U.S. Housing Market's Return to 'Normal' Will Take Years — Market Talk
1227 ET - Housing costs could hypothetically return to "normal" within the next five years if mortgage rates drop to 6%, Redfin says, and home-price growth holds steady around 2.1%. Alternatively, housing costs could return to normal in just a slightly longer timeline--within about six years--if mortgage rates stay where they are today, about 7.5%, and home-price growth flattens. Redfin defines "normal" as the mortgage-payment-to-income ratio returning to August 2018 levels. At that time, the typical U.S. homebuyer needed to spend 30% of their household income on their monthly mortgage payment. If mortgage rates were to drop to the lowest bounds of Redfin's expectations--6%--and price growth were to flatten, housing costs could return to "normal" by February 2029. ([email protected])1205 ET - Major cryptocurrencies are lower with pressure from a strong U.S. dollar and higher oil prices translating to pressure on riskier assets like bitcoin and other cryptocurrencies. "Rising yields and oil explain the timing of the selloff, while profit-taking near the top of the range explains most of its size," says Colin Basco of Coinbase Institutional. Basco explains that the macro pressure may keep weighing on bitcoin in the short-term. "A move in the 10-year toward 5.5% would probably extend the consolidation period, [but] I still view retracements toward the 200-day moving average near $72K as accumulation opportunities," says Basco. Bitcoin falls 2.7% to $81,151, ethereum is down 4.9% to $2,448, and XRP slides 5% to $1.35. ([email protected])1129 ET - David Ellison sees multiple pathways to pay down the significant debt Skydance currently carries. "One is to grow the business," Ellison says in an interview with CNBC on Thursday. "We're going to be investing more in content than any of our peers." At the same time, Ellison says there are billions of dollars in cost synergies that will emerge throughout the integration process. Over the same period, free cash flow is expected to grow. "We are absolutely in a position where we can grow the business and delever simultaneously," Ellison says. ([email protected])1037 ET - Investment-grade bonds look attractive considering their current elevated yields, UBS Global Wealth Management strategists Matthew Carter and Jon Gordon say in a note. "High-quality bonds offer three potential benefits: income generation, portfolio diversification, and possible capital appreciation," they say. Nonetheless, investors should diversify their investment to manage risks, the strategists say. "Emerging market bonds, for example, can offer appealing yields and diversified return potential." ([email protected])0957 ET - The dollar index higher in morning trade, pairing with highs reached in Treasury yields putting pressure on grain futures and other commodities. A stronger dollar makes U.S. grain exports less competitive on the world market. "Outside markets are increasingly important — and mostly negative for grains," says Jim Wiesemeyer of Ag Bull in a note. Uncertainty stemming from wars in the Black Sea and Middle East add to inflation concerns. CBOT corn falls 0.7% in early trading, while soybeans slide 0.6% and wheat is up 0.1%. ([email protected])0955 ET - Hungary could be the next potential candidate in central and eastern Europe to adopt the euro, UniCredit's Eszter Gargyan says in a note. Hungary's new pro-EU government plans to meet the criteria for adopting the euro by 2030. Markets will be closely watching the government's medium-term fiscal plans as it has pledged to lower the deficit to enable euro adoption, she says. Romania is likely the next candidate after Hungary, she says. Euro adoption could reduce vulnerabilities related to Romania's twin deficits, although political instability could complicate necessary fiscal adjustments, she says. Political fragmentation and weak public support could hold back euro adoption in Poland while public support in the Czech Republic is also low. ([email protected])0948 ET - September was a very tough month for global fixed income, given the challenging performance for the asset class, MFS Investment Management's Benoit Anne says in a note. It was particularly tough for long-duration indexes--those most sensitive to the sharp spike back to triple-digit territory for the MOVE index, an indicator of rate volatility, says the head of market insights. Tax-exempt municipal bonds produced a minus 4.36% negative return for the month, their worst monthly performance since September 2008, he says. Given the substantial rise in U.S. rates, U.S. indexes underperformed, including the U.S. Treasury index which was down 2.24% for the month, he says. Euro indexes outperformed, with euro investment grade only down 1.33% for the month, Anne says. ([email protected])0940 ET - Alternative assets such as hedge funds look more attractive given high market volatility in stocks and bonds, UBS global wealth management strategists Matthew Carter and Tony Petrov say in a note. Alternative assets depend less on stock and bond moves, they say. In the current environment, "the goal could be to seek either returns that depend less on stock and bond markets or assets that are less volatile in turbulent times." Nonetheless, investments in alternative assets, including hedge funds, carry risks such as illiquidity and complexity, they say. ([email protected])0939 ET - The European Central Bank's September rate increase had broad support according to minutes of the meeting, Carsten Brzeski at ING says in a note. However, the discussion was more balanced than ECB President Christine Lagarde's post-meeting comments suggested, meaning an October hike looks unlikely, he says. Some officials noted that the energy shock could be less persistent than assumed, while others questioned the narrative that the economy was proving resilient to the energy shock. Meanwhile rising bond yields are adding to opinions that a hike may be unnecessary, Brzeski adds. "With bond markets doing the ECB's job, some officials might be less keen to continue hiking than they were at the September meeting." ([email protected])0936 ET - Further euro weakness looks likely but bets against the single currency are probably best expressed against the Australian dollar and Swiss franc, Morgan Stanley strategists say in a note. French debt concerns have weighed on the euro via increased risk premium and lower European Central Bank interest-rate rise expectations, they say. Morgan Stanley recommends selling the euro versus the high-yielding Australia dollar with a target of 1.53 and stop loss of 1.69. It also advises selling the euro versus the safe-haven franc with a target of 0.90 and stop loss of 0.96 to help investors hedge for potential further regional volatility. The euro rises 0.2% to 1.6112 Australian dollars and is steady at 0.9331 francs.([email protected])0934 ET - The Romanian leu could weaken further after reaching record lows against the euro recently, Raiffeisen Research analysts say in a note. Romania has failed to form a new government following the May collapse of the previous cabinet. However, a new government should be sworn in soon and it is likely to secure sufficient parliamentary support to continue the fiscal consolidation process, the analysts say. "However, these supportive factors are offset by Romania's sizeable macroeconomic imbalances, which, in our view, continue to argue for a gradual depreciation of the leu in the near-term." The euro falls 5.3440 leu after reaching a record high of 5.3550 on Friday, LSEG data show. Raiffeisen expects it to reach 5.40 by year-end. ([email protected])0847 ET - U.S. Treasury yields hover near multiyear highs as investors monitor comments from Federal Reserve officials and an auction of 30-year bonds. The 10-year Treasury yield currently hovers at 5.324% and rose as high as 5.353%. The 2-year Treasury yield reached 4.820% Thursday and currently hovers around 4.812%. Fed governor Christopher Waller said he could see additional rate increases ahead, but noted flexibility on when they could occur. The 30-year Treasury yield hovers around 5.696%. ([email protected])