about 3 years ago • 3 mins
Data out this week showed applications to refinance mortgages rose 20% last week compared to the week before, as US homeowners scrambled to get ‘em while they’re cheap.
What does this mean?
On the one hand, this data from the Mortgage Bankers Association is only to be expected: brokers take time off over the holidays, so the first week of the year is always busy. On the other hand, it’s pretty unique to the times we’re in: the jump coincided with an increase in the average interest rates of 30-year fixed-rate mortgages, as well as with 10-year US government bond yields rising above 1% for the first time since last spring. So the New Year’s busy, sure, but there were almost twice as many applications as there were this time last year…
Why should I care?
The bigger picture: Biden their time.
A new US government will take over next week, and investors are expecting more spending announcements not long after. So between those measures and potentially economy-stabilizing vaccine rollouts, there might soon be a boost in economic growth and inflation – and with it, interest rates. That would make borrowing money – mortgages included – more expensive. It might not happen particularly soon, mind you: data out on Wednesday showed inflation in December was in line with economists’ predictions.
For markets: Take stock.
Goldman Sachs reckons all this is bad news for stock prices in the short term – even though they hit new record highs last week. See, just the prospect of higher interest rates is enough to persuade government bond investors to sell off some of their holdings in hopes of buying new, higher-returning bonds in the future. That pushes bond prices down and yields up – and since US government bond yields are a key benchmark, other bonds’ yields rise too. In other words, it becomes more expensive for companies to repay their debts, potentially damaging their earnings and, in turn, their share prices.
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It looks like Target’s been giving its customers everything they need to enjoy a very merry lockdown: the US retail giant announced impressive sales growth in November and December on Wednesday.
What does this mean?
Ecommerce was “Tarjay’s” pièce de résistance yet again, with online sales more than doubling in the last two months of 2020 compared to the same period in 2019. But the retailer proved itself elsewhere too: it saw almost 200% growth in its same-day pickup segment, and a more-than 4% rise in sales at stores that’d been open for at least a year. Throw in a 12% increase in the average customer’s spending, and Target’s sales were up over 17% during the holiday period.
Why should I care?
Zooming out: And now, we wait.
One of the biggest questions this year is whether the pandemic-driven tailwinds that have been driving companies like Target will start to peter out. There’s a risk that as more and more Americans are vaccinated, big-box retailers and ecommerce platforms will lose out to in-person shopping experiences like malls. All eyes will be on Target’s update in March, then, when we’ll see just how much of the market it thinks it’ll hang onto. The bigger picture: Because the internet.
The ecommerce trend is benefiting companies across the Atlantic too: logistics firm Deutsche Post just reported record annual earnings partly thanks to the number of online orders it has to deliver, and it’s predicting it’ll do even better this year. Still, there are signs investors are worried about the strength of the trend: Just Eat Takeaway.com posted weaker-than-expected 2020 profit on Wednesday after reinvesting more than planned, and investors – concerned its reckless spending could cause problems when a vaccinated customer base starts relying less on takeout – ditched the food delivery company’s shares.
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