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Mark J. Moskowitz, CFA
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Volume 24, Issue 33
August 11, 2020.
 
  Close
Aug 7
Close
Jul 31
Weekly
Change
Net Weekly
Change %
DJIA 27,433.48 26,428.32 +1,005.16 +3.80%
Nasdaq 11,010.10 10,745.28 +264.82 +2.46%
S&P 500 3,351.28 3,271.12 +80.16 +2.45%
S&P/TSX Index 16,544.48 16,169.20 +375.28 +2.32%
         
Source: Globe & Mail


The Bizzaro Real Estate Recession
Rob Kavcic
BMO Senior Economist

Home sales across Canada’s major cities continued to roar back in July, headlined by a record month in Toronto. Sales across the country will likely be up about 16% from year-ago levels when the final tally is published, with the average price also up by double digits. In a nutshell, after effectively shutting down through the height of the pandemic, the housing market has reopened, and there is plenty of pent-up demand at this stage to absorb the wave of new listings—in Toronto, for example, both sales and new listings were up nearly 30% y/y in July.
 
The performance of the housing market through this historic economic shock has, to put it mildly and without naming names, surprised the bears. In fact, this has shaped up to be a bizzaro-world recession for the sector, where what is usually down is up, and vice versa. Some examples:
 
• You won’t find a single recession during the postwar era that has not seen a meaningful decline in residential construction activity, but this pandemic actually left the sector as one of the few that was able to operate relatively undisturbed. As a result, housing starts have sailed above bearish expectations.
 
• New listings, which usually jump into a downturn (see 2009), were almost fully absent given social distancing restrictions on home selling. This effectively froze the market in time, rather than triggering a price correction.
 
• Home buying demand has continued to build, which is contrary to what you’d normally see. Part of this reflects the fact that the mid-to-upper income range of the job market has held up very well versus the lower end. July’s employment report, for example, shows that employment in the accommodation & food and culture & recreation industries was down 21% from February, but finance and professional services were down just 2%. You’ll be hard pressed to find a downturn where the rental market is hit harder than the mid-to-high end of the resale market.
 
While real estate has largely sailed through the pandemic, questions linger about the outlook when massive support programs start to expire, and the market is left more to its own devices. As the CERB winds down and evolves, the impact will likely be disproportionately heavy at the lower end of the resale market and in the rental segment. Mortgage deferrals should be absorbed into outstanding balances which will increase the debt level, but limit any payment shock, especially for those that can refinance at record-low rates. At any rate, a picture that shows resilience and strength in real estate through the downturn, but some sluggishness later on in the recovery would indeed look bizzaro.
 
Meantime, pent-up demand is starting to be unleashed in the auto sector too, with sales up firmly in both Canada and the U.S. in July. Canadian sales were down just 5% y/y in the month, but in a sharp “V” have effectively returned to pre-COVID levels on a seasonally-adjusted basis. U.S. sales were still down 14.6% y/y in July and are about 15% below pre-COVID levels, but month-over-month momentum is brisk, and this sales recovery is looking much sharper than that coming out of the Great Recession.

 

Have a great week.

Frank & Mark.




Source: Globe & Mail, BMO Capital Markets, Bank of Canada

Canada:
Home sales across Canada’s major cities continued to roar back in July, headlined by a record month in Toronto. Sales across the country will likely be up about 16% from year-ago levels when the final tally is published, with the average price also up by double digits. In a nutshell, after effectively shutting down through the height of the pandemic, the housing market has reopened, and there is plenty of pent-up demand at this stage to absorb the wave of new listings—in Toronto, for example, both sales and listings were up nearly 30% y/y in July. The performance of the housing market through this historic economic shock has, to put it mildly and without naming names, surprised the bears. In fact, this has shaped up to be a bizzaro-world recession for the sector, where what is usually down is up, and vice versa.  Pent-up demand is starting to be unleashed in the auto sector too, with sales up firmly in both Canada and the U.S. in July. Canadian sales were down just 5% y/y in the month, but in a sharp “V” have effectively returned to pre-COVID levels on a seasonally-adjusted basis. U.S. sales were still down 14.6% y/y in July and are about 15% below pre-COVID levels, but month-over-month momentum is brisk, and this sales recovery is looking much sharper than that coming out of the Great Recession.  YTD, the TSX is down 3.04% and the benchmark 10-year yield ended the week to yield 0.47%.



U.S.:
Equity markets rose this week, as the economic recovery progresses and earnings results top dowbeat expectations. The S&P 500 rose 2.5%, led by industrials and banks, which pushed the index to within just 2% of an all-time high. The Nasdaq continues to cruise well beyond that mark, while the TSX is still off about 8% after a 2.3% gain this week, in part because of more weight in sectors that have had a harder time coming back. Employment results were solid on both sides of the border, with the U.S. and Canada adding 1.8 mln and 419k jobs, respectively, while both countries saw their jobless rate fall below 11%. On the earnings front, more than 80% have topped Q2 expectations according to Refinitiv's tally (though earnings are down 32% y/y). What's hot? Video games, tech hardware, streaming services and bleach. Makes sense.  YTD, the S&P 500 is up 3.73%, the Dow Jones Industrials are down 3.87%, and the Nasdaq is up 22.71%. The yield on the 10 year Treasury closed at 0.57%.




Source: BMO Capital Markets 



The Good:  Employment +418,500 (July); Unemployment Rate -1.4 ppts to 10.9% (July); Average Hourly Wages +6.3% y/y (July); Markit Manufacturing PMI +5.1 pts to 52.9 (July); Ivey PMI +10.3 pts to 68.5 (July).


The Bad:  Auto Sales -4.9% y/y (July); Merchandise Trade Deficit widened to $3.2 bln (June).



 
The Good:  Nonfarm Payrolls +1,763k (July); Unemployment Rate -0.9 ppts to 10.2% (July); Average Hourly Earnings +0.2% (July); Continuing Claims -844k to 16,107k (July 25 week); Auto Sales rose to 14.52 mln a.r. (July); Manufacturing ISM +1.6 pts to 54.2; Non-Manufacturing ISM +1.0 pt to 58.1 (July); Factory Orders +6.2% (June); Goods and Services Trade Deficit narrowed to $50.7 bln (June).



The Bad:  Construction Spending -0.7% (June); Wholesale Inventories -1.4% (June F)—but revised higher.





Source:
Canoe.com
Clumsy tourist snaps three toes off work of art

These little piggies didn’t make it to market, stay home, or have or not have roast beef.
 

Three toes off the right foot of the plaster model of the statue ‘Paolina Bonaparte as Venus Victorious’ on display at a Treviso, Italy museum were inadvertently chopped off as a tourist had his picture taken with the work of art.


The Antonio Canova masterpiece was apparently damaged as a tourist, who had lain down to have his photograph taken with the statue, got back to his feet.


Video surveillance footage caught the act on tape as a 50-year-old Austrian man clips the statue’s feet as he gets back to his own.
 

The man was tracked down through museum booking information. Museum officials spoke with the man’s wife who admitted her husband’s involvement. She said he panicked when he realized the damage he had done and fled but is ready to face whatever consequences are deemed worthy by museum staff.


The incident occurred on July 31 and to date it is still unclear whether charges will be laid.
Preparations are already underway with regards to a repair.