The U.S. Week Ahead (Aug 19-23), Housing Sector Faces A Twister

Investors in the week ahead will receive updated figures on the U.S. housing market, as interest rates continue to plunge amid global growth fears and a host of other headwinds.

While market participants had generally enjoyed a brief respite from recent trade-inspired risk aversion Tuesday, when U.S. President Donald Trump said he would delay imposing 10% tariffs on some Chinese imports to mid-December, more recent gloomy economic data out of China and Germany has reignited a bond rally.

The yield on the 10-year U.S. Treasury note was bid at around 1.589% intraday Wednesday, while the 2-year note yield was just a little more than 1bp shy of inversion with that level. Earlier Wednesday, the 2y/10y spread had inverted by at least a basis point – for the first time since June 2007 – which shot a warning signal throughout the financial markets of a potential near-term recession.

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Briefing.com’s chief market analyst Patrick O’Hare noted that each of the five recession periods since 1980 were preceded by an inversion in the 2y/10y spread. He pointed out that “the time between the first inversion and the start of the eventual recession averaged just over 18 months, with a range that spanned from ten months to two years.”

O’Hare continued that this likely means the “strong response” in the equity market Wednesday “is perhaps a little premature as a full-fledged recession trade given the typical time-lapse.”However, he added that because of the inversion headline, “there is likely an algorithmic trading influence that is weighing disproportionately on the futures market. Hence, there has been a quick retracement of yesterday’s tariff-relief rally.”

The S&P 500 was last down by more than 2.5% on the day Wednesday, led by a 3.7% drop in energy. The only sector to flash green was utilities, with a paltry gain of 0.15%.

Against this backdrop, investors will be closely watching economic developments for further signs of slowing growth and recession indications. Releases in the week ahead will include existing and new home sales, the Federal Reserve’s Open Market Committee meeting minutes and durable goods orders.

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Disclosure: The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the ...

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