{"id":197913,"date":"2023-10-19T12:00:00","date_gmt":"2023-10-19T16:00:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=197913"},"modified":"2023-10-20T12:31:43","modified_gmt":"2023-10-20T16:31:43","slug":"powell-stays-on-target-home-sales-plunge-oct-19-2023","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/powell-stays-on-target-home-sales-plunge-oct-19-2023\/","title":{"rendered":"Powell Stays on Target, Home Sales Plunge: Oct. 19, 2023"},"content":{"rendered":"\n

Markets are on tenterhooks as they await Federal Reserve Chairman Powell\u2019s speech at noon Eastern time while digesting data depicting weakness within rate sensitive areas of the economy and a labor market that is shrugging off higher interest rates and restrictive monetary policy.<\/p>\n\n\n\n

The Conference Board\u2019s Leading Economic Index and the National Association of Realtors\u2019 Existing Home Sales data this morning depicted economic weakness resulting, in large part, from higher interest rates, while unemployment claims came in below expectations, signaling that businesses are demonstrating monetary policy resilience by continuing to hire and grow. <\/p>\n\n\n\n

On the Wrong Side of Higher Interest Rates<\/strong><\/h2>\n\n\n\n

The Leading Economic Index declined 0.7% in September, an accelerated drop from August\u2019s 0.4% contraction. The figure missed projections by a wide margin, as the Street anticipated an unchanged pace. Consumer expectations of business conditions, ISM new orders, and the 10-year to fed funds rate differential weighed mostly on the Index, while initial unemployment claims offset some of the weakness. All other components contributed negatively to the headline.<\/p>\n\n\n\n

Existing Home Sales Are Few and Far Between<\/strong><\/h2>\n\n\n\n

Existing home sales slowed to the lowest point on record when excluding July 2010 and May 2020, periods coinciding with the Great Financial Crisis and the 2020 pandemic recession. Sales slipped 2% month-over-month (m\/m) to 3.96 million seasonally adjusted annualized units in September, lighter than the 4.04 million in August but beating expectations of 3.89 million. On a m\/m basis, sales contracted 5.3%, 4.1% and 1.1% in the West, Midwest, and Southern regions while growing 4.2% in the Northeast. Mortgage rates sporting an 8 handle are likely to continue constraining the real estate sector.<\/p>\n\n\n\n

\"existing<\/figure>\n\n\n\n

Unemployment Line Has Fewer New Members<\/strong><\/h2>\n\n\n\n

Initial unemployment claims fell to the lowest level since January as employee retention trends strengthened. Laid off workers lining up for unemployment benefits fell to 198,000 for the week ended October 14, substantially below estimates projecting 212,000, which would\u2019ve been near the previous week\u2019s 211,000. Continuing claims, however, climbed for the fourth consecutive week as the duration of hopping from job to job elongates. Continuing claims rose to 1.734 million for the week ended October 7, exceeding estimates of 1.710 million and the previous week\u2019s 1.705 million. <\/p>\n\n\n\n

Lunch with Powell<\/strong><\/h2>\n\n\n\n

Markets are tanking ahead of Powell\u2019s speech, which may lead to an uptick in sentiment intraday. All major U.S. equity indices are lower thus far, led by the small-cap Russell 2000 Index\u2019s 0.7% decline. The S&P 500, Dow Jones Industrial and Nasdaq Composite indices are down 0.4%, 0.3% and 0.3%. Sectoral breadth is in the tombs, with all sectors lower minus communication services and energy, which are up 0.6% and 0.3%. Bond yields are generally higher across the curve with a few exceptions at the shorter end. The 2-year maturity is up a basis point (bp) to 5.23% while the 10-year is up 2 bps to 4.936%. Earlier in the session, both maturities reached fresh yearly highs of 5.259% and 4.983%. The dollar is lower, however, as it depreciates relative to the yuan, yen, pound sterling, franc and euro while it\u2019s up against the Aussie and Canadian dollars. Crude oil prices are down as Washington relieves Caracas from a plethora of sanctions in efforts to bring more energy supplies online. Concerns that the Middle Eastern conflict could escalate to more regional participants lured in dip buyers, dampening the WTI crude decline to 0.7% as prices hover at $87.55 per barrel.<\/p>\n\n\n\n

Businesses Face Pricing Pressures<\/strong><\/h2>\n\n\n\n

Earnings reports released last night and this morning are peppered with comments about pricing pressures driven by competition and perhaps more significantly, consumers pushing back on higher prices as they struggle with increased cost of living expenses, higher financing costs and constrained credit availability. The following examples illustrate this trend:<\/p>\n\n\n\n