Summary:
Retail sales in the US surged 1.3% month-over-month in October of 2022, the strongest increase in eight months, after a flat reading in September and beating market forecasts of a 1% gain. Sales at motor vehicle dealers were up 1.3% as supply chain constraints have been easing while rising gasoline costs pushed sales at gasoline stations 4.1% higher. Excluding gasoline and autos, retail sales were up 0.9%.
Existing home sales in the US tumbled 5.9% to a seasonally adjusted annual rate of 4.43 million in October of 2022, the lowest since December of 2011 with the exception of a very brief fall at the beginning of the pandemic, and compared to the market forecasts of 4.38 million. It was the ninth straight month of falling sales as home prices remained elevated and a 30-year fixed mortgage rate hit a 20-year high pushing many buyers out of the market. "More potential homebuyers were squeezed out from qualifying for a mortgage in October as mortgage rates climbed higher.
Housing starts in the US declined 4.2% month-over-month to a seasonally adjusted annualized rate of 1.425 million in October of 2022, after falling by a downwardly revised 1.3% in September, and compared to market forecasts of 1.41 million. Single-family housing starts dropped 6.1% to a rate of 855 thousand. Compared to October 2021, housing starts fell 8.8%. The US housing market has been hit by soaring prices of materials and rising mortgage rates, which recently reached their highest level since 2001.
Building permits in the United States dropped 2.4 percent from a month earlier to a seasonally adjusted annual rate of 1.526 million in October 2022, the lowest since August 2020 and compared with market expectations of 1.512 million. Permits, a proxy for future construction, have been falling.
Annual inflation rate in the UK jumped to 11.1% in October of 2022 from 10.1% in September, much higher than market forecasts of 10.7%. It is the highest inflation rate since October 1981, with main upward pressure coming from housing and household services (26.6% vs 20.2%), namely gas (128.9%) and electricity (65.7%). Compared to September, the CPI jumped 2%, above forecasts of 1.7%.
The markets are looking for a direction, but the rally seems to have halted for now. Maybe it resumes in December, after the next FED meeting, maybe it doesn't. In the meanwhile, the FED presidents are coming out and stating contradictory forecasts regarding the future direction of funds rate increases, confusing traders and investors even more. The macroeconomic outlook is on the bearish side, and a worldwide recession is likely. Stock valuations may go down as earnings get slashed during the recession. Take precautions and prepare for the next phase of the business cycle.
Next week, in the US, investors will be closely watching the release of FOMC meeting minutes, the University of Michigan's consumer sentiment, durable goods orders, and new home sales.
Economic data source: Trading Economics
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A Walk Around the Markets
The blue-chip Dow Jones and the S&P 500 lost some upside momentum seen at the open on Friday but closed up roughly 0.6% each, as most of the optimism about upbeat earnings was offset by persistent concerns about a Fed-induced downturn. The tech-heavy Nasdaq underperformed, however, closing near the flatline, as rising Treasury yields dragged high-growth and other tech stocks. Hawkish speeches from several Federal Reserve policymakers dashed hopes of a pause in the central bank's tightening cycle. Among them, St. Louis Fed President James Bullard was the most drastic, warning that tightening conditions have only had a modest effect on inflation. On the corporate side, Applied Materials rose almost 2% after the chip tools maker forecasted first-quarter revenue above analysts' expectations. The Dow is virtually flat for the week, while the S&P 500 lost 0.7% and Nasdaq 1.2%.
Silver futures fell to below $20.9 per ounce, extending its retreat from the five-month high of $21.7 hit on November 14th, pressured by a fresh rally for the US dollar as investors continued to assess the outlook on the Fed’s aggressiveness to fight inflation. Besides increasing the opportunity cost of holding non-interest-bearing bullion assets, the outlook of higher interest rates also dented demand for industrial silver usage as electricity conductors, tracking the decline for copper. On the other hand, silver futures remain 16% above the 14-month low of $18 per ounce touched on September 1st, partially contributed by looming supply concerns. Inventories at New York’s COMEX fell 70% in the last 18 months to just over 1 million tonnes, while those at the London Bullion Market Association fell for the 10th straight month to a record-low 27.1 thousand tonnes.
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