Wednesday – July 17, 2024
UMBS opened down 12 bps in the first hour of trading. S&P Futures down 56.25
Worries that US politicians are taking a harder stance on China and Taiwan sparked a pullback across technology shares, driving S&P 500 futures down as much as 1.1%. Nvidia Corp., Advanced Micro Devices Inc. and Broadcom Inc. lost more than 3% in pre-market trading. The Biden administration is considering using the most severe trade restrictions available if companies including ASML continue to give China access to advanced semiconductor technology, Bloomberg News reported on Wednesday.
Meanwhile, an anti-China stance is also at the top of the agenda for Republican nominee Donald Trump. In an interview with Bloomberg Businessweek, the former president questioned whether the US has a duty to defend Taiwan, a major chipmaking hub.
The move in stocks represents a small pullback after a stellar run of gains, fueled by soft inflation data and optimism that the Federal Reserve will cut interest rates. The S&P 500 closed at another all-time high on Tuesday, and in only five days, the Russell 2000 jumped almost 12% — hitting the most-overbought level since 2017.
Jerome Powell spoke yesterday, and said that the Fed isn’t going to wait until inflation hits its 2% target before easing. “The implication of that is that if you wait until inflation gets all the way down to 2%, you’ve probably waited too long, because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%,” Powell said.
He also acknowledged the recent good inflation reports: “What increases that confidence in that is more good inflation data, and lately here we have been getting some of that,” he said. The September Fed Funds futures now see a rate cut as a certainty.
The Biden Administration wants to impose rent control nationwide, capping annual price increases at 5%. Of course since this doesn’t affect the costs that landlords bear, it will act to lower cap rates for multi-family developments, which will discourage investment. The idea is that we beat inflation by simply putting a ceiling on prices. Of course this has unintended consequences – the most common is that price controls create shortages – but those effects take time to play out, so it can often give a politician the veneer of “doing something” long enough to get through the election cycle before the unintended effects are visible.
Needless to say, industry groups oppose this.
High mortgage rates continue to weigh on homebuilder sentiment, according to the National Association of Home Builders. The index fell to 42 in July from 43 in June, reaching the lowest level this year. Housing starts rose 3% month-over-month to 1.35 million in June. This was down 4% on a year-over-year basis. Building permits rose 3% to 1.49 million. This number was down 3% on a YOY basis however. Single-family starts declined, while multi-family starts were up big, reversing the trend that has been going on for most of this year.
Bonds have been trending gently stronger after last week’s CPI numbers, which is notable considering the headwinds presented by Tuesday’s Retail Sales. Wednesday’s data didn’t suggest a recovery from overnight weakness, but we got one nonetheless–perhaps with some help from Fed speakers adding to the sense of a September rate cut. While the modestly bullish bias has been able to defy the data seen so far, the Fed’s focus on the labor market may mean that Thursday’s Jobless Claims number is a better headliner for the week than Retail Sales. After all, this is the installment that lines up with survey week for the forthcoming jobs report.
UMBS ended the day flat at 101.09