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US Weekly Petroleum Status Report

The large fall in US commercial crude stocks was mostly due to a renewed rise in exports. Implied gasoline demand rose for a second consecutive week, but this failed to lift prices amid growing concerns over demand prospects. That said, we expect that risks to supply could still support prices later in the year.

17 August 2022

Weighing up the relative prospects for stock market sectors

We think the macroeconomic backdrop that we envisage is consistent with certain “defensive” sectors of the S&P 500 – utilities, healthcare and consumer staples – outperforming over the rest of this year.

17 August 2022

Retail Sales (Jul.)

While overall retail sales were unchanged in July, the details were far more encouraging, with a price-related fall in gasoline sales freeing up households to increase spending on other goods. With prices no longer rising rapidly, the increase in underlying retail sales is consistent with a rebound in real consumption at the beginning of the third quarter.

17 August 2022
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Industrial Production (Jul.)

The 0.6% m/m rise in industrial production in July was much stronger than we expected and provides another clear sign that the economy is still in expansionary territory. That said, the likely drag on manufacturing from the impending global economic downturn means that the resilience of production may not last for long.

Housing Starts (Jul.)

Single-family housing starts fell for the fifth consecutive month in July, leaving them down by 25% from their high at the end of 2021. Leading indicators point to a much larger decline in the coming months. However, pent-up demand, tight supply and easing supply shortages will provide some support to starts, and we expect they will fall gradually to around 800,000 annualised by end-2022.  

Commercial Property Lending (Jul.)

CRE lending was again exceptionally strong in July, outpacing even the gains seen in recent months. But with investment transaction totals softening in Q2 and our expectation of a further slowdown in activity in H2, we do not expect the strength of recent months’ net lending to persist much longer.

Dollar falters on continued risk-on rally

The US dollar continued to struggle this week as equity markets extended their rebound and commodity prices also rallied: the currencies of commodity exporters and other economies most exposed to global growth generally fared well. Wednesday’s lower-than-expected US CPI data provided the latest catalyst: the S&P 500 rose around 2% following the CPI report, and the DXY index registered one of its worst days in recent years, falling by more than 1%. Nonetheless, further hawkish comments from FOMC members, weak credit data out of China and today’s strong US consumer confidence survey have provided some support for the greenback. Our sense remains that the dollar rally will resume before too long. It will take a lot more good news on inflation before the Fed changes tack. The minutes from the last FOMC meeting, released next week, and the Jackson Hole conference the week after may well push back further against the notion that the Fed is “pivoting”.

12 August 2022

Stretched affordability to hit sales and prices

Despite a reduction in our mortgage rate forecast, affordability is still set to be as stretched as it was during the mid-2000s housing boom. Alongside record-low homebuyer sentiment and a slowing economy, that means we have become more downbeat on housing activity this year. We now expect a 30% peak-to-trough fall in total home sales. The weaker outlook for new sales will weigh on single-family housing starts, which we think will end 2022 almost 35% below their end-2021 level. While tight markets and a lack of forced sellers will prevent a house price crash, we forecast that the annual growth rate will bottom out at -5% in mid-2023. From there, improving affordability will support a gradual recovery in activity and help price growth rise to 3% y/y by end-2024. Higher bond yields will also push apartment yields up a little this year and next. Coupled with a sharp slowdown in rental growth, that means we expect total annual returns to fall below 9% in 2022 and reach just 1.5% in 2023.

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