“It is not the strongest or the most intelligent who will survive but those who can best manage change.” – Charles Darwin

1. Home Construction Fell 8.1% in September — new home construction fell 8.1% in September, a sign that higher mortgage rates continue to cut into buyer demand and depress new building. Housing starts, which measure the beginning of construction on a new home, fell to a seasonally-adjusted annual rate of 1.44 million in September, 8.1% below the revised August estimate of 1.56 million and 7.7% below the September 2021 rate, according to Census Bureau and Department of Housing and Urban Development data released today. Consensus estimates gathered by FactSet had anticipated homes to have been started at a rate of about 1.47 million.
2. Fed’s Beige Book Says Businesses Expect Economy to Weaken — the Fed’s 12 regional reserve-bank districts said business contacts noted “growing concerns about weakening demand,” according to the central bank’s latest compilation of economic anecdotes from around the country, known as the Beige Book. Businesses reported that price pressures remained elevated through early October with some cost increases moderating. “Declines in commodity, fuel, and freight costs were noted,” the report said.
3. U.S. Home Sales Dropped for Eighth Straight Month in September — Sales of previously owned homes declined 1.5% in September from the prior month to a seasonally adjusted annual rate of 4.71 million, the weakest rate since May 2020, the National Association of Realtors said Thursday. September sales fell 23.8% from a year earlier. Existing-home sales have dropped 27% from their recent peak in January as the Federal Reserve’s actions to increase interest rates have pushed many prospective home buyers out of the market.
Some buyers no longer qualify for mortgages at current rates, while others have stepped back from the market due to broader uncertainty about the economy, real-estate agents say. Many current homeowners have mortgage rates below 4%, and some prospective sellers are opting to stay put rather than sell their homes and buy new ones with higher borrowing costs.
4. US Budget Deficit Plunges to $1.38 Trillion as Pandemic Aid Unwinds — The deficit for the fiscal year through September narrowed to $1.38 trillion, from a revised $2.78 trillion the previous year, according to US Treasury Department data released late last week. The deficit reduction came even after the Treasury accounted for President Joe Biden’s move to forgive a swath of student loans. The department said loan modifications had a $430 billion impact on the month of September, a sharp increase from the $137 billion recognition of such costs in September 2021. The Treasury said that it didn’t anticipate further such large-scale hits to the budget from the loan-forgiveness move in subsequent months.
FISCAL 2022 FISCAL 2021
Revenue $4.896 trillion $4.046 trillion
Outlays $6.272 trillion $6.822 trillion
Deficit $1.375 trillion $2.776 trillion
Deficit as % of GDP 5.5% 12.3%

The week ahead — Economic data from Econoday.com:

“If you want to be the best, you have to do things that other people are unwilling to do. —Michael Phelps

1. Bank of England Further Expands Bond-Market Rescue to Restore U.K.’s Financial Stability — the Bank of England extended support targeted at pension funds for the second day in a row, the latest attempt to contain a bond-market selloff that has threatened U.K. financial stability. The turmoil sparked fresh demands for pension funds to come up with cash to shore up LDIs, or liability-driven investments, derivative-based strategies that were meant to help match the money they owe to retirees over the long term.
LDIs were at the root of the bond selloff that prompted the BOE’s original intervention. Pension plans in late September saw a wave of margin calls after Prime Minister Liz Truss’s government announced large, debt-funded tax cuts that fueled an unprecedented bond-market selloff.
2. Fed Minutes Show Policy Pivot Is Not Coming Soon — the minutes noted “broad-based and unacceptably high level of inflation,” and said risks to the inflation outlook are increasing. Many participants emphasized that the cost of taking too little action against inflation outweighed the cost of doing too much, and several underlined the need to maintain a restrictive stance for as long as necessary. A couple of those officials stressed that historical experience demonstrated the danger of prematurely ending periods of tight monetary policy designed to bring down inflation.
3. Core US Inflation Rises to 40-Year High — the core consumer price index, which excludes food and energy, increased 6.6% from a year ago, the highest level since 1982, Labor Department data showed Thursday. From a month earlier, the core CPI climbed 0.6% for a second month. The advance was broad based. Shelter, food and medical care indexes were the largest of “many contributors,” the report said. Prices for gasoline and used cars declined. The CPI report is the last one before next month’s US midterm elections and poses fresh challenges to President Joe Biden and Democrats as they seek to retain thin congressional majorities. Already, the surge in inflation has posed a serious threat to those prospects.
4. U.K. Prime Minister Liz Truss Fires Treasury Chief, U-Turns on Taxes — U.K. Prime Minister Liz Truss fired Treasury chief Kwasi Kwarteng and reversed crucial parts of her government’s tax cuts, after her plans to jolt the economy into growth unraveled in spectacular fashion following a backlash from financial markets and her party. In a scramble to shore up support within her party, the embattled Ms. Truss also ditched her plan to prevent a planned rise in the rate of corporate income tax next April to 25% from 19%—a move taken by predecessor Boris Johnson’s government to help shore up finances. The U-turn was the second major part of her tax-cutting package to be abandoned recently. The turmoil in the U.K. is a sharp reminder of the political and economic challenges facing leaders across the West as they grapple with fast-rising inflation and weak growth. Price increases are forcing central banks to quickly raise interest rates, denting economic growth and making financial markets far more sensitive to deficits and debt.

The week ahead — Economic data from Econoday.com:

“Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria,” — John Templeton

1. Micron to Spend Up to $100 Billion on Chip Factory in New York State — Micron Technology Inc. has agreed to invest as much as $100 billion to build a semiconductor-manufacturing campus in upstate New York, adding to a wave of chip-making plans in the U.S. as Washington tries to boost domestic manufacturing of those critical components. Micron said a year ago that it would spend as much as $150 billion on additional production capacity, though didn’t say where the new money would go. The company had held off on committing to the spending until the U.S. government had approved billions of dollars in subsidies for domestic chip making. “We will need support from the federal government as well as appropriate support from state governments to bridge the 35% to 45% cost gap that exists in overseas production,” Micron Chief Executive Sanjay Mehrotra said earlier this year.
2. U.S. Job Openings Fell in August, Layoffs Up Slightly — employers’ total job openings fell 10% in August to a seasonally adjusted 10.1 million from 11.2 million the month before, the Labor Department said Tuesday. The 1.1-million drop in openings is the largest decline since the early months of the Covid-19 pandemic in 2020, leaving job openings at their lowest level in a year. Openings dropped the most in healthcare, retail and other services industries. The decline in openings coincided with an August easing of job growth. Employers added 315,000 jobs that month, compared with 526,000 jobs in July. The figures reflect a labor market that is still strong overall, but lost some steam in August after recovering rapidly from the effects of the pandemic.
3. OPEC+ Agrees to Biggest Oil Production Cut Since Start of Pandemic — the Organization of the Petroleum Exporting Countries and its Russia-led allies agreed on Wednesday to slash output by 2 million barrels of oil a day, delegates said, a move likely to push up already-high global energy prices and help oil-exporting Russia pay for its war in Ukraine. The move drew an immediate rebuke from the White House, which called the decision shortsighted and suggested the 23-member group collectively known as OPEC+ was actively supporting Russian President Vladimir Putin. It came less than three months after President Biden visited Saudi Arabia, the OPEC’s de facto leader, in a bid to repair relations between the world’s biggest oil consumer and its biggest crude-oil exporter during a period of rising inflation driven in part by high energy prices.
4. September Jobs Report Shows Payrolls Grew by 263,000 — U.S. employers added 263,000 jobs in September, continuing a gradual cooling pattern in the labor market as high inflation and rising interest rates weighed on the economy. The unemployment rate fell to 3.5% from 3.7% in August, the Labor Department said Friday, matching a half-century low that was last reached in July, a reflection of people leaving the job market. Wages rose 5.0% in September from the same month a year earlier, a slower pace than August’s 5.2% annual rate. Job gains were led by the leisure and hospitality industry, which added 83,000 jobs. Healthcare employment rose 60,000.
The number of job openings fell 10% in August to a seasonally adjusted 10.1 million from 11.2 million the month before, the Labor Department said Tuesday. The 1.1 million drop in openings is the largest decline since the early months of the Covid-19 pandemic in 2020. That left job openings at their lowest level in a year but still above their prepandemic level in 2019, when they averaged 7.2 million a month.

Below is the diagram depicting Stock Market Psychology courtesy of WallStCheatSheet

The week ahead — Economic data from Econoday.com:

“There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again. – Jesse Lauriston Livermore

1. Bank of England Buys Bonds in Bid to Stop Spread of Crisis — the Bank of England launched an emergency intervention to restore order in bond markets after a government tax-cut plan sent borrowing costs soaring and triggered a meltdown in complex financial instruments held by pension funds. The move aimed to stanch the damage from a furious selloff in U.K. government debt in recent days and stop the losses from running out of control, analysts said. The bank said it offered to buy £5 billion of bonds late last week (equivalent to $5.4 billion) but only took in £1 billion, indicating a limited amount of firepower was required to move markets.
2. Home Prices Suffer First Monthly Decline in Years — U.S. home prices slid in July from June, the first monthly decline in years and the latest sign that higher mortgage rates are starting to weigh on home prices in many of the country’s biggest markets. The S&P CoreLogic Case-Shiller National Home Price Index, which measures the average change in home prices across the nation, fell 0.3% in July from June, the first month-over-month decline since January 2019. On a seasonally adjusted basis, the national index fell 0.2%. That was the first monthly decline in more than a decade by this measure. The average rate on a 30-year fixed-rate mortgage was 6.29% in the week ended Sept. 22, up from 2.88% a year earlier, according to housing-finance agency Freddie Mac.
3. Mortgage Rates Rise to 6.7%, Highest Since 2007 — mortgage rates rose to their highest level in more than 15 years, a new high since the 2008-09 financial crisis that adds pressure to the already cooling U.S. housing market. The average rate on a 30-year fixed mortgage climbed to 6.7%, according to a survey of lenders released Thursday by Freddie Mac. lt was the highest rate since July 2007 and marked the sixth week in a row of rising rates. A year ago, rates were 3.01%.
The surge in mortgage rates follows a series of interest-rate increases from the Federal Reserve. The central bank has moved aggressively to try to cool the highest inflation in decades, raising its benchmark rate five times this year. Officials have indicated more increases are likely in the months ahead.
4. U.S. Jobless Claims Hit Lowest Level in Five Months — initial jobless claims, a proxy for layoffs, decreased to a seasonally adjusted 193,000 last week from a revised 209,000 the previous week, the Labor Department said Thursday. The total was the lowest since late April and below the prepandemic average of 218,000 in 2019, when the labor market was also tight. The Commerce Department separately said inflation in the second quarter was higher than previously estimated, pointing to the difficulties the Federal Reserve faces in tamping down persistent price increases that have spread through the economy. The department didn’t revise its estimate that the U.S. economy, as measured by gross domestic product, contracted 0.6% in the April to June period, however. Consumer spending was stronger than previously estimated, it said, but revised estimates of U.S. exports and inventories offset the improved spending picture.

The week ahead — Economic data from Econoday.com: