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HFF Research Update for June 29, 2015: Perspectives

Monday, June 29, 2015

Weekly insights on current research in the commercial real estate industry from HFF Managing Director of Research Jimmy Hinton. View Daily Rates on the HFF website or access the HFF Daily Rates App in iTunes.

Given the ubiquity of the information available, I am not going to endeavor to explain what is happening in Greece. I will however make an attempt to provide some context to the instability it and weakness in China is generating across a global landscape.

Shanghai’s equity index finished Monday down 3.34 percent. However, the day was far more volatile with that index’s intraday peak to trough declining 10.8 percent. For some frame of reference, this is the equivalent of the Dow Jones Index declining more than 1,950 points in a matter of hours.

This performance came after China’s central bank announced plans to cut interest rates over the weekend. Of what use is a gun with no bullets?

Meanwhile the Nikkei (Tokyo) registered a 2.88-percent loss while the Hang Seng (Hong Kong) lost 2.61 percent. Pain in Eurozone equities was even more pronounced, with the FTSE (London) losing 1.97 percent, the CAC (France) losing 3.74 percent, the DAX (Germany) losing 3.56 percent and the IBEX (Spain) losing 4.56 percent. Thankfully, the DJI declined a relatively modest 350 points (-1.95 percent), the best of the domestic indices, as the S&P lost 2.09 percent and the NASDAQ -2.40 percent. The S&P 500 is now in negative territory for 2015.

Monday saw market capitalization of the above indices dwindle by several trillion dollars today, preliminary estimates put the figure above $10 trillion.

The volatility has certainly impacted the fixed income space as well. The below screen grab (something we generate on the firm’s only Bloomberg terminal in Houston) shows the intraday yield on the 10-year UST during Friday and Monday’s trading sessions. As I wrote Sunday evening, the yield on the security dropped 15 basis points in the overseas open, then rose back above 2.40 percent then dropped precipitously again to 2.3242 percent.

Economic Performance June 2015

What is next? We already know Greece will default on the scheduled repayment of IMF debt scheduled for tomorrow. This is less troubling than a potential default on ECB debt looming in July, but disconcerting nonetheless. The Greece government’s restriction of residents’ cash withdrawals to the amount of 60 euros is also indicative of a liquidity squeeze within Greece. Further development will obviously prove very relevant.

Elsewhere abroad, Iran reaches a deadline on nuclear treaties tomorrow. Having already punted in May, negotiations are in their 18th month, and markets are desperate for conciliation, even if Congress isn’t.

Domestically, the Bureau of Labor Statistics announces June employment figures Thursday. My update on MSA-level employment was distributed over the weekend. All other data pertaining to consumer confidence, manufacturing sector activity, home prices and construction spending all take a back seat to global theater this week.

I will close as I opened: Uncertain as these times may prove, remember our worst days are not so bad.

About Jimmy Hinton

Mr. Hinton serves as Managing Director of HFF, responsible for the firm’s research efforts. Mr. Hinton works with the HFF Jimmy Hintonexecutive management team to assist in investor relations and to inform both HFF staff and firm clients with in-depth analysis of economic, property and capital market trends. He is also responsible for providing extensive market reports, client presentations and deal-specific analysis for debt placement and investment sales assignments. Mr. Hinton’s responsibilities include substantial interaction with pension funds, life insurance companies, regional and CMBS lenders, REITs, foreign investors and private equity funds.

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