Originally published at The Boock Report
Today is less about Turkey as the lira is up about 3% (after Turkey announced a limitation on banks level of currency swaps they can do which was being used to short the lira) vs the US dollar and more about China and the rest of EM. An unexpected rate hike by the Indonesian central bank by 25 bps to 5.5% was not enough to stem the decline in the rupiah (even though the Jakarta stock market rallied). This is their 4th hike this year. The yuan is now weakening above 6.90 and the Shanghai comp fell 2%. Copper is tanking by 2.7%, down for a 4th straight day and trading at the lowest level since June 2017.
YUAN
COPPER
Notwithstanding what is going on overseas and the inevitable economic slowdown that it will bring there, newsletter writers believe the US market is an island unto itself. Investors Intelligence said Bulls rose to 57.3 from 54.9 and that is the most since the end of January. II said that when Bulls get above "55 and higher" it calls "for increased caution" while Bears fell to a 7 week low at just 18.4 from 18.6 last week. I want to emphasize that this particular indicator is just a short-term one. We've seen this year when Bulls get into the 40's the market is a buy and when they get above 55, the market temporarily tops out and consolidates.
The US housing market continues to soften. The MBA said mortgage applications to buy a home fell 3.3% w/o/w and that is the 5th straight week. They are also lower by 3.3% y/o/y and the index level matches the lowest since September 2017. This follows the plateauing seen in a variety of housing stats and the Friday results and comments from Redfin. High home prices coupled with near multi-year high mortgage rates explains buyer reluctance. We can add to this the likely slowdown in foreign buying, particularly from the Chinese as their currencies weaken. And we have to wonder what the impact is of the elimination of SALT and the lowered mortgage expense deduction threshold but is hard to quantify and is relevant in only some states.
Refi's were unchanged w/o/w but are still down 36% y/o/y and sit at the slowest pace in 18 years.
Home prices in China, an area closely watched because of the overbuilding, speculation, restrictions on buying, etc... seen in an unending cycle, rose 1.1% m/o/m and 5% y/o/y in July. Of the 70 cities surveyed, there was an increase in the number seeing home price gains both m/o/m and y/o/y. This news was overwhelmed by overall growth concerns and provided no offset to market selling and the weakness in copper.
That 2.7% y/o/y gain in UK wages ex bonuses for June in yesterday's data was almost fully offset by the 2.5% July rise in CPI. While it was in line with expectations, it shines a light on the BoE that is still very much behind the 8 ball with its .75% benchmark rate for reasons we all know. The core rate (ex food, energy, tobacco, and alcohol) was up by 1.9% as forecasted. Price pressures remain intense at the wholesale level as PPI was up 10.9% y/o/y vs the estimate of up 10.3%. This data is not going to change the glacial pace of BoE rate hikes and the pound is down, joining many other currencies weaker vs the US dollar. The 2 yr gilt yield is down by 1.5 bps.
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