- Washington remains deadlocked on more pandemic relief
- U.S. existing home sales expected to settle back from 14-year high
- U.S. leading indicators expected to show another solid increaseÂ
- Unemployment claims expected to keep improvingÂ
- 10-year TIPS auction to yield near -0.85%
Washington remains deadlocked on more pandemic relief — Democrats and Republicans in Congress are on different planets regarding a stimulus bill, while the White House has bowed out completely. Regarding stimulus talks, White House Chief of Staff Meadows on Wednesday said, “Obviously those discussions — if they happen — will be dictated by the House and the Senate.”
Meanwhile, Senate Majority Leader McConnell doesn’t seem to be in the mood for talks considering that he said yesterday, “The problem is that their proposal is a multi-trillion dollar laughingstock that never had a chance of becoming law.” Mr. McConnell is sticking to his offer of $500 billion, while Speaker Pelosi is sticking to her $2.2 trillion demand. Many stimulus measures will run out at the end of this year if pandemic aid isn’t renewed.
Meanwhile, Mr. McConnell said he wants a deal by Friday on the top-line figures for an omnibus spending bill to fund the government for the remainder of the fiscal year. An omnibus spending bill, or a short-term continuing resolution, must be passed by December 11 when the current CR expires, or there will be another government shutdown.
U.S. existing home sales expected to settle back from 14-year high — Today’s Oct U.S. existing home sales report is expected to show a decline of -1.4% to 6.45 million, settling back after September’s strong +9.4% gain to a 14-year high of 6.54 million.
U.S. home sales continue to be very strong because of the pandemic, which is driving people out of cities and multi-family units into single-family homes. People are also moving into larger homes so they have room to work from home and to home-school children.
However, home sales are reaching a limit since there are so few homes on the market. The supply of existing homes for sale in September fell to a record low of 2.5 months (data from 1982).
The strength in home sales has sparked a flurry of home building activity and has boosted the stock prices of U.S. homebuilders. Single-family home starts are on fire and rose to a 13-1/2 year high of 1.179 million units in October. Homebuilder confidence is at a record high as seen by Tuesday’s news that the NAHB housing market index in November rose by another +5 points to 90, which is a record high for the series that has history back to 1985.
U.S. homebuilder stocks remain in very strong shape. The S&P SPDR Homebuilders ETF (XHB) is currently trading just mildly below October’s record high. XHB is currently up +25% on a year-to-date basis, which is more than twice the +10% year-to-date gain in the S&P 500 index.
U.S. leading indicators expected to show another solid increase — The consensus is for today’s Oct U.S. leading indicators index to show another solid increase of +0.7%, matching September’s increase. The LEI has now rebounded sharply higher from April’s 10-year low of -13.2% y/y but was still down -3.9% y/y in September. The index would have to recover by another +4.5% just to match January’s pre-pandemic index level of 112.0.
U.S. GDP rebounded higher by +7.4% q/q in Q3, but that wasn’t enough to overcome the -10.1% plunge seen in the first half of 2020. GDP would have to rise by another +3.6% in order to match the record GDP level of $19.254 trillion seen in Q4-2019.
However, GDP is not likely to reach that pre-pandemic high until Q3 or Q4 of next year. The consensus is for GDP reports of only +1.0% q/q (+4.0% q/q annualized) in Q4 and about +0.8% q/q (+3.2% q/q annualized) in every quarter in 2021. Moreover, GDP estimates will be trimmed in coming weeks due to the worsening pandemic, which is forcing tighter restrictions across the country that will hurt economic growth.
Unemployment claims expected to keep improving — The consensus is for today’s weekly initial unemployment claims report to show a decline of -9,000 to 700,000, adding to last week’s decline of -48,000 to 709,000. Today’s continuing claims report is expected to show a decline of -386,000 to 6.400 million, adding to last week’s -436,000 decline to 6.786 million.
Unemployment claims have declined steadily in recent months but are still extremely high and illustrate that the labor market debacle continues. Initial claims are still 492,000 above February’s pre-pandemic level, and continuing claims are 5.087 million above the pre-pandemic level.
10-year TIPS auction to yield near -0.85% — The Treasury today will auction $12 billion of 10-year TIPS in the second and final reopening of the 1/8% 10-year TIPS of July 2030. The benchmark 10-year TIPS yield yesterday closed the day at -0.85%, moderately below last week’s 4-1/2 month high of -0.75%.
The 12-auction averages for the 10-year TIPS as follows: 2.46 bid cover ratio, $23 million in non-competitive bids from mostly retail investors, 6.6 bp tail to the median yield, 11.6 bp tail to the low yield, and 44% taken at the high yield.
The 10-year TIPS is the third most popular security among foreign investors and central banks behind the 30-year TIPS and the 5-year TIPS. Indirect bidders, a proxy for foreign buyers, have taken an average of 66.7% of the last twelve 10-year TIPS auctions, which is well above the median of 63.8% for all recent coupon auctions.
