North America

US

Commercial Property Lending (Sep.)

Outstanding real estate debt increased for the fourth consecutive month in September, thanks to net lending turning a corner in the residential sector and accelerating in the commercial sector.

15 October 2021

Rising mortgage rates will help cool booming prices

Mortgage rates are on the rise and we expect they will see further gains to end the year at around 3.5%. That, alongside relatively tight credit conditions, will help cool rampant house price inflation. From close to 20% y/y in July, we expect a slowdown to 15% y/y by end-2021 and 3% by end-2022. Stretched affordability will also weigh on home sales, although the drop in first-time buyers has at least arrested the fall in inventory. After four months of consecutive falls single-family building permits were unchanged in August. But with lumber prices rising again and shortages of other materials and labour, we don’t expect a strong rise over the remainder of the year. The lack of homes for sale and the reopening of cities have been positives for the rental sector. Vacancy rates are falling and rental growth is picking up, driving strong investor demand and pushing yields to record lows. We expect yields will stay low for the next year at least.

15 October 2021

Energy price rally may spill over to other commodities

Most commodity prices increased this week. Optimism over electrification, which was a hot topic during LME Week, seemed to feed through into higher industrial metals prices. But the prices of energy commodities were the pick of the bunch. Brent crude rallied throughout the week and briefly breached $85 per barrel on Friday. OPEC’s monthly oil market report showed that output in September was still 390,000 barrels per day short of target. As prices rise, there are growing calls for higher OPEC production. But it seems doubtful that the group could raise output much faster, unless it abandons the current quota system. Meanwhile, a cold spell that has blown through China has compounded upward pressure on energy prices. That is in addition to the Chinese government allowing coal-fired power prices to rise by up to 20% from base levels from Friday. Looking to next week, China is set to publish its September activity and spending data and Q3 GDP on Monday. We suspect that China’s economy contracted in q/q terms. So far, commodity prices have largely shrugged off the slowdown in China’s economy. And we wouldn’t be that surprised if they continue to do so as currently elevated energy prices spill over to other commodity markets by substantially raising production costs of agriculturals and metals.

15 October 2021
More Publications

Labour force exodus shows no sign of reversing

This week brought more news that acute labour shortages and the resulting surge in wages are rapidly feeding through into the most cyclically sensitive components of the consumer price index.

Energy, inflation and asset allocation

We doubt that the recent surge in energy prices will be sustained, but still think that investors are underestimating the likely strength of broader price pressures in the US over the next few years. This Update explains our view, puts it in historical context, and considers the implications for asset allocation.

Retail Sales (Sep.)

The 0.7% m/m rise in retail sales in September suggests goods spending held up a little better than we had anticipated, but real consumption growth still slowed sharply in the third quarter.

We don’t expect tapering to be a key driver of the US dollar

We doubt that the direct effects of the tapering of the Fed’s asset purchases will have much of an impact on the US dollar, and think that other factors will be more important in pushing the greenback higher.

15 October 2021

US Weekly Petroleum Status Report

A large fall in the refinery utilisation rate drove another increase in stocks last week, although utilisation rates are normal for the time of the year. And with output set to remain constrained until at least early next year, already-high crude prices should remain elevated for the next few months.

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