What a difference a week makes! Political turmoil here and abroad made for a busy week, and the markets reacted.
Early in the week, long-term Treasury bonds hovered over 3% and stocks looked to hit new all-time highs. In fact, the S&P 500 Index made a new high on Monday!
But Tuesday’s poor housing starts and permits report helped move yields below 3% and halted the move higher in stocks. Then drama at the White House drove the global stock market sharply lower on Wednesday, May 17, 2017, recounts Lance Gaitlan at Dent Research. Stocks rebounded a bit yesterday, but bond yields remained cautiously low.
Thanks to Dent Research, provided here is our weekly information roundup ending the week of May 19, 2017. We start each subject with what you hear in the news and finish with what that information means to you. We hope this information will help you separate the noise from the news.
A Congressman Called for Impeachment Proceedings and Deputy Attorney General Rosenstein Appointed a Special Counsel to Investigate White House Ties to Russia…Someone leaked a memo written by ex-FBI Director Comey that noted President Trump stated he hoped the FBI would see its way to move on from the Flynn investigation, prompting calls of obstruction of justice.
What it means – The market dropped on the news of the special counsel and leaked memo as investors saw their chance of tax reform slip away. If the administration is busy battling calls of legal impropriety, it will be hard to muster any support for legislation.
Without tax reform or some other significant catalyst, the economy most likely won’t grow faster than 2%, which calls into question the need for a rate hike in June. If rates don’t move up, then banks won’t make more net interest margin.
After weeks of equity indices hitting record levels, investors are taking the opportunity to move some of their money to the sidelines until the political storm passes. It could be a while.
April Housing Starts Fall 2.6%... Overall housing starts disappointed, but single-family starts rose a modest 0.4%. The lack of growth will keep available inventory low.
What it means – Housing starts have remained mostly stuck in a range from one to 1.2 million since May 2015, and permits aren’t showing any sign of a breakout. The lack of forward supply remains the number one concern for the market. Without more units, prices edge higher, which pushes more buyers out and restricts business. Realtors and potential buyers are saying the same thing – if builders come through with more inventory, we can move it! But builders don’t want to be caught with unsold units when the music stops.
April Industrial Production up 1%, More than Reversing the 0.4% Drop in March… Auto production jumped 5.0%, while business investment and consumer goods were also higher.
What it means – Positive numbers are better than negative numbers, no doubt, but I’m skeptical that this means we’re off to the races. The flashing warning sign is auto production. It’s hard to reconcile a 5% jump with the fact that GM and Ford have curtailed production and laid off employees. Auto sales are slumping and inventory is piling up on dealership lots. This doesn’t bode well for industrial production in the months ahead.
I’ll count this one as an outlier and wait to see what happens over the next 90 days.
Japanese First Quarter GDP Up 2.2%... In the strongest showing in more than a decade, Japan strung together its fifth consecutive quarter of GDP growth.
What it means – 2.2%! Let’s have a party! And we’d better have it soon, because this soiree is about to end. Much of Japan’s growth over the last several quarters came from exports, instead of pumped up domestic consumption.
With Chinese economic data on the decline, the Land of the Rising Sun can expect fewer orders in the months ahead. It’s a sign of the times that people get excited over 2% growth.
Swedish Churches and Homeless Go Digital... Daily kronor use fell to 56 billion, about half the level of 2007, as the Swedes move away from cash.
What it means – You know the world is changing when those looking for a handout ask to swipe your debit card or have you text a contribution. What hashtag would you use to give 20 kronor to a panhandler, #Svenonthestreet?
We’re at an odd moment in monetary history as societies move away from cash, but there’s also a movement to leave government currencies. One force gives central bankers more control, the other drains it.
Ransomware Swept the World… Cyber thieves encrypted computer files around the globe and demanded payment in Bitcoin in exchange for the keys.
What it means – Some fingers point to North Korea, others to private groups. No matter who’s responsible, one thing is certain – using Bitcoin for payment aided the attack. By design, the digital currency is anonymous and can fly around the world unimpeded. This gives bad guys a distinct advantage. There are ways to track those who exchange the currency, but that’s questionable at best. This episode highlights one of the drawbacks of Bitcoin, and gives opponents a boost.
Singapore Used Car Dealer Creates Automotive Vending Machine… Autobahn Motors constructed a high-rise building with used luxury cars displayed in the windows. Prospective buyers can choose among the cars using a touchscreen.
What it means – I’d like a bag of chips, a diet coke, and a 2012 Ferrari. Yep, that’ll do it. The building is part pragmatism and part advertising. Singapore is an island state with limited land, so going vertical makes sense. Putting high-end cars in the windows and allowing buyers to order them up like a candy bar is differentiation, pure and simple. And with a bunch of Chinese citizens trying to get their cash out of the mainland, chances are Autobahn Motors won’t have any trouble moving their inventory.
Next Week – The last full week of May brings reports on existing home sales, new home sales, and durable goods. Also, the Fed will release the minutes of its last meeting.
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