May 10 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com
HOUSING PRICE APPRECIATION TO SLOW, BUT LARGE DECLINES UNLIKELY (1246 EDT/1646 GMT)
Housing price increases across developed countries are likely to slow as rising mortgage rates and reduced affordability and debt demand, however sharp price increases are unlikely due to supply shortages, according to Deutsche Bank.
Low supply has helped to boost house prices in a number of countries since 2013-2015 and has yet to be reversed, analyst Michael Hsueh said in a report. A boost in homebuilding last year has also now given way to a slowdown in investment growth, which means that sales volume will need to decline much further in order to bring inventory months back up to long-term averages.
This is true across the United States, Canada, the United Kingdom, the European Union, Sweden and Australia, Deutsche said.
Meanwhile, while the amount of mortgage credit has grown, the implementation of macroprudential measures meant to reduce risks, such as loan-to-value restrictions, may have reduced the likelihood of a significant downturn, he said.
Negative factors, meanwhile, include that housing prices have become more unaffordable, which along with higher mortgage rates may reduce demand. The largest increases in home price-to-pretax income ratios have been in New Zealand, Australia and Canada, based on 2021 prices.
Rising rates are most likely to affect borrowers in Norway and Germany, where variable-rate mortgages are popular. Australian borrowers could also be hurt as the country has a moderately high number of variable-rate mortgages and because of the recent decline in home affordability.
Borrowers in the United States, France, Canada and New Zealand, most of which have fixed-rate loans, will likely see the least exposure to rising rates. Homeowners in these countries, however, could be less inclined to sell their homes due to record rises in fixed rates.
'TOO MANY THINGS GOING WRONG IN HIGH YIELD' - NED DAVIS RESEARCH (1210 EDT/1610 GMT)
Ned Davis Research, an institutional investment research firm, has downgraded high-yield credit to a neutral/marketweight position from overweight.
"Too many things are going wrong, or are in a precarious position to go wrong," writes Joseph Kalish, chief global macro strategist, at Ned Davis in a research note on Tuesday. He notes that the high yield sector has started to struggle relative to investment grade despite its shorter duration. And it's starting to break down relative to Treasuries as well, he adds.
Kalish says some of the external indicators, such as rising market volatility, have become worrisome. For instance, an index of currency market volatility is currently at 10.6 on Tuesday, matching the level hit last Friday, the highest since March 2020.
The S&P 500 volatility index has also been elevated, although it was lower on the day on Tuesday, at 33.9. But since the beginning of April, the VIX has surged 75%.
Kalish notes that some internal indicators are also becoming concerning. He says high-yield breadth is now bearish and CCC-rated credits are rolling over relative to their high-quality counterparts such as BBs. And it won't take much for Baas to roll over relative to Aas, he says.
"Historically, that has been a bad sign for credit."
The ICE BofA U.S. High Yield Index's option adjusted spread blew out to 447 basis points on Monday, the widest since November 2020.
Kalish believes there's further room for high-yield spreads to widen and the sector to underperform given that spreads are still below their historical averages.
(Gertrude Chavez-Dreyfuss)
STOXX SNAPS 4-DAY LOSING STREAK (1145 EDT/1545 GMT)
After settling at two-month lows on Monday, European shares finally found some strength to bounce back and rise around 0.8% at the close to snap a 4-day losing streak.
Most of the gains however vanished during the last hour of trading, as Wall Street turned negative on lingering worries over aggressive monetary tightening and slowing growth.
At one point in the session, gains in the pan-European STOXX 600 equity benchmark reached 1.8%, which would have marked its best day in 8 weeks.
Here's your snapshot:
(Danilo Masoni)
SMALL BUSINESS SENTIMENT IDLES AS INFLATION EASES, EXPECTATIONS SOUR (1126 EDT/1526 GMT)
The mood among small business owners in the U.S. stalled at the intersection of 'blah' and 'meh' in April.
The National Federation of Independent Business' (NFIB) Business Optimism index repeated the 93.2 March print, marking the fourth straight month below the index's 48-year average.
Churning below the placid sea of 'unchanged,' business expectations edged down to a net negative 50%, the lowest reading in the survey's history.
But on the positive side, sales expectations grew less bleak and the percentage of participants hiking average selling prices, and those who reported increasing wages both pulled back, fodder for market participants scanning the horizon for signs of peaking inflation.
Still, those numbers are "consistent with core CPI inflation at about 4-1/2% at the end of this year, above our 3-1/2% Q4 forecast," says Ian Shepherdson, chief economist at Pantheon Macroeconomics. "We’d be happier to see the NFIB measure decline over the next few months."
Indeed, 32% of the survey's participants identified inflation as their single biggest problem, the highest reading since the closing months of 1980.
NFIB Chief Economist Bill Dunkelberg puts it bluntly: "small business owners are struggling to deal with inflation pressures," he writes. "The labor supply is not responding strongly to small businesses' high wage offers and the impact of inflation has significantly disrupted business operations."
The Labor Department is due to unleash its April CPI report on Wednesday, and analysts expect it to show price growth decelerated sharply on a monthly basis, to 0.2% from 1.2%, with its annual growth cooling 40 basis points to a still-hot 8.1%.
The graphic below shows the NFIB headline index against smallcap stock price performance, along with a breakdown of top business concerns among the participants:
It should be noted that the NFIB is a politically active membership organization.
(Stephen Culp)
AS STOCKS DROP, INVESTORS CONTINUE TO BUY THE DIP (1100 EDT/1500 GMT)
Investors were net buyers of U.S. stocks last week for the fourth consecutive week, led by retail clients, as stock prices swung wildly and ended lower on the week, according to Bank of America.
Investors poured $2.4 billion into U.S. stocks last week, with private and hedge fund clients net buyers, while institutional clients were sellers, which was the opposite trend of the previous week, Bank of America analysts including Jill Carey Hall said in a report on Tuesday.
Private clients have been the biggest net buyers of U.S. equities this year, after missing out of much of the gains in the period following the global financial crisis. Institutional investors have also been net buyers year-to-date, while hedge funds have been net sellers, the bank said.
Sector-wise, the energy and real estate sectors saw the biggest inflows as they benefited from demand for inflation hedges, the bank said. Financials and communications services saw the largest outflows, with clients buying stocks in six of the 11 sectors.
Financials have also seen their largest month of outflows ever, though selling eased in recent weeks, Bank of America said. Banks have suffered from concerns about a recession, though easing inflation pressures and the de-escalation of Russia-Ukraine tensions could boost investor confidence in the sector, Bank of America said.
(Karen Brettell)
U.S. STOCKS HIGHER IN EARLY TRADE AFTER THREE DAYS OF LOSSES (1008 EDT/1408 GMT)
U.S. stocks rallied in early trading on Tuesday, with the three major indexes sporting between 1%-2.5% gains, as investors bought the dip, including beaten-down banks and megacap growth stocks after three days of losses.
The S&P financial sector was up 1% on the day.
Amazon.com, Facebook parent Meta Platforms, Apple Inc, Microsoft Corp, Google owner-Alphabet Inc and Tesla Inc were all up on the day.
A major factor as well for the market's rally was the drop in U.S. yields, with the benchmark 10-year Treasury yield down 10 basis points on Tuesday at 2.97%.
Rate futures traders have scaled back bets on a 75 basis-point hike as Federal Reserve officials the last few days said that rate increase was off the table, for now. CME's FedWatch show just 9% chance of a 75 bps hike next month.
On Monday, the benchmark S&P 500 index ended below 4,000 for the first time since late March 2021 and the tech-heavy Nasdaq dropped more than 4%.
Both the indexes have dropped about 16% and 26%, respectively, this year due to the war in Ukraine, China's COVID-19 lockdowns roiling global supply chains and rising bond yields as traders adjust to higher U.S. interest rates.
Here is an early trading market snapshot:
(Gertrude Chavez-Dreyfuss)
STOCK INVESTORS SHOULD WATCH RATE REACTION TO CPI FOR MARKET CLUES (0857 EDT/1257 GMT)
How short-term interest rate markets respond to Wednesday’s highly anticipated consumer price inflation data could be key to whether stocks are likely to regain their footing, or fall further, according to Truist Advisory Services.
The S&P 500 ended below 4,000 for the first time since late March 2021 and the Nasdaq dropped more than 4% on Monday in a selloff led by mega-cap growth shares as investors grew more concerned about rising interest rates.
Market participants have been spooked by the prospect that the Federal Reserve will be even more aggressive in tightening monetary conditions as it tackles inflation that is rising at its fastest pace in 40 years.
"For equity markets to find their footing and gain traction to the upside on a sustained basis, investors will likely need to see the relentless repricing of short- and intermediate-term interest rates higher ease. Wednesday’s consumer price index (CPI) report could be an important near-term catalyst," Keith Lerner, co-chief investment officer and chief market strategist at Truist said in a report on Monday.
The CPI data is expected to show that inflation eased to an annual rate of 8.1% in April, from 8.5% in March, according to the median estimate of economists polled by Reuters.
Whether the S&P 500 continues back below the 4,000 level will also be crucial.
The 4,000 level equates to a forward price-to-earnings valuation ratio of around 17 times, and the next support level of 3,800 is closer to 16 times forward P/E, Lerner said.
"While that is not cheap by historical standards, it is below the 10-year average and skewed by the more expensive mega cap growth stocks," he said. "On a technical basis, markets are already somewhat oversold, though not deeply so, and a spike higher in the Volatility Index, along with a lift in some other market fear indicators, would be viewed as a positive."
Truist says it remains neutral on stocks, after downgrading its view from attractive in early April, but noted that "we would not be equity sellers at these levels for investors that are aligned with their longer-term allocation targets."
(Karen Brettell)
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