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Purchase Apps | New Highs ... & Salt Grains

Takeaway: Purchase activity in November = highest YTD. Seasonal factors and rate considerations are both probably impacting reported demand.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

 

Purchase Apps | New Highs ... & Salt Grains - Compendium 12.2.15

 

Today’s Focus: MBA Purchase Applications

 

Purchase Applications rose +7.7% WoW and accelerated to +30% YoY, taking the demand index up to its strongest level since 2010 at 228.1.  

 

This morning’s data marks a third consecutive week of elevated demand and takes activity in November to the highest monthly average YTD.  The strong November also reversed the underwhelming demand trend observed in October, bringing sequential growth in 4Q up to +1.4% QoQ and +22.9% YoY.

 

The Caveats:  Two the last three weeks of data have included holidays (Veteran’s Day, Thanksgiving) and holiday associated statistical adjustments are notoriously imperfect and capable of pushing the data in either direction in any given week. 

 

However, the non-holiday week was also strong and the seasonal factor applied to both of the holiday weeks was not out of line with recent year adjustments – in fact, the adjustment factor applied in 2015 was marginally less supportive of the seasonally-adjusted headline number than what we’ve seen the last couple years. 

 

Also, as we’ve highlighted in recent weeks, its more probable than not that we’re seeing some measure of demand pull-forward with prospective buyers pulling the purchase trigger in fear of further financing based affordability declines.   

 

The Conclusion:  The new November highs are noisy and perhaps overstate the underlying demand trend but, on balance, the data suggests some measure of uptick in purchase activity in recent weeks aptly characterizes the underlying reality.  Seasonal noise will remain a factor for most of the next 6-weeks - ready your grains of salt.   

 

Purchase Apps | New Highs ... & Salt Grains - Purchase 2015 Monthly

 

Purchase Apps | New Highs ... & Salt Grains - Purchase 2013v14v15

 

Purchase Apps | New Highs ... & Salt Grains - Purchase YoY

 

Purchase Apps | New Highs ... & Salt Grains - Purchase THanksgiving Seasonal Adjustment

 

Purchase Apps | New Highs ... & Salt Grains - Purchase Index   YoY Qtrly

 

Purchase Apps | New Highs ... & Salt Grains - Purchase LT

 

Purchase Apps | New Highs ... & Salt Grains - 30Y FRM

 

 

 

About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 

 

Frequency:

The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 

 


CHART OF THE DAY: This Recession Signal Is Now Flashing Red

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye U.S. Macro analyst Christian Drake. Click here to subscribe. 

 

"... As the Chart of the Day shows, sub-50 ISM prints have generated some false positives vis-à-vis recession signaling but contraction in the industrial-manufacturing sector has accompanied pretty much every downturn over the last century."  

 

CHART OF THE DAY: This Recession Signal Is Now Flashing Red - ISM CoD

 

 

 


Checking It Twice

“I never believed in Santa Claus because I knew no white dude would come into my neighborhood after dark”

-Dick Gregory

 

I made two lists last night.  I had to check the second one twice.

 

The first was my son’s Christmas List - which included a “space station”.  He doesn’t even know what that is but some other kid wrote it down so he needed it too. #GroupThink starts early.

 

Checking It Twice - fed rainbows

 

Back to the Global Macro Grind …

 

The second was a quick refresh of global Industrial data post the U.S. ISM’s sojourn to sub-50 for the first time in 3-years. 

 

Headfake or Harbinger?

 

Here’s a quick look at some of the current members of the PMI #ContractionClub

 

  • U.S.:  48.9
  • China: 49.6 (official) or 48.6 (Caixin)
  • Brazil: 43.8
  • Canada: 48.6
  • Russia: 37.1
  • South Africa: 47.5
  • South Korea: 49.1

 

How about 3Q Earnings Growth across the lead indices according to Bloomberg data:

 

  • U.S. (SPX) = -4.6%
  • Japan (Nikkei) = -9.5%
  • U.K. (FTSE 100) = -30.5%
  • China (Shanghai Comp) = -18.9%
  • Brazil (Bovespa) = -42.7%
  • Canada (TSX) = -32.4%
  • Russia (MICEX) = -5.6%

 

Contractions (& Stagflations) can happen slowly, then a lot at once … Ask Brazil.   

 

This isn’t USA circa 1960 so maybe recessionary Industrial and global earnings data doesn’t matter – domestic auto sales are en fuego (Nov marked a new YTD high at 18.2 MM units and 2015 is on pace for a record year), construction activity remains strong (+13% YoY, latest Oct data), consumer credit is expanding, income growth remains solid and consumption growth is decelerating but still running ~3%.      

 

Or maybe it does. 

 

  1. ISM: As the Chart of the Day shows, sub-50 ISM prints have generated some false positives vis-à-vis recession signaling but contraction in the industrial-manufacturing sector has accompanied pretty much every downturn over the last century. 
  2. Goods vs Services: Goods Consumption is more cyclical than consumption of services and, historically, weakness has manifest in cyclical demand ahead of the peak in demand for more inelastic consumption. Employment growth in the goods producing sector tends to presage the trend in services and aggregate employment and employment growth in goods-producing sectors has decelerated from +3.0% at the start of the year to +1% in October – and comps only get tougher the next few months. In energy states - where the trend in job separations has again begun to negatively diverge from the broader trend, the declines have been more pronounced. In Texas, for example, goods employment is currently running -2.6% YoY. We expect further concentrated weakness across energy levered economies as hedges roll off and if domestic policy drives further price deflation in dollar settled commodities (which is pretty much all of them, all the time). 

 

The risk posed by the contraction in industrial output would also be easier to look past if it was isolated and if the Fed wasn’t set to perpetuate further disinflationary pressure. But it’s not and they are. 

 

In many ways, the global Currency Wars and the current global production slump are outcroppings of the same secular malady – overleverage, oversupply and stagnant demand. 

 

Policy, of course, attempts to manipulate “price” both in response to and in the hopes of influencing prevailing supply and demand conditions. 

 

Recall, conventional policy easing is believed to act through two basic channels:

  1. Lower rates = higher domestic investment demand and higher demand for interest rate sensitive consumption = ↑ Growth
  2. Lower rates = less demand/more supply of dollars = depreciating Currency = ↑ Exports = ↑ Growth

 

Individual economies and central banks operate independently and conventional policy and currency devaluation can work sufficiently well when economic cycles across the globe are, to some extent, out-of-phase and traveling along different points of the macro sine curve.

 

But the world as a whole is a closed system. If no one is producing and/or exporting (see list above), global demand is flagging – it’s not just an isolated strong dollar = lower domestic exports and industrial profitability phenomenon. 

 

Granted, Euro-zone PMI’s are comparably better, in the mid-50’s, but EU “exports” are a bit of a misnomer as most of what is counted as exports is actually intra-Eurozone Trade (think Massachusetts “exporting” to New York).   

 

Is positive but decelerating late-cycle U.S. growth and modest growth in the Eurozone against trough comps enough to float the global equity boat until the world comps out of its current malaise? 

 

Perhaps but, broadly, it feels hard to get incrementally bullish at the highs and/or ramp gross/net long exposure to levered balance sheets and high beta illiquidity based on prevailing global fundamentals and their likely trajectory. 

 

I feel like I’ve expressed that same sentiment a number of times this year but with the S&P500 up just 2% YTD, the Dow up just +0.36% and many EM and developing Asia equity markets deep in the red, reality has supported that boring consistency.  

 

What said the market to yesterday’s ISM data:

  1. Bond Yields tanked: the 10Y fell -6.3 bps to 2.14, the 2Y fell -2.4 bps and the yield spread fell to a 52-week low at 124 bps. 
  2. The Dollar retreated: The $USD declined -40bps, re-breaching the 100-level on the index to the downside
  3. Stocks barely blinked: All 9-sectors closed higher with the S&P500 finishing up for just the 6th day in the last 19. 

 

Random walks and single-session reflations ≠ trend accelerations in real growth and Down Dollar + Down Rates is not a growth accelerating signal. 

 

Janet’s naughty and nice (indicator) list will be prodded and checked twice as she delivers speeches to both Congress and the economics club over the next two days. 

 

Whether the BLS elves filled Janet’s data sack with inside edge on what the November NFP stocking holds, I do not know. 

 

I do know that, on balance, the recent data has been underwhelming and the nearer-term forward outlook promises further deceleration.

 

Remember (again) we’re talking slope of the line, not absolute. Much of the data will remain “okay” on an absolute basis in the nearer-term, but the slope of the growth line is and will remain negative. 

 

As uber-dove Evans made headlines with yesterday … “I’m a little nervous”.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.15-2.23%

SPX 2045-2109

VIX 14.11-18.25 
EUR/USD 1.05-1.07

Gold 1050-1080 

 

Good luck out there today. 

 

Christian B. Drake

U.S. Macro Analyst

 

Checking It Twice - ISM CoD


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Join Hedgeye For Holiday Cocktails & Appetizers Dec. 9th - he client holiday party DEC2015


The Macro Show Replay | December 2, 2015

 


December 2, 2015

Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, with our intermediate-term (TREND) view and the previous day's closing price for each name.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
2.23 2.15 2.15
SPX
S&P 500
2,045 2,109 2,102
RUT
Russell 2000
1,161 1,214 1,204
COMPQ
NASDAQ Composite
5,049 5,169 5,156
NIKK
Nikkei 225 Index
19,588 20,093 20,012
DAX
German DAX Composite
10,903 11,441 11,261
VIX
Volatility Index
14.11 18.25 14.67
DXY
U.S. Dollar Index
99.04 100.39 99.84
EURUSD
Euro
1.05 1.07 1.05
USDJPY
Japanese Yen
122.37 123.88 123.89
WTIC
Light Crude Oil Spot Price
40.68 43.17 41.65
NATGAS
Natural Gas Spot Price
2.15 2.31 2.22
GOLD
Gold Spot Price
1,050 1,080 1,068
COPPER
Copper Spot Price
1.98 2.10 2.07
AAPL
Apple Inc.
115 119 118
AMZN
Amazon.com Inc.
648 686 679
PCLN
Priceline.com Inc.
1,218 1,305 1,282
VRX
Valeant Pharmaceuticals International, Inc.
69.97 100.35 98.78
MCD
McDonald's Corp.
111 116 114
MS
MOrgan Stanley
33.15 35.47 35.27

 

 


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