Morning Minutes

Hawkish Central Banks, Weakening Real Estate Drag on Stocks




Adding to yesterday afternoon’s equity market selloff which pushed US indices to losses of 0.4% to 0.8%, US index futures are down another 1.0% to 1.5% this morning, while over in Europe, the Dax is down 1.5% and the FTSE is down 0.5%.

The souring of sentiment started with yesterday’s Fed announcements. While the 0.50% increase to 4.50% was widely expected, comments from Fed Chair Powell about the need to continue fighting inflation and 17 of 19 FOMC members forecasting a Fed Funds rate of 5.00-5.75% for the end of 2023, raising the median by 0.50% to 5.125%, set a hawkish tone for next year and indicated that even if the Fed slows or stops raising interest rates, Fed members expect rates to remain high with no serious pivot to dovishness expected until at least 2024. European central bankers have continued the hawkish trend this morning with the Swiss National Bank, Bank of England and European Central Bank all raising their benchmark rates by 0.50% as well and as was widely expected.

While not a huge surprise considering the state of monetary policy, disappointing earnings out of homebuilder Lennar ($4.55 vs street $4.87) have reminded investors of the real estate sector’s struggles. In particular, management noted that new orders were down 15% from a year ago in terms of units and down 24% in terms of dollar value (so house prices have started to come down), and that the company’s order backlog has dropped 21% over the last year. Lennar shares are down 3.0% in premarket action. Continuing the housing theme, but on the positive side, Canadian housing starts were 264K annualized in November, better than the 255K street estimate.

Equity market declines have deepened following a series of economic announcements from the US. Retail sales (-0.6% vs street -0.1% and previous 1.3%), Empire Manufacturing (-11.2 vs street -1.0), and Philadelphia Fed Manufacturing (-13.8 vs street -10.0) all were significantly worse than expected. On the other hand, weekly initial jobless claims (211K vs street 230K) was better than expected. US industrial production is due at 9:15 am EST (street 0.1%).

Tomorrow is Quadruple Witching Day with a multitude of futures and options contracts set to expire which could influence trading. Flash PMI reports from around the world, the first peek at global economic conditions in December are also on the schedule for tomorrow.

SIA Wealth In The Media:

Chief Market Strategist Colin Cieszynski appeared on BNN Bloomberg today where he spoke about SIA Wealth Management’s tactical investing strategy, relative strength in market sectors, and current trends in monetary policy.

We boosted our equity exposure to 100% from 0%: Chief market strategist

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Colin Cieszynski, Chief Market Strategist

Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

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