As we get earnings this week and in earnest in the weeks to come I know everyone will be comparing it to consensus expectations but estimates for Q3 were created by analysts without any guidance from Corporate America due to Covid. It wasn’t as much as a shot in the dark as Q2 but the game between company guidance and analyst estimates was broken when most companies didn’t give any outlooks. Pay more attention to the y/o/y changes and if there is any guidance for Q4 which hopefully more companies will seem comfortable giving.
Mortgage applications to buy a home fell for the 4th week in the past 5 as maybe its digesting the recent sharp gains. They were down by 1.6% w/o/w. Even so, they are still up 24% y/o/y reflecting the rest taking place at still a high level. The average loan size moderated from the record high seen last week. While not yet reaching that point, I’m still on the lookout as to when the aggressive price increases now taking place again will start to slow the pace of transactions as it offsets the benefits of lower mortgage rates. Refi’s were unchanged but still up 44% y/o/y although that is a slowing pace.
AVERAGE LOAN SIZE of a PURCHASE
The credit continued to flow in China in September with aggregate financing totaling 3.48T yuan, about 500b more than expected. Of that, bank loans made up 1.9T vs the forecast of 1.7T. For perspective, in the 1st 9 months of 2020, credit growth is up a whopping 44% y/o/y. I don’t know how much of that was offset by what was paid back. Money supply growth, as measured by M2, the widest kind, was higher by 10.9% y/o/y. Combine this level of lending with control of the virus and almost a full reopening has the Chinese economy likely one of the 1st that will regain its pre Covid GDP level (whatever they tell us that level is). This data did come after the markets closed. After the sharp reversal on Friday lower, the yuan is up for a 2nd day. Chinese stocks were mixed with the Shanghai comp lower and the H share index in Hong Kong higher.
Likely in response to the firm containment of Covid and the rebound in China, Australian consumer confidence in October jumped to 105 from 93.8. I don’t have an estimate but that level is the most since July 2018. Westpac, which released the data, also said “The budget and the outlook for interest rates have given a clear boost to the confidence of homeowners.” Consumer confidence data anywhere is never market moving however and this is no different as the Aussie $ is little changed, the ASX was lower by .3% and bonds are flat.
The Eurozone August industrial production gain in August was .7% m/o/m, slightly better than expected when the July upward revision into account. It’s a dated number but reflects the continued reopenings of factories in the region. We know Europe is now dealing with another flare up of the virus but it takes that flare up to get people to wear masks and distance again that then in turn lowers the spread. Point being, while Europe and the US are still seeing high infection rates, I think we all know what it takes to contain it. We just have to do it.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.