Action Packed Fortnight Begins!

We are entering into an action-packed fortnight as:

• The world’s largest economy is preparing for one of the most heated elections ever.

• The Middle East is ripe for a conflict that can spiral out of control as there is no talk of de-escalation from any country globally.

• The much-awaited big tech earnings will be released next week.

• The vital macro data in the first week (ISM, NFP, etc) with the Fed’s policy just 48 hours after elections conclude.

As a result, we expect a significant rise in volatility as investors brace for impact from the confluence of events. Furthermore, we have already witnessed the following due to the odds of a Republican candidate in the White House:

• BTC has rallied significantly from the lows.

• The Dollar Index (DXY) has skyrocketed past the key 200-day Exponential Moving Average (DEMA) on better-than-expected macro data and the Trump victory.

• Gold has hit fresh ATHs this week despite “rising dollar” and “rising real yields” as the market prices in the ballooning fiscal deficit under both the candidates.

• Bond market volatility (MOVE Index) is at 52-week highs, having surged enormously in the last few weeks.

  

Nonetheless, we have yet to witness volatility in asset classes such as equity markets (despite elevated VIX) and the credit markets (HY and IG spreads are the tightest since 2005/8).

Therefore, we believe and reiterate our stance that some of the markets are complacent, and there is a high probability that we get outsized moves (cross asset) in the next two weeks.

Let’s analyze the US housing market in-depth and global macro data to gauge the global economy's health.

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US!

When we study business cycles, the housing sector is the leading indicator of a cyclical economy, as it has a multiplier effect on the whole economy.

There are two parts to the housing sector: Single Family Housing and Multi-Family Housing.

In 2022, there was an anomaly as the sudden spike in the interest rates led to a plunge in single-family housing activity; however, multi-family housing activity remained robust due to the following:

One thing we always need to remember in the housing market is that there is a long lag within the housing market from applying for permits and the time units are completed. Furthermore, post covid; the lag increased significantly due to lockdowns.

As we can observe, the time taken to complete a multi-family housing rose significantly from 14 months pre-COVID to 17 months. So, one can assume that today's completions began in Q422/Q123.

As a result, it becomes super important to look at today’s housing market data in detail which will affect future activity; folks, the picture is extremely bleak.