Home Sales Report Leads to Sell-Off

[Excerpted from Bill Cara's Daily Report]

With the very important G-20 meetings in Pittsburgh Thursday and Friday, politics is front and center in capital markets. This intervention, leading to uncertainty, aided to the sell-off on Thursday. But what set it off, immediately after a strong open, was the shocking Existing Home Sales report that was issued at 10:00am ET.

Highlights The momentum in housing data has hit a bump as existing home sales ended four months of gains, down 2.7 percent in August to a 5.10 million annual rate that falls well short of expectations for 5.35 million. The dip wasn't lopsided to any of the two categories, split between single family homes, down 2.8 percent, and condos, down 1.6%. Regional data were also balanced showing low to mid-single digit percentage declines in the Northeast, Midwest and South and a low single digit gain in the West… Friday’s New Home Sales report was expected to show a fifth straight gain as was this report, though Thursday's results may subdue expectations a bit. Markets are definitely reacting to the report with the S&P down several points and the dollar index up … Commodities are moving lower as the play between safety and risk turns back to safety. A final note is that pending home sales, which are on a climb, sent a bad signal for this report which the NAR suspects reflects more stringent or even faulty appraisals that are scuttling sales…

Market Consensus Before Announcement
Existing home sales rose a spectacular 7.2 percent to a 5.24 million annual unit rate for July and the fourth consecutive increase. The July surge was the largest on record for the total existing-home sales series dating back to 1999. http://fidweek.econoday.com/byshoweventfull.asp?fid=438268&cust=mam&year...

US New Home Sales data for August. Prior to the 9/25 10:00am ET data release, Econoday reported, “New home sales surged 9.6 percent in July, following an upwardly revised 9.1 percent surge in June. The 433,000 annual unit pace was the best since September 2008. Importantly, the strong sales have been working down supply-good news for homebuilders. Supply is down to 7.5 months, the lowest level since April 2007.”

At the 4pm ET close in New York, the S&P 500 (1,050.78 -10.09 -0.95%), DJIA (9,707.44 -41.11 -0.42%), and NASDAQ Composite (2,107.61 -23.81 -1.12%) all closed lower. Prices of Crude Oil ($WTIC 65.89 -3.08 -4.47%) and Gold ($GOLD 993.90 -14.30 -1.42%) were hammered.

As we reported on Wednesday, at 2:39pm ET with the S&P 500 (1,079.12 +7.46 +0.70%), DJIA (9,906.73 +76.86 +0.78%), and NASDAQ Composite (2,166.02 +19.72 +0.92%) showing the usual green, the sell-off that began at that moment “was not a page out of the October 19, 1987 Black Monday book, … but it was clearly a shot across the bow.” Thursday morning, following the Existing Home Sales report, was another shot.

The issue now is, with Bernanke and Geithner talking economic recovery, does the economic data support them, or has it all just been about hope. Friday morning’s New Home Sales report at 10:00am ET will be front and center.

The Canadian markets clearly ran for cover yesterday as the Toronto Exchange Composite (11,285.76 -231.78 -2.01%) and Venture market (1,256.36 -21.49 -1.68%) losses have put the week deeply in the red.

In NY, leading on the downside were Basic Materials and Financials (XLB -2.2% XLF -2.0%), while the strongest, Healthcare (XLV -0.1%) was even a loser.

There were no major industry groups that were stronger on the day, and the weakest, Pulp & Paper, Broker-Dealers and REITs ($DJUSPP -5.9% $XBD -4.1% $DJR -3.5%), were badly hit.

For the Cara 100 company stocks on Wednesday, there were only 13 winners, down from Wednesday’s dismal 15. Carnival Cruise (CCL +2.5%) was the only notable gainer, while the biggest losers were Brunswick Corp, Paychex, Teck Corp, and Cameco (BC -7.3% PAYX -6.2% TCK -5 CCJ -4.9%).

The US Dollar lifted again ($USD 76.91 +0.58 +0.76%), and so too did Treasury Bonds ($USB 119.97 +0.28 +0.24%) as there was a flight out of the higher risk equities. Treasury yields dropped on the 30-year (4.174 -0.21 -0.50%) and 10-year (3.381 -0.37 -1.08%), but the 5-year paper (2.377 +0.02 +0.08%) held its ground. T-bill yields dropped to almost zero (0.090 -0.05 -5.26%).

With the $USD up for the 5th day in six, the Euro (146.55 -0.76 -0.52%), Yen (109.52 -0.03 -0.03%), Pound (160.57 -2.91 -1.78%), and Canadian Dollar (91.81 -1.19 -1.28%) all closed down. Note the weakness of the currencies of US allies, Canada and the UK, which clearly helped spur the $USD going into the negotiations at the G-20.

Earlier Friday in overseas equity markets, except for Australia (4,714.8 +0.14%), the action was bearish. Shanghai (2,838.8 -0.52%), Hong Kong (21,024.4 -0.13%) and India (16,693.0 -0.53%) were down, but the Nikkei 225 of Japan (10,266.0 -2.64%) was smashed after a major bank announced a large capital infusion is required.

By 6:38AM ET, however, France (3,761.20 +0.08%), Germany (5,609.14 +0.07%) and the FTSE 100 of London (5,100.20 +0.41%) were undecided. Traders there and everywhere are awaiting more word from the G-20 meetings today, and from the US New Home Sales report at 10:00am ET.

Traders are also undecided in futures markets. At 6:46am ET, the Euro (1.4696 +0.0043 +0.29%), the DJIA December futures (9660 +25 +0.26%), and the Crude Oil futures (66.27 +0.38 +0.58%) are trading a bit firmer.

The precious metals market was a little firmer after the sharp pull-back Thursday. At 7:00am ET this morning, the spot (cash) trades were as follows: for gold (996.47 +0.39 +0.04%), and silver (16.25 +0.0613 +0.38% 06:59).

The dance continues as traders await the outcome of the G-20 meetings.