testify at the Joint Economic Committee on the economic outlook. Q3 GDP, October personal income, and spending with the PCE (the Fed’s favorite inflation gauge). November auto and truck sales due on Friday are thought to be weaker than last November even with huge deals being offered to move a lot of unsold 2017 vehicles. Early thoughts for US manufacturers: new vehicle sales will likely be about 1.374 million units, a drop of 0.2% from 1.377 million units in November 2016.

Congress back this week to work on the tax cuts and before December 8th. Must pass another resolution to add to the deficit in order for Treasury to pay its bills. Presently the consensus appears to be that the House and Senate will cobble an agreement for a tax bill before the end of the year. Markets generally believe it will happen before the year-end. The House has passed its version; the Senate still has work to do, but talk is it will have a vote on Thursday this week; then to a conference committee to hash out the differences between the two. That is where the real work will likely be somewhat contentious; Democrats won’t vote for any bill and Republicans haven’t been able to get together on much this session. Several Republicans publicly uncommitted to supporting the bill. The CBO still hasn’t run the numbers on the Senate bill about the amount of deficit it would generate. The general idea is that a tax cut bill has to remain under $1.5 trillion deficit over the next 10 years. Some argue the tax cuts will cover the anticipated loss of revenue.

At 10:00 AM ET this morning: October new home sales, expected down to 620K -7.0%. Sales, as reported, increased to 685K, but September was revised lower from 667K to 645K. Percentage-wise from the revised September data, +5.2%. A good report and best in 10 years, but comparing to sales in 2005 at 1.67 million, still comparatively low. 2005 was the last year new home sales increased. From there, sales have pulled back; 2005 was the beginning of the housing bubble bursting.

Still no significant movement in long-dated interest rates. No selling and equally no buying as investors continue to hold long treasury debt and in turn, keep mortgage rates generally unchanged now for the last two months. Stock indexes increasing, but the recent volume has been thinning with less activity after months of big daily increases. Global sovereign debt yields continue to hang around zero percent encouraging investments in US debt with higher rates. It’s a massive parking lot for investors wanting to park money away from what is widely thought to be over-valued stock prices. There is a fear within the equity markets that goes like this: “I won’t sell until the next man does,” and the next man also believes that. A convenient way to hedge against any equity market selloffs is putting money in safe US treasuries. The fact that the 10 yr. isn’t increasing (prices declining) effectively makes the trade almost a freebie.

This Week’s Calendar:

Monday (today)
- 10:00 am October new home sales (expected -7.0% at 620K; as released
- 11:30 am $26B 2 yr. note auction
- 1:00 pm $34B 5 yr. note auction
Tuesday
- 8:30 am October International trade deficit (-$65B)
- 9:00 Sept FHFA home price index (+0.6%) September Case/Shiller home price index (yr./yr. +6.2%, August +5.9%)
- 10:00 am November Consumer Confidence index (124.3 from 125.9)
- 1:00 pm $28B 7 yr. note auction
Wednesday
- 7:00 am weekly MBA mortgage applications
- 8:30 am Preliminary Q3 GDP (+3.3 % up from 3.0% on the advance release last month)
- 10:00 am Janet Yellen testifying at the Congressional Joint Economic Committee Oct NAR pending home sales (+1.0%)
- 2:00 pm Fed Beige Book
Thursday
- 8:30 am weekly jobless claims (240K +1K) October personal income and spending (income +0.3%, spending +0.3%; PCE core prices +0.2%, yr./yr. +1.4% from +1.3% in September)
- 9:45 am November Chicago purchasing mgrs. index (64.0 from 66.2 in Oct)
Friday
- 10:00 am November ISM manufacturing index (58.4 from 58.7 in October) October construction spending (+0.5%)
- No Time November auto and truck sales

Source: TBWS

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