Markets Tepid After Housing Data, Tensions with China

Housing Data Misses Expectations  Headlining key US economic data released today, housing starts for the month of November were reported at 1.09 million.  Significantly below median forecasts of 1.23 million, last month’s figure displayed an 18.7% decline from October’s nine-year high reading of 1.34 million housing starts.  Detailed in the report, the multi-family sector continued its volatile trend as it fell 45.1% to a seasonally adjusted 262,000-unit pace while the largest share of the housing market, single-family homes, dropped 4.1% MoM to an 828,000-unit pace.  Providing some optimism in the report, building permits for single-family homes rose to a nine-year high in November.  Total building permits fell marginally below expectations of 1.24 million, coming in at 1.201 million.  Despite today’s the below-expectations data, the outlook for the housing market remains strong, with homebuilder confidence at its highest level in a decade with the recent upbeat outlook for the prospect of lower taxes/less corporate regulation/more fiscal stimulus with the incoming administration.

Stock and Bond Markets Subdued after a Volatile Week
Stocks and bonds traded within a tight range throughout the course of Friday’s trading session as investors took a break from the historic rally in equities and selloff in Treasurys.  All three major US stock indices are finished just below even with the DJIA, S&P 500, and Nasdaq down 0.05% – 0.4%.  Conversely, US Treasury prices are trading up across the bulk of the yield curve, with most Treasury and swap rates down 1-2 bps (although 30 year rates were actually 2 bps higher for the day).  Partially casting a shadow on the overall market sentiment, geopolitical tensions increased today as China’s Navy seized a US research drone in international waters that had been gathering data on underwater sound and temperature.  In response, the Pentagon issued a demand for the drone to be returned, but the request has so far been ignored by Chinese authorities.  The disagreement is a reminder of the delicate diplomatic environment President-elect Donald Trump will be stepping into with China and many of our other international counterparts.