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Markets Wrap: Housing Slump, Tech Weigh on US Futures

As the housing market has begun to deteriorate due to Federal Reserve interest hikes stocks got a boost in recent days from good earnings. Investors anticipate that the Federal Reserve may slow the pace of rate hikes.

Mortgage Rates Hurting Housing Market

Mortgage Rates Hurting Housing Market

According to the S&P CoreLogic Case-Shiller Index, prices in 20 major US cities decreased 1.3% month over month in August, the most since March 2009. This is the second consecutive month of declines.

The housing market has begun to deteriorate as the Federal Reserve raises interest rates to combat the highest inflation in decades. Despite the slowing, prices in many places remain high in comparison to the previous year. With mortgage rates approaching 7%, many would-be buyers have been turned down, while some sellers have fled.

While prices are still rising year over year, they are slowing at an alarming rate. A nationwide price index rose 13% year on year in August, down from 15.6% in July, the largest decline in the index’s history.

Cities on the West Coast have been among the hardest impacted by the real estate slump, owing in part to affordability concerns that have risen in recent months as interest rates have risen. Cities on the West Coast, including San Francisco, Seattle, and San Diego, decreased the most month over month. 

Tech Giants Weigh On US Futures

US index futures declined as pre-market trading saw mega cap technology equities fall, ruining a three-day Wall Street bounce and casting new doubt on whether this year’s $5.5 trillion selloff is close to bottoming out.

Stocks have been boosted in recent days by mainly excellent earnings and anticipation that the Federal Reserve may slow the pace of rate hikes amid signs that its relentless tightening is weighing on the economy.

Despite the big-tech loss, over a quarter of S&P 500 businesses have reported third-quarter earnings, with more than two-thirds exceeding analysts’ expectations. However, there is growing concern that sluggish output would reduce business profits in the coming months.

The Stoxx Europe 600 index shifted in response to a slew of mainly good earnings reports from heavyweights such as Barclays Plc, Deutsche Bank AG, and Mercedes-Benz Group AG. 

The technology sector fell more than 1%, weighing on the benchmark, while brewer Heineken NV fell after missing analysts’ volume growth projections.

After poor quarterly results from Texas Instruments Inc., Alphabet Inc., the parent company of Google, and Microsoft Corp., contracts on the Nasdaq 100 plummeted more than 1.5%. S&P 500 futures were down nearly 0.8%. 

The 10-year yield on Treasuries increased gains, falling to about 4.07%, while a measure of the dollar fell for a second day to its lowest level in three weeks. 

UK Bonds Fall

UK Bonds Fall

In the meantime, the British pound maintained its gains against the US dollar when the government announced that the eagerly awaited budget update would be postponed until November. After Rishi Sunak, the new prime minister, chose an experienced Cabinet to guide the UK through what he called a “deep economic crisis,” the value of the pound rose.

The government postponed the release of its budget plan, which was expected the following week, which increased uncertainty and strained the country’s already unstable markets.

Following the postponement of the economic strategy from Monday to November 17 by the incoming UK Prime Minister Rishi Sunak, the yield on 30-year bonds increased as much as 14 basis points to 3.81%.

Investors are nonetheless keen to see the final statistics, despite the government’s retreat on promises for a major fiscal stimulus and massive unfunded tax cuts that last month shook the markets.

The Office for Budget Responsibility will release a comprehensive prediction alongside the event, which should help calm the market’s fears. The lack of one from Liz Truss made the selloff worse. 

Comprehensive prediction rate

On Wednesday, the Bank of Canada is expected to raise its overnight interest rate again to try to contain the rising cost of living

Markets are pricing in a 75 basis-point increase in the central bank’s overnight rate at its decision Wednesday at 10 a.m. in Ottawa. That would bring the benchmark to 4%, a level not seen since March 2008.

The logic is that prices are increasing because demand for goods and services is exceeding supply. So a hike in interest rates makes money more expensive and then people will borrow less in order to buy things and thereby reduce demand. A spillover impact, that the government is not opposed to, is a drop in real estate prices.

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Author

  • Phyllis Wangui

    Phyllis Wangui is a Financial Analyst and News Editor with qualifications in accounting and economics. She has over 20 years of banking and accounting experience, during which she has gained extensive knowledge of the forex, stock news, stock market, forex analysis, cryptos and foreign exchange industries. Phyllis is an avid commentator on these topics and loves to share her insights with others through financial publications and social media platforms.