- U.S. consumer confidence expected to recover in November
- U.S. new home sales expected to remain strong
- U.S. home prices expected to show steady rise
- Markets wait for Trump decision on Hong Kong bill
- T-note auction deluge continues today
U.S. consumer confidence expected to recover in November — The market consensus is for today’s Nov Conference Board U.S. consumer confidence index to show a +1.1 point increase to 127.0, more than reversing Oct’s -0.4 decline to 125.9. An increase in today’s report would snap the 3-month (Aug-Oct) losing streak that totaled -9.9 points and produced a 4-month low for the index in October.
Despite the 3-month decline, the Conference Board’s U.S. consumer confidence is still in decent shape, remaining within the range seen over the past 1-1/2 years. Moreover, the University of Michigan’s U.S. consumer sentiment has been much stronger than the Conference Board’s index and has shown three straight months of increases. The University of Michigan’s index in November rose by +1.3 points to 96.8, which bodes well for today’s Conference Board report.
U.S. consumer confidence is seeing support from (1) the strong labor market, (2) the record highs in the stock market that boost consumer 401k accounts and foster optimism about the economy, and (3) the continued rise in home prices that bolsters household wealth. However, confidence is being undercut by trade tariffs, political uncertainty in Washington, and the slowdown in U.S. GDP growth to +1.9% in Q3.
U.S. new home sales expected to remain strong — The consensus is for today’s Oct new home sales report to show an increase of +1.0% to 708,000, which would more than reverse Sep’s -0.7% decline to 701,000. New home sales in September were strong at 701,000 units, which is only 4% below June’s 12-year high of 729,000. Last week’s existing home sales for October rose by +1.9% to 5.46 million units, which bodes well for today’s new home sales report.
U.S. new home sales have risen sharply by +24% on a year-to-date basis, supported largely by a sharp decline in mortgage rates that have made homes more affordable. The current 30-year mortgage rate of 3.66% is down by a massive -128 bp from the 8-3/4 year high of 4.94% posted in late 2018 and is just mildly above September’s 3-year low of 3.49%.
The SPDR S&P Homebuilders ETF (XHB) this year has rallied sharply on the strength in new home sales and the drop in mortgage rates. The Homebuilders ETF is up +41% on a year-to-date basis, which is much better than the comparable year-to-date increase of +25% in the S&P 500 index.
U.S. home prices expected to show steady rise — The consensus is for today’s Sep FHFA home price index and the S&P CoreLogic Composite 20 home prices index to each show an increase of +0.3% m/m after Aug’s respective reports of +0.2% and -0.2%. The FHFA index has shown steady monthly increases averaging +0.3% since March. By contrast, the Composite-20 index fell by -0.2% in Aug and has shown no net increase since spring, illustrating weakness in metropolitan home prices over the summer. On a year-on-year basis, the FHFA index remained strong at +4.6% y/y in August, but the Composite-20 index eased to a 7-year low of +2.1% y/y.
Markets wait for Trump decision on Hong Kong bill — President Trump has yet to announce whether he will sign the Hong Kong bill that Congress passed by almost unanimous consent last Wednesday. The bill specifies that the U.S. must annually review whether Hong Kong still qualifies for its special status under U.S. law. The bill also authorizes sanctions against Chinese officials who engage in human rights abuses or curb Hong Kong’s autonomy.
Mr. Trump last Friday said he “stands with” Hong Kong but that he also wants a trade deal, saying that he would take a “good look” at the bill. China has threatened unspecified retaliation if President Trump signs the Hong Kong bill, which could include disrupting the US/Chinese trade talks.
Elsewhere on trade, the U.S. stock market on Monday reacted positively after China over the weekend announced stronger criminal penalties for IP theft, thus coming closer into line with U.S. demands on strong IP protection. In other positive trade news, China’s Global Times, which has ties to Chinese officials, reported on Monday that the U.S. and China are “very close” to reaching a phase-one trade deal.
On the negative side for trade news, Reuters reported on Monday that Chinese officials believe the signing of a phase-one trade deal may slip into early 2020 and that they do not expect phase-two trade talks to begin until after the November 2020 U.S. presidential election.
T-note auction deluge continues today — The Treasury today will sell $18 billion of floating-rate notes and $41 billion of 5-year T-notes. The Treasury will then conclude this week’s $131 billion T-note package by selling $32 billion of 7-year T-notes on Wednesday. In some good news, bidding interest was solid for yesterday’s 2-year T-note auction, which saw a bid cover ratio of 2.63, above the 12-auction average of 2.58.
The benchmark 5-year T-note yield on Monday closed at 1.61%, near the middle of its recent 5-week range and 30 bp above September’s 3-year low of 1.31%.
The 12-auction averages for the 2-year are: 2.37 bid cover ratio, $34 million in non-competitive bids to mostly retail investors, 4.1 bp tail to the median yield, 18.6 bp tail to the low yield, and 63% taken at the high yield. The 5-year is mildly below average in popularity among foreign investors and central banks. Indirect bidders, a proxy for foreign buyers, have taken an average of 58.7% of the last twelve 5-year T-note auctions, mildly below the 12-auction average of 59.7% for all recent coupon auctions.
