10 Things You Need To Know: July 26, 2022
Key data releases this week include: FHFA House Price Index (Tue), consumer confidence (Tue), new home sales (Tue), durable goods orders (Wed), pending home sales (Wed), FOMC rate decision (Wed), Q2 GDP (Thu), personal income and spending (Fri), PCE deflator (Fri), and consumer spending (Fri).
Haver
July 20, 2022
Existing home sales declined 5.4% m/m (-14.2% y/y) in June to 5.12 million units at an annual rate, their fifth consecutive monthly decline, on top of a 3.4% m/m drop in May. This was the lowest level of sales since June 2020. The Action Economics Forecast Survey had expected June sales to total 5.40 million units.
Reuters, Financial Times, The Guardian
July 21, 2022
The European Central Bank has increased eurozone interest rates by an unprecedented 50 basis points – its first increase in 11 years – in a bid to dampen rising prices across the single-currency bloc. “We expect inflation to remain undesirably high for some time, owing to continued pressures from energy and food prices, and pipeline pressures in the pricing chain,” ECB president Christine Lagarde said.
Capital Economics
July 22, 2022
July’s flash PMIs suggest that the euro-zone is teetering on the brink of recession due to slumping demand and rising costs while inflationary pressures remain intense. The ECB will have to follow up on its historic rate hike with several more in the coming months even though this will worsen the downturn.
Reuters
July 18, 2022
With China’s consumers increasingly refusing to make mortgage payments on homes that aren’t built yet, the government intensified its efforts to persuade banks to make loans to property developers. The China Banking and Insurance Regulatory Commission said that banks should give developers the financing they need if it is reasonable.
Barron’s
July 25, 2022
The 10-year inflation break-even rate is now 2.3%, meaning that investors will do better owning a TIPS with a current real yield of 0.5% than a 10-year Treasury note yielding 2.8% if inflation runs at more than 2.3% in the next 10 years. “The break-even rate is too low,” says Rob Arnott, founder and chairman of Research Associates. “This inflation isn’t transitory.” Arnott expects the housing component to help keep the CPI index in the high-single digits in the next year or two.
Barron’s
July 25, 2022
Jefferies’ chief financial economist, Aneta Markowska, agrees with the consensus call for a 75-basis-point hike at the coming meeting, but then sees the Fed shifting to a 50-basis-point rise in September, not the 75 basis points baked into the futures. But she says that the market is underestimating the eventual peak for the funds rate, which she expects to hit 4%.
Barron’s
July 25, 2022
The U.S. Senate voted 64-34 in favor of advancing the CHIPS Act. This modified bill is aimed at increasing U.S. domestic semiconductor production. This key step will open up a vote for the Senate to pass the CHIPS Act early next week. If passed, it will go to the House of Representatives and then the President for approval.
The Wall Street Journal
July 19, 2022
Federal Reserve Bank of St. Louis President James Bullard has acknowledged a yield-curve inversion frequently heralds a recession but says, “I think the reading of the yield-curve inversion is different in this circumstance than it would be if inflation was just at 2% and expected to be at 2% and then we got a yield-curve inversion.”
Capital Economics
July 21, 2022
The outlook for the world economy has darkened again and we have reduced our forecasts for all major economies, leaving them further below the consensus of economists. We now anticipate recessions in the euro-zone and the UK and expect the US, Canada, and Australia to avoid economic contraction only narrowly.