* Major U.S. equity indexes fall
* Euro STOXX 600 index down ~0.8%
* Dollar, gold gain; bitcoin drops
* U.S. 10-Year Treasury yield ~1.46%
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LAST HOUSE ON THE LEFT: NEW HOME SALES WRAP UP HOUSING WEEK
(1055 EDT/1455 GMT)
A housing indicator train whistled its way past market
participants this week, with new home sales as the caboose.
Sales of freshly constructed U.S. homes grew by
1.5% in August to a seasonally adjusted annualized rate (SAAR)
of 740,000 units, according to the Commerce Department.
The print came in 26,000 units above consensus, and builds
on the upwardly revised 729,000 unit SAAR reading of the
previous month.
Supply of new homes on the market edged a hair higher. At
the current pace of sales, it would take 6.1 months to sell
every unit on the market, up from an even 6 in July.
By region, sales surged 26.1% in the northeast but plunged
31.1% in the midwest. The south and west increased 6% and 1.4%,
respectively.
The gain could be seen as a Delta-driven replay of the
demand spike prompted by the initial pandemic wave, or so Ian
Shepherdson, chief economist at Pantheon Macroeconomics
believes.
"We think the upturn in mortgage demand has been triggered
by the Delta Covid wave, in an echo of the surge in demand for
suburban homes following the initial Covid shock," Shepherdson
writes. "The increase in demand this time will be much smaller,
and we expect it to flatten again later in the fall as Delta
fear recedes."
So to recap this week's housing hit parade, homebuilder
sentiment surprised by inching higher as groundbreaking on new
homes rebounded, building permits gathered momentum, and
mortgage demand increased as interest rates held firm, but sales
of pre-owned homes declined, sending inventories up a notch.
Taken together, they paint a portrait of a sector that's
returned to the ground floor after taking the express elevator
to the penthouse.
The pandemic's social restrictions and the new
work-from-home paradigm prompted a mad dash for the suburbs,
which depleted inventories to record lows and launched home
prices into orbit, curtailing affordability and putting home
ownership beyond the grasp of many potential buyers,
particularly at the lower end of the market.
But meanwhile, on Capitol Hill, congressional Democrats are
scrambling to put the finishing touches on the reconciliation
package. What has that got to do with the price of salt?
SALT (or, state and local tax) deductions - which include
real estate taxes - were capped by President Trump, and a
reversal of those caps - which would allow bigger deductions,
thereby making home ownership more affordable - are still on the
negotiating table.
Jaret Seiberg, housing policy analyst for Cowen Washington
Research Group believes the current SALT cap of $10,000 will be
raised rather than eliminated.
"This may not be the full restoration that some in the
housing sector have sought but any expansion should be helpful
to housing," writes Seiberg in a research note. "That should
boost demand for home purchases, which benefits lenders and home
builders active on higher-cost coastal markets."
Meanwhile, the stock market - the most forward-looking
indicator of them all - is underweight the sector of late.
As seen in the graphic below, both the Philadelphia SE
Housing index and the S&P 1500 Home Building index
have well underperformed the broader S&P 500 over the last year.
Wall Street oscillated in morning trading, with all three
major U.S. stock indexes most recently in the red.
Still, the S&P remains on course to wrap up a tumultuous
week with a slight gain over last Friday's closing level.
(Stephen Culp)
*****
GOOD TIME TO PULL UP YOUR SHORTS? (1035 EDT/1435 GMT)
While the strong market rebound from the coronavirus-induced
selloff and Reddit warriors-run 'meme stock' frenzy might not
have boded well for U.S. short sellers, things could finally be
looking up, analysts at Wolfe Research said.
"We see the environment for shorting stocks markedly
improving over the coming quarters into Fed tapering, fading
fiscal stimulus, peaking leading indicators and record high
margins," Wolfe Research strategist Chris Senyek wrote in a note
to clients, predicting higher volatility in stocks.
Short sellers are bearish investors that borrow shares in
the hope to sell them when prices decline to pocket the
difference.
U.S. short sellers pocketed $24.39 bln in estimated
mark-to-market profits on Monday after fears over the potential
collapse of China's Evergrande and the U.S. Fed's
sooner-than-expected tapering roiled global markets.
On Wednesday, the Fed signaled it would reduce its monthly
bond purchases as soon as November and left the door open to
interest rates hike next year.
"We expect our Short Hits List basket to continue to
underperform," Senyek said, referring to a list of companies
that appear the most frequently on the research firm's 15 short
screens.
Bloom Energy, RingCentral, Coty,
Fastly amongst others are on the list, the analyst
said.
(Aniruddha Ghosh and Medha Singh)
*****
STOCKS MIXED AS EVERGRANDE FEARS PERSIST (1005 EDT/1405 GMT)
Major stock indexes were mixed on Friday as concerns
persisted about the spillover from debt-laden China Evergrande,
while Nike tumbled after cutting its sales forecast.
It follows a strong two-day rally as investors brushed off
concerns that the Federal Reserve’s plans to reduce bond
purchases “soon” will dent demand for riskier assets.
The Dow Jones Industrial Average was up 0.53% on the
day, while the S&P 500 edged higher and the Nasdaq
fell.
Financials were the best S&P 500 subsector, rising
0.76%. Three subsectors were in the red, including consumer
discretionary stocks, information technology
and real estate.
(Karen Brettell)
*****
BULLS BOUNCE BACK (0900 EDT/1300 GMT)
The percentage of investors with a bullish short-term
outlook for the U.S. stock market rebounded sharply in the
latest American Association of Individual Investors Sentiment
Survey (AAII). With this, pessimism was roughly unchanged, while
neutral sentiment pulled back.
AAII reported that bullish sentiment, or expectations that
stock prices will rise over the next six months, increased 7.4
percentage points to 29.9%, but remained below 30% for the
second consecutive week. This is the second consecutive week and
the eighth out of the past 11 weeks that optimism is below its
historical average of 38.0%.
Bearish sentiment, or expectations that stock prices will
fall over the next six months, slipped by just 0.1 percentage
points to 39.2%. This is the second consecutive week and the
seventh time out of the last eight weeks that bearish sentiment
is above its historical average of 30.5%.
Neutral sentiment, or expectations that stock prices will
stay essentially unchanged over the next six months, slid by 7.3
percentage points to 30.9%. This decline follows two weeks of
significant increases in neutral sentiment. The historical
average is 31.5%.
AAII noted that all three readings are within their typical
historical ranges. However, they also said that pessimism
remains near the upper end of its range with the breakpoint
between typical and unusually high bearish readings at 40.1%.
With these changes, the bull-bear spread narrowed to -9.3
from -16.9 last week:
(Terence *****Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)