Trepidation triptych: Housing starts, jobless claims, Philly Fed

21 days ago London South East


Main U.S. indexes fall: transports, small caps hit harder


All S&P 500 sectors red: materials weakest group


Euro STOXX 600 index down ~0.6%


Dollar up; bitcoin, gold down; crude off ~4%


U.S. 10-Year Treasury yield rises to ~3.78%

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Bad news comes in threes, as the superstitious among us are fond of saying. And the trio of economic reports unleashed on
Thursday would appear to back that up.

Groundbreaking on new homes dropped 4.2% last month to 1.425 million units at a seasonally adjusted annualized
rate (SAAR), according to the Commerce Department.

Analysts expected a smaller 2.0% drop, but the SAAR number landed above consensus, owing to an upward revision of the prior
month's data.

Building permits, considered among the most forward-looking housing market indicators, also fared better
than economists feared, dropping 2.4% to 1.526 million units

The erstwhile COVID darling, for many months the sector has been groaning under the weight of its pandemic success, which
began as a stampede for the suburbs in reaction to social
distancing mandates.

Since then, home prices have sky-rocketed, and mortgage rates are hovering around levels last seen when the housing
bubble was about to burst.

"The housing market index has declined every month this year and fell to the lowest level since April 2020 in November,"
writes Rubeela Farooqi, chief U.S. economist at High Frequency
Economics. "And mortgage purchase applications and home sales
have plunged this year."

"For building activity, elevated input costs and shortages coupled with weaker demand remain constraints for now," Farooqi

This sorry state of affairs was reflected in Tuesday's dreary Homebuilder Sentiment print, which showed the mood in the
residential construction space souring to it's lowest level in a
decade, barring the brief one-month COVID crash of April 2020.

The number of U.S. workers filing first-time applications for unemployment benefits inched down by 4,000 last
week to 222,000.

While it feels tedious to keep typing these same five words - "the labor market is tight" - the fact is it remains true,
with nearly two open jobs for every unemployed worker.

And while fewer jobless claims is good news in normal times, markets are currently feeling their way through the upside down
world of hawkish Fed policy, where a tight labor market
translates to hot wage inflation.

"In a different world with low inflation, steady jobless claims and a solid labor market would be good news," says Jim
Baird, chief information officer at Plante Moran Financial
Advisors. "Instead, steady labor market conditions against a
backdrop of persistent inflation raises the stakes for the Fed."

"The result? More tightening – and still higher short-term interest rates – to come," Baird adds.

At last glance, financial markets have priced in an 80.6% likelihood of a smaller, 50 basis point interest rate hike at
the conclusion of Powell & Co's upcoming December meeting,
according to CME's FedWatch tool.

So investors are scanning the horizon for any hopeful signs that the unemployment rate will begin to rise in earnest. Those
can be found in the rising four-week moving average which
suggests joblessness is on an upswing, a notion supported by
recent layoff announcements, particularly in the tech sector.

Additionally, ongoing claims, reported on a one-week lag, rose by 13,000 to 1.507 million, landing a hair
above expectations and breaching 1.5 million for the first time
since March.

Still, the metric remains well below the pre-pandemic 1.7 million level.

The graphic below shows initial claims against Challenger Gray's planned layoffs data. In the broad picture, there does
indeed appear to be some labor market softening, if only in
dribs and drabs.

Finally, the Philadelphia Federal Reserve would have you know that factory activity in the Atlantic region is tanking
this month, contradicting Empire State's return to expansion, as
revealed on Tuesday.

The Philly Fed Business index moved in the opposite than the one predicted by analysts, sliding 10.7 points
to -19.4, a considerably more dismal print than the -6.2

A Philly Fed/Empire State number below zero signifies monthly contraction.

"The survey indicates that manufacturing is under pressure, but that’s not news," says Ian Shepherdson, chief economist at
Pantheon Macroeconomics. "The weighted average level of the key
Philly Fed components suggests little change in the November ISM
manufacturing index, but we need to see the other regional
reports before we finalize our forecast."

Scratching beneath the surface, there are glimmers of good news. While new orders inched further into contraction, capex
gained altitude and prices paid eased a tad - glad tidings for
inflation worry-warts.

Wall Street appeared determined to extend Wednesday's sell-off in morning trading, after the Fed's Bullard made
remarks that seemed to yank the rug from under the doves.

A broad rout has hit all major S&P sectors, with materials the weakest group. Economically sensitive
transports, and small-caps are also among big


Highly-shorted cryptocurrency and blockchain-related stocks have taken a knocking since last week after FTX's bankruptcy
sent shockwaves across the digital assets industry, providing
fresh gains to bearish investors' portfolio.

The top eight most shorted crypto stocks (refer to table below) have 14.8% of their free float shares in short positions,
almost three times more shorted than the average U.S. stock,
notes Ihor Dusaniwsky, S3 Partners' Managing Director of
predictive analytics.

Short sellers are paying almost nine times as much financing costs to short these stocks, he adds.

Block and Coinbase Global had the largest amount of short covering four weeks ago, but over the last week
they saw a complete reversal in sentiment as FTX turmoil
unfolded and had almost $93 million of new short selling,
Dusaniwsky noted.

The path forward for these stocks, however, is not very clear.

"With the underlying crypto currency market in temporarily disarray, price fluctuations in these stocks will see shorting
activity see-saw between shorting and covering as momentum
trading overtakes fundamental investing in these stocks,"
Dusaniwsky writes.

Shorting these crypto stocks has been a very profitable trade in 2022, fetching bearish investors gains of 90% for the
year, with 9% gains in November alone, far outperforming both
the S&P 500 and Nasdaq indexes.

Crypto stocks and ETFs offer exposure to digital assets on a regulated exchange so retail and institutional investors don't
have to worry about securely storing their crypto and eluding
hacks and heists if they were to dabble in the spot market.

Here's S3 Partners' list of crypto stocks with highest short interest as of Nov. 15:
Name Short Short
Interest % of Interest
free float
Block Inc 5.1% $1.91 bln
Coinbase Global Inc 18% $1.58 bln

Microstrategy Inc 34.1% $557.5 mln
Robinhood Markets Inc 8.2% $360.7 mln

Marathon Digital Holdings 30.7% $333.1 mln
Riot Blockchain Inc 16.4% $133.7 mln
Silvergate Capital Corp 11.2% $119.0 mln

Bakkt Holdings Inc 21.2% $25.2 mln
Total Crypto Short Interest: 14.8% $5.01 bln

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