Friday Wrap: China Main Market Driver, Impeachment Inquiry, Consumer Confidence Wanes

China Still Main Market Driver as Impeachment Inquiry Announced

An announcement about an impeachment inquiry against President Trump did little to move the needle on Wall Street this week. Investors are betting on the Senate voting down the resolution thus causing a rally for stocks, much like what was seen in 1992 under President Clinton. For reference to the impeachment proceedings of Presidents Nixon and Clinton and how they affected the economy, check out this breakdown from MarketWatch.

When the announcement was made on Tuesday by Speaker of the House Nancy Pelosi, there was a brief sell-off of stocks which caused a drop in the 10-year Treasury note yield to an intraday low of 1.635%. Once a memo was released detailing President Trump’s conversation with Ukraine’s President, stocks rallied while Treasury yields and the price of gold also went up. As of Friday morning, 10-year Treasury yield traded at 1.70%. 

The impeachment inquiry has not shown itself to be a major mover of the markets quite yet. Instead the market remains firmly focused on any move in the trade battle with China. 

Another announcement made this week details that trade talks are to resume on Oct. 10, according to reports from CNBC. A spokesperson for China’s Ministry of Commerce said this week that the country made a significant purchase of pork and soybeans from the United States. That’s a departure from earlier statements where Chinese officials had said the country had suspended all purchases from the U.S. 

In his speech to the United Nations earlier this week, President Trump reiterated that he would not accept a “bad deal” with China. Something that might add a little bit of a wrinkle to those talks are sanctions imposed by the U.S. on two oil freighters that are part of China’s COSCO company. The U.S. is accusing the company of shipping Iranian oil. Those sanctions caused the benchmark freight rates for very large oil carriers to spike by 19%. It’s something to keep an eye on as we just recently saw a spike in oil prices due to international politics. 

Gross domestic product estimates out this week continue to show the economy is slowing down from the breakneck pace of growth we saw in 2018. Goldman Sachs analysts kept their Q3 estimate at 2.0% GDP growth. 

The personal consumption expenditure index out Friday morning shows that the PCE remained flat in August with a 0.1% right in the core PCE. The core measure is a key indicator of inflation for the Federal Reserve. 

Consumer Confidence Wanes, Home Prices Slow Gains

Other data out this week shows that consumer confidence is waning, showing its biggest drop in nine months according to The Conference Board. Analysts partly attribute the decline to the ongoing trade battle between the United States and China. 

Consumer spending was also down in August, slowing by more than expected, to a seasonally adjusted 0.1% increase. That’s down from July’s 0.5% and is the weakest performance for consumer spending since February. What’s more interesting is that consumers are making more money, with incomes growing by 0.4%, they’re just choosing to cut back on their spending especially on volatile goods like food and gasoline. 

Home price gains have slowed significantly, according to the S&P CoreLogic Case-Shiller home-price index. Year-over-year, appreciation was just 2%, the slowest rate of price growth since 2012.

Meanwhile, new home sales have spiked, showing 7% gains month-over-month in August. The seasonally-adjusted annual rate of 713,000 is near a 12-year high that was reached in June 2019. The year-over-year growth is around 18% and due in large part to the much lower interest rates. This week’s average rate for a 30-year fixed-rate mortgage is 3.64%, according to Freddie Mac. This same week in 2018 had an average rate of 4.72%. 

Pending home sales have also been buoyed by the low mortgage rates. According to the National Association of Realtors report release this week, pending home sales were up 1.6% for the month of August. Year-over-year, those contract signings are up 2.5%. The biggest gains were seen in the Western United States with a 3.1% month-over-month rise in pending home sales. 

The Mortgage Bankers Association estimates that the low rates we’re seeing, the lowest since 2016, will add up to nearly $2 trillion in 2019. Not surprisingly, that would be the highest amount in originations since 2016. The MBA has also forecast that homebuilders are going to have their biggest year since 2007, breaking ground on 876,000 new single-family homes.

Contributed by Greg Richardson, MAXEX Managing Director

Greg Richardson

Greg Richardson is Managing Director at MAXEX, LLC, based in Atlanta, GA. He has 30 years of experience in capital markets, including trading, banking asset and portfolio management, mortgage banking secondary marketing and accounting. MAXEX is the only platform in the mortgage industry to offer a centralized clearinghouse that enables buyers and sellers to trade anonymously with multiple counterparties using a single standardized contract.