Does Housing Foreshadow Disinflation?
July 27, 2025 – Weekly Comment
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Last week I wrote about the possibility of industrial metals pushing inflation higher, with copper posting a new all-time high. Data center/AI build-outs and electrical generation investments are clearly driving demand.
This week, looking at the opposite side, disinflation related to housing.
I also look at a couple of comparisons from 2007 to now. In 2007, the Fed’s first ease, 50 bps, was in September, just as it was in 2024. Stocks made new all-time highs in October ‘07. Then tanked.
First, the trial pitting B-share floor membership holders against the CME ended Friday, with the CME winning. Damages were expected at around $2b, I would think CME stock might rally in value by about half that, but perhaps the effect will be undiscernible by the end of the week. CME market cap is just over $100b, stock price is 279.55, so 1% or $1b might add about $2.80. On Friday (pre-trial announcement) the stock gained 2.37, around 0.9%.
Here are seat prices from CME site (bid/ask, last trades, in thousands):
CME 640/925 last 900 on 7/17. Lease CME 2600 (6 months)
IMM 150/475 last 415 on 7/25. Lease IMM 850
IOM 27/170 last 105 on 7/25. Lease IOM 300
CBOT Full 400/699 last 505 on 7/25
AM 100.5/174.5 last 165 on 7/24
IDEM 6.2/27.5 last 13 on 7/25
COM 4/35 last 17.5 on 7/25
Buyers from last week are likely to be disappointed… will watch trades this week.
Posted on X by several… New Tenant Rent Index, a quarterly release by the Cleveland Fed and BLS, apparently fell 9.3% yoy in Q2 2025, the largest drop on record. I say apparently, because I don’t see that data posted on the BLS site, nor on the Cleveland Fed site. Is it incorrect? I’m not sure, but I am posting it here anyway, because if it IS correct, then it’s a valid reason for the Fed to ease. BBG code is CLEVNTRR. Caveat is that this data may see revisions…
https://x.com/KobeissiLetter/status/1948834639696855279
I listened to a podcast with Jimmy Connor and guest Henrik Zeberg. I never heard of the guest, and comments on X about his track record are mixed. However, what was interesting is that he is completely bullish through Q3 on SPX, calling for a blow-off top around 7000, but cites a lot of negative economic data related to housing and labor markets, which will lead to an eventual hard turn in equities. Of course, we’ve all seen disconnects between economic data and stocks, but this guy completely separates the two in the short term. He compares the current environment to 2007 (pre-GFC). Interesting take. https://www.youtube.com/watch?v=1nXr4dvr8KY&t=2470s
A post by Scott Rubner of Citadel mentions some of the technical considerations supporting equities, but he is also concerned about a blow-off top. He notes that 39% of S&P by market cap reports this week, with MSFT and META on Wednesday, 7/30 and AAPL, AMZN on Thursday.
From Rubner’s Linked In post (also contains a lot about volatility strategies, etc):
If you allocate $1 into the SPX Index, 33 cents are allocated into the “Magnificent 7” stocks.
If you allocate $1 into the NDX Index, 43 cents are allocated into the “Magnificent 7” stocks.
Below is chart relating back to housing. Existing Home sales are quite weak, as is the NAHB housing index. I don’t think housing will be the catalyst that sparks problems this time around; Household Total Equity in residential real estate is still at a high level >62%. But bad things can happen at the margin.
Several other rather negative data points: real retail sales have been relatively flat for the past three and a half years. Leading indicators have been 0 or below the entire year. Continuing Jobless Claims have vaulted higher since May, from 1880 to 1955, a sign that jobs are hard to get.
My personal bias is that the market is underpricing potential Fed easing in September and thru year-end.
In September 2007 the Fed cut 50, from 5.25 to 4.75. In Sept of 2024 the Fed cut 50 from 5.375 (mid) to 4.875. After that first cut in 2007, SPX put in an all-time high. In 2007 the Fed cut 25 twice more, at the end of Oct and in Dec. In 2024, the Fed cut 25 twice more, in Nov and Dec. And then stopped. Following Liberation Day turmoil, stocks have made new highs with the pivot to fiscal dominance. In 2008 the Fed slashed, from 4.25 to 3.0 in one month.
Parallels between 2007 and now are perhaps a stretch. Many point to new all-time highs and meme stock/crypto mania as indicators of extremely loose financial conditions, and conclude the Fed has no reason to ease, especially with CPI above target. The other conclusion is that if the Fed DOES ease, stocks will be off to the races. The risk is that the experience from 2007 may rhyme. Not, a cut and race, but rather a cut and brace (for the unraveling). The current poem doesn’t include subprime mortgage loans, but does feature long-bond vulnerability, cracks in private credit, and crypto mania. In Sept 2023, total crypto market cap was $1 trillion. In Sept 2024, before the ease, it was $2 trillion. Currently it’s $3.9 trillion with ever-increasing projections. Could a crypto reversal spark a negative feedback loop?
Here’s another thing to keep in mind. Not immediately important but could have negative implications for ‘the tariff solution’ with respect to the US gov’t budget:
The Court of Appeals for the Federal Circuit is considering whether the International Emergency Economic Powers Act [IEEPA] authorizes the president to impose tariffs as the Trump administration seeks to reverse a lower court ruling that blocked the president’s “reciprocal” tariff regime. Both sides recently submitted lengthy written briefs to the CAFC, and oral arguments before the court’s 11 active judges have been scheduled for July 31. The case is being closely watched by importers and others as it could reshape the boundaries of presidential authority in trade matters.
I have no sense of timing on this, but I can imagine hesitation on the part of long-bond buyers if this story cycles to the top of the news.
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This week features FOMC on Wednesday and the BOJ meeting. Huge week for earnings. Auctions of 2s, 5s, 7s crammed into Monday and Tuesday. Q2 GDP on Wednesday, expected 2.4%. Latest Atlanta Fed GDP Now released on Friday for Q2 is also 2.4%.
OTHER THOUGHTS/ TRADES
MOVE at 82.09 essentially matches low since just before hiking started. VIX sub-10 in 2017. Since covid, the low has been 11.86 in May 2024. Now 14.93. The market isn’t anticipating risks.
Not much expected for this week’s FOMC. My belief is that labor indicators might deteriorate quickly (NFP on Aug 1 and then Sept 5). Jackson Hole is August 21-23.
| 7/18/2025 | 7/25/2025 | chg | ||
| UST 2Y | 387.3 | 391.5 | 4.2 | wi 390.5 |
| UST 5Y | 396.1 | 395.0 | -1.1 | wi 395.6 |
| UST 10Y | 442.9 | 438.4 | -4.5 | |
| UST 30Y | 499.9 | 492.7 | -7.2 | |
| GERM 2Y | 186.4 | 194.5 | 8.1 | |
| GERM 10Y | 269.4 | 271.6 | 2.2 | |
| JPN 20Y | 252.4 | 255.8 | 3.4 | |
| CHINA 10Y | 166.6 | 173.2 | 6.6 | |
| SOFR U5/U6 | -91.0 | -83.5 | 7.5 | |
| SOFR U6/U7 | 2.5 | -4.0 | -6.5 | |
| SOFR U7/U8 | 24.5 | 21.5 | -3.0 | |
| EUR | 116.27 | 117.43 | 1.16 | |
| CRUDE (CLU5) | 66.05 | 65.16 | -0.89 | |
| SPX | 6296.79 | 6388.64 | 91.85 | 1.5% |
| VIX | 16.41 | 14.93 | -1.48 | |
| MOVE | 83.29 | 82.09 | -1.20 | |
