Return of volatility on Wall Street: pre-markets in red
In light of the new economic data this morning, we are nevertheless witnessing a turnaround in the stock market indices. After turning a rocky start into positive or near positive gains for the week at Thursday’s close, pre-market futures are back in the red on this last day of trading before the weekend. Almost as if the trading week is perfectly over, the culprit for the sale appears to be China again.
The next step the Chinese government has taken in the fight against financial risk taking concerns the cryptocurrency market. Beijing has generated a list of what it now considers “illegal crypto activity,” including the exchange of legal tender for cryptocurrencies and cryptocurrencies traded against each other. No explicit crypto ownership ban is part of this new policy, only if you actively do something with your cryptocurrency that you risk breaking the new Chinese law.
This, of course, follows Monday’s announcement that China’s second-largest real estate developer, Evergrande, was likely to default this week without the government stepping in to help the company. Evergrande’s interest payment alone was $ 83 million, which passed Thursday’s due date and is still unpaid. Reports later this week explained that Chinese financial authorities would bail out the real estate company, which still has 30 days before the default.
As important as China – the world’s second-largest economy – is to global markets, investors here at home are now readjusting the scenarios whereby China continues to a) lock its economy against outside interests, b) feel a large impact on internal growth, of which its real estate market is only one of many with a strong leverage effect, or c) both. In short, whatever the Red Dragon moves in the short term, they will force US markets to heed.
New home sales for August are expected after today’s open, with annualized and seasonally adjusted units expected to continue to rebound from June lows of 701K. It was 708K the last time it read, and this morning’s count is estimated at 720K. In January 2021, we were still seeing nearly a million new homes sold; this hit a major problem when the supply of lumber, copper, etc. became scarce due to pandemic conditions, caused input prices to spike and finished homes were left unsold at much higher prices.
Sales of existing homes, released earlier this week, showed results consistent with estimates. From spring through summer, we saw existing home sales hover around the lows of the cycle, with August of -2% on a month-to-month basis at 5.88 million. At the start of this year, before supply constraints etc., we had over 6.6 million existing homes sold.
With the end of pandemic conditions (in some regions, typically those with high vaccination rates) and improved product availability, sales figures may adjust upward in the coming months. We’ll see if last month’s new home sales have already started to get there or not.
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