Live Markets: Post-pandemic DIY demand settling at lower level -UBS

Floor & Decor Holdings

12/07/2023 18:30

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    POST-PANDEMIC DIY DEMAND SETTLING AT LOWER LEVEL -UBS (1330
EDT/1730 GMT)
    A recent survey by UBS shows that consumer interest in home
improvement projects has been fairly steady of late, though it
is "meaningfully below" the record highs seen during the
COVID-19 pandemic. 
    In addition, consumers in the survey indicated many projects
had already been completed and designs to start new projects
have softened, which the firm says indicates the cycle is
normalizing after a period of elevated demand and should not
come as a shock.
    Within the survey, about 51% of respondents expect to
perform a project in the next three months, which UBS said is
steady with the prior two surveys but below the 65% from a year
ago and the 59% average in the 2014 to 2019 period.  
    While UBS has a bullish view on home improvement on an
intermediate basis, the firm sees near-term risks including an
overshoot in demand normalization due to the number of completed
projects, a weakening of the labor market and a rapid decline in
interest rates which could lead homeowners that have been
reluctant to sell their homes to change their minds. 
    However, UBS believes the home improvement market has
structurally expanded from a few years prior as a result of the
rise in working from home. 
    In the survey, 57% of the respondents acknowledged working
from home at least occasionally and expect home spending to be
structurally higher exiting the pandemic and these factors
"should lead to better trends" for Home Depot  HD.N , Lowe's
 LOW.N  and Floor & Decor Holdings  FND.N  over time.
    
    (Chuck Mikolajczak)
     *****
    
    
    LPL FINANCIAL CHECKS IN ON WHERE MARKETS MAY BE HEADED (1215
EDT/1615 GMT) 
    LPL Financial Research recently published its 2023 Midyear
Outlook: The Path Toward Stability. 
    The report is a six-month check-in on where the markets have
been and where they seem to be headed.
    Here are some of LPL's takeaways:
    The Economy:
    As inflation subsides, LPL expects the Federal Reserve to
not only end its rate-hiking campaign toward the end of 2023,
but also introduce the possibility of a rate cut. As inflation
convincingly cools, LPL believes markets will likely respond
favorably to the Fed lowering rates. So far, LPL notes that an
improving Chinese economy hasn’t materially impacted global
inflation.
    Stocks:
    LPL believes earnings are likely to decline this year, but
"solid revenue growth and stable profit margins may help limit
the magnitude of any decline."
    Against this backdrop, LPL sees equities posting modest
second-half gains, "though with the potential for elevated
volatility, until there’s more clarity on how long and deep a
potential recession may be."
    Bonds:
    LPL believes the risk is that multi-decade highs in interest
rates won’t last, and that investors may be better served to
lock in today’s higher yields for longer using some of their
excess cash holdings.
    Geopolitics:
    U.S. and China relations have become increasingly attended
with concerns as China has intensified its efforts to secure
technology that enhances its military. As a result, the White
House has embarked on a policy reinforcing the need for
supply-chain resilience, which LPL thinks could help underpin
the industrials sector.
    Commodities:
    With China's economic momentum projected to gain steam
through year-end, it should bolster demand for a range of
commodities. Meanwhile, the firm says interest in precious
metals has been up — specifically gold - and notes that central
banks are the primary buyer as some have looked to steer away
from the U.S. dollar.
    Currencies:
    LPL's view is that key factors that have supported dollar
strength have dissipated, and with markets pricing in lower
interest rates later this year, the dollar’s interest-rate
advantage has eroded, making it a relatively less attractive
option for global capital. That said, LPL believes, that given
its overall stability, musings over the dollar’s downfall, are
exaggerated.
        
    (Terence Gabriel)
     *****
    
    
    CHRISTMAS IN JULY: CPI PLAYS IT COOL, MORTGAGE DEMAND DEFIES
RATES (1101 EDT/1501 GMT)
    Investors began hump day with glad tidings from the Labor
Department in the form of a cooler-than-expected inflation
report, which offered reasonable hopes that the Fed might be
about to kick its rate-hike habit.
    The Consumer Price Index (CPI)  USCPI=ECI , which measures
the prices urban consumers pay for a basket of goods, gathered a
bit of heat on a monthly basis, rising 0.2% compared with May's
0.1% growth, but landed below the 0.3% consensus.
    Year-over-year, CPI increased by 3%, decelerating by a full
percentage point and arriving a hair below the 3.1% analysts
expected.
    Stripping out volatile food and energy prices, core CPI
delivered monthly and annual readings of 0.2% and 4.8%,
respectively, both lower than economist projections.
    By line item, energy prices rose by 0.6%, owners' rent
equivalence (a real estate gauge) rose 0.4%, and services gained
0.3%. 
    On the deflationary side, new/used autos fell 0.1% and the
report's biggest outlier - airfares - plunged 8.1% from May.
    Despite the sharper-than-expected deceleration of annual
core CPI, it still remains 2.8 percentage points hotter than
Powell & Co's average annual 2% target. 
    But Chairman Powell himself has to be pleased that the Fed's
restrictive policies appear to be having their intended effect.
    Still, the report doesn't appear to have moved the needle
much with respect to expectations for another - and, markets
hope, the last - interest rate hike at the conclusion of this
month's policy decision.
    "Fed officials will be relieved to see the deceleration in
core CPI, in particular, but the pace still remains too high for
comfort," says Kathy Bostjancic, chief economist at Nationwide.
"As such, we still look for the Fed to raise rates another time
at the July 26th policy meeting."
    So, one-and-done? Oxford Economics thinks so.
    "The weakness in core inflation and moderation in core
services inflation excluding housing has reduced our subjective
odds of an additional rate hike after July," says Ryan Sweet,
chief U.S. economist at Oxford. "Therefore, this tightening
cycle by the Fed is likely coming to an end."
    Financial markets have baked in a 92.4% certainty than a 25
basis point increase to the Fed funds target rate is on the menu
for July, according to CME's FedWatch tool.
    
    
    CPI is the second major June inflation indicator after last
Friday's employment report showed wage growth barely budging.
    Even so, wage growth has been running cooler than core CPI
for 19 straight months, meaning real wages have been actually
headed lower for more than a year-and-a-half.
    This is hardly sustainable and it's worrisome, considering
the consumer carries about 70% of the U.S. economy on his back.
    "In the context of a still tight labor market and sticky
wage growth, the Fed’s recent concerns about inflation
persistence are not going away," says Brian Coulton, chief
economist at Fitch.
    The fact that the gap between core CPI and wage growth
contracted in June to its narrowest deficit in a year is cold
comfort - real wages are still headed in the wrong direction:
    
    
    Switching gears, demand for home loans ticked higher last
week even as the cost of borrowing continued to gain altitude,
according to the Mortgage Bankers Association (MBA).
    The average 30-year fixed contract rate  USMG=ECI  poked its
head above the 7% level for the first time since November,
jumping 22 basis points to 7.07%.
    While that prompted refi applications  USMGR=ECI  to fall
1.3% demand for loans to purchase homes actually increased by
1.8%, resulting in a net 0.9% overall rise in mortgage demand.
    But despite the increase, purchase applications "remained at
a very low level and are 26% lower than the same week last
year," writes Joel Kan, deputy chief economist at MBA. "The
refinance index dropped to its lowest level since early June, as
demand for rate/term and cash-out refinances remains extremely
low with mortgage rates over 7 percent."
    Even with last week's uptick, total mortgage demand is down
31.2% from the same week last year.
    
    
    Wall Street is in celebration mode, with interest rate
sensitive megacaps leading a broad rally, which is sending all
three major U.S. stock indexes into the green for July.
    
    (Stephen Culp)
     *****
    
    
    U.S. STOCKS GAIN ON HOPES FED HIKES MAY BE NEARING AN END
(1003 EDT/1403 GMT)
    Wall Street's main indexes are advancing early on Wednesday
after data showed inflation cooled further in June, lifting
investor hopes the Federal Reserve is nearing the end of its
monetary tightening cycle.
    According to the CME's FedWatch Tool, the cooler than
expected June CPI readings have not impacted market expectations
for a 25 basis point rate hike at the conclusion of the July
25-26 FOMC meeting. That probability is unchanged at 92% vs just
prior to the data coming out.
    However, in the wake of an expected July rate increase, the
greatest probabilities at the September, November, and December
meetings suggest rates would then stay unchanged through year
end.
    With this, all S&P 500  .SPX  sectors are higher in early
trade with tech  .SPLRCT  and energy  .SPNY  leading gainers.
Healthcare  .SPXHC , around flat, is the laggard. 
    Of note, NYMEX crude futures  CLc1 , at their $76.08
intraday high, hit their highest level since May 1, and are on
track to rise for a third-straight week.
    Under the surface, banks  .SPXBK   .KRX  are among
outperformers. 
    Here is a snapshot of where markets stood shortly before
1000 EDT:
    
    
    (Terence Gabriel)
     *****
    
    U.S. STOCK FUTURES CHEER COOLER-THAN-EXPECTED CPI (0900
EDT/1300 GMT)
    U.S. equity index futures are strengthening in the wake of
the release of the latest data on U.S. inflation.
    The June headline CPI month-over-month and year-over-year
prints came in cooler than expected. Core month-over-month and
year-over-year readings were also below estimates:
    

    According to the CME's FedWatch Tool  FEDWTACH , the
probability that the Fed increases interest rates by 25 basis
points at its July 25-26 meeting is now around 91% from 92% just
prior to the data coming out. The chance that the Fed sits on
its hands and leaves rates unchanged is now 9% from 8% just
before the numbers were released.  
    E-mini S&P 500 futures  EScv1  are gaining around 0.7%. The
futures were up around 0.25% just before the numbers came out.
    All S&P 500 sector SPDR ETFs are higher in premarket trade,
with consumer discretionary  XLY.P , up about 1.2%, posting the
biggest rise.
    The SPDR S&P regional banking ETF  KRE.P  is gaining around
1.4%.
    Regarding the CPI report, Brian Jacobsen, chief economist at
Annex Wealth Management, said:
    “The Fed may have talked itself into a corner with a July
26th rate hike. The data don’t confirm that they need to
actually hike."
    Jacobsen added, "Since they’re stubborn, they’ll probably do
it anyways. Thankfully the market has been expecting that hike.
The end is near for hikes.”
    Here is a premarket snapshot shortly before 0900 EDT:
    
   
    (Terence Gabriel, Chuck Mikolajczak)
     *****
 
    FOR WEDNESDAY'S LIVE MARKETS POSTS PRIOR TO 0900 EDT/1300
GMT - CLICK HERE

    
    
    
    
    
    
    

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
CPILM07122023    https://tmsnrt.rs/3PRjozO
premarket07122023    https://tmsnrt.rs/44IkXUO
earlytrade07122023    https://tmsnrt.rs/3XPrjiX
Inflation    https://tmsnrt.rs/44KV0El
Real wage growth    https://tmsnrt.rs/3NN1X0z
MBA    https://tmsnrt.rs/3rtJX3M
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)