This week was fairly boring in terms of price action but there is plenty that is bubbling under the surface. Between politics, central banks, interest rates, “OK” earnings and international military risks we have many trigger points to consider as we roll into the Fall. Will Congress pass anything worthwhile for the markets to sink its teeth into? Don’t forget the upcoming showdown over the debt ceiling and the open enrollment in October for another year of Obamacare that was supposed to go away.
The short term in stock prices may be a coin-flip but there are many trigger points to consider as Q3 comes to an end in September. One way to look “under the hood” is to monitor the sub-sectors of the S&P 500 as certain sectors tend to peak before the broader markets (like the industrial sector). The chart to the right lists these sectors and their performance over the last month. Healthy markets aren’t led higher by defensive sectors like utilities or real estate.
There is a shortened week of trading coming up due to the holiday so the current see-saw nature of the markets may not get resolved until September.
Economic & Central Banking Snippets
- US home prices grew at their slowest pace in more than 3 years in June and missed Wall Street expectations, data on Tuesday showed. A measure of single-family home prices rose 0.1% in June compared with May, when it grew 0.4%, the Federal Housing Finance Agency (FHFA) said. That marked the slowest pace of growth since November 2013. (FT)
- U.S. new-home sales fell sharply in July, providing fresh evidence that a shortage of housing inventory is depleting activity across all segments of the market. Purchases of newly built single-family homes decreased 9.4% to a seasonally adjusted annual rate of 571,000 in July, the Commerce Department said Wednesday. “It has been surprising the extent to which new home sales have not picked up more,” said Aaron Terrazas, a senior economist at Zillow. “It does seem to reflect a bit of a market breakdown.” Part of the problem, Mr. Terrazas said, is that high land and construction costs are making it difficult to build homes at lower price points, limiting the pool of buyers.
- U.S. housing starts declined for the fourth time in five months in July, the Commerce Department reported last week. Total housing starts decreased 4.8% from the previous month to a seasonally adjusted annual rate of 1.155 million.
- Durable goods orders fell 6.8% in July, hit by an expected decline in transportation orders (-19.0%), largely the result of a 70.7% drop in volatile aircraft orders (reversing a 129.3% increase in June). With defense goods orders up 14.7%, that left the key core gauge for equipment investment, non-defense capital goods ex aircraft orders, up 0.4%. (MS)
- Fund managers are increasingly concerned about stock market valuations. Of course, these investors also thought that the global equity markets were undervalued in 2006. (WSJ)
- Four mutual fund companies have marked down their investments in UBER by as much as 15% following a scandal-ridden year for the ride-hailing company. Among them: Vanguard, Principal Funds, Hartford Funds and T. Rowe Price.
- Bloomberg reports that Apple plans to release an Apple TV model with 4K HDR streaming capabilities. The new Apple TV box would likely debut during the launch event next month alongside the new iPhones and Watch Series 3. The launch event is rumored for September 12. Apple TV has lost streaming media market share while competitors thrive. A Parks Associates report this week showed Apple’s market share dropping from 19% in Q1 last year to 15% this year. Amazon’s Fire TV grew from 16% to 24% in the same period. (FT)
- Spotify has come to a long-term licensing deal with Warner Music, clearing the last big hurdle in its path to a public listing. The agreement ends more than two years of tough negotiations that pitted the company against the world’s largest record labels over payments for their songs. Spotify has been rapidly adding paid subscribers, reaching 60M in July. (Seeking Alpha)
- Interbank lending in China fell between the start of 2017 and the end of June, marking the first such decline since 2010, Bloomberg reported Aug. 20. Wealth management products in the country, currently one of the major sources of financial risk in China, dropped by 1.9 trillion yuan ($290 billion), representing a step toward stability.
- Provident Financial extended its decline in late morning trading in London, with its shares collapsing more than 70% and its debt coming under heavy pressure as well, after it issued its second profit warning in three months. The group’s shares crashed 74.2 per cent to £4.48, the lowest level since 1995, according to Bloomberg data. In a sign of how abrupt the drop has been, it traded as high as £32.65 earlier this year. Provident’s chief executive stepped down as the country’s biggest subprime lender halted its interim dividend and it warned of troubles in its “home collection” business.
- Debt issuance in the Middle East surged since the decline in oil prices.