Housing Data Get Pushed Aside So The Nerve Wracked Can Worry About Fed Minutes To Be Issued Tomorrow

Maybe it’s just too hard to focus on hard data. Maybe the lazy in the world like to talk a good game and get their panties in a bunch over opinions (in the FOMC minutes) that we’re all familiar with by now. 

What exactly was pushed aside? A fairly spectacular U.S. housing starts number for July. It came in at 1.206 million, markedly above what economists expected and almost touching an eight-year high. (Eight years ago was 2007. George W. Bush was still president and the Great Recession had not come to call yet.) Moreover, June's starts were also revised higher to a 1.20 million-unit rate from the previously reported 1.17 million-unit pace. 

That rate is almost 14.5 million new units per year. There is a cloudy patch over the data, no doubt. Single-family construction is still down about 28% from pre-recession highs. (We think there are a variety of demographic factors at work concerning that number – the current age of Millennials, booms in cities, as well as the ongoing retirement of Boomers and other seniors, etc.

While U.S. and European equities took their lumps today, and the Nikkei and Hong Kong were dinged hard, the thud heard round the world was yet another 6%-plus drop in Shanghai. The chief worry now for China is not the actual level of its main index but the way it twitches and yips and falls and rockets up, lurches to the left, and then to the right. 

That sort of volatility keeps investors unsteady, harrying them too much, especially during the closing lazy hazy crazy days of summer. Who wants to be bothered hashing out the next secretive move by the central committee in China? Best to have another Mai Tai. 

Gold could not take much advantage of the struggles the equities had today, the current rally pausing like other markets as precious metals await the Fed minutes. 

U.S. crude oil fared much better because Thursday brings the close of the front month futures contract and that in turn engenders a lot of short covering when the market is slipping. Added to the contract expiry, oil analysts are expecting a 500,000 to 650,000 drop in U.S. inventory levels, which will push prices higher if that occurs. 

Some contend the housing starts strength, discussed above, also aided oil, but if the general thinking is that hot housing data may incite a Fed rate rise, it strikes us that such thinking about the oil connection is way off the mark. 
Global benchmark Brent North Sea crude stumbled mainly due to the equities debacle in Shanghai. China is the world’s number 2 consumer of crude oil. We believe the long-term outlook for oil price is very negative unless there is a crisis of some sort.

Where did all the money go today? Some ag commodities are stronger, but it wasn’t an across-the-board rise. So, let’s look at FOREX trading. 

We can tell you investment went away from the euro and traveled mostly to the British pound, the yen and the U.S. dollar. A warning sign for anyone with exposure in second and third world markets: the China de-val is setting debt-service costs on fire. If the U.S. does elect to raise rates, we think it could precipitate a debt crisis in some countries. 

Tread lightly. Watch the eggshells.