Bottoms Up?!
Bottoms Up?!
Well well well what do you know? What a surprising turn of events in the markets today ladies and gentlemen as the agitating housing sector has actually honored us with rather surprisingly upbeat data from the heart of the US economy!
Yes if you were guessing that the Fed’s will probably stop the series of rate cuts then you were RIGHT! The cancerous cell eating away from the body of nation has broken ground and might actually signal bottoming out of the housing sector. The sector that has started all this, leading to the sub-prime mortgage crisis which has later turned into a global credit crisis disturbing all financial markets could have safely landed!!
Anticipations in the markets were for the sector to deteriorate further but shockingly the Commerce Department released its housing data where housing starts surprisingly jumped to 1032 thousand in April opposing expectations and previous readings of 935 and 947 thousand respectively. The Building permits also jumped to 978 thousand this month from March’s reading of 927 thousand. Median expectations were for 915 thousand.
Supported by the 36 percent increase in the multi-family units, housing starts were up for three of the past four months. Building permits jumped 4.9 percent in April as permits for single family and multi-family units both rose 4% and 6.8 percent respectively. Single family units are still at a 17 year low as it declined for the 12th consecutive month dropping 1.7%.
Skepticism about the bottoming out of the sector will definitely emerge as the government keeps warning that the housing data is subject to massive revisions and the readings remain volatile. Yes this is good for the economy as it is showing a rebound IF the readings aren’t later revised, yet it also shows that this will already add to inventories since the nation needs to get rid of what they have first before building more houses!
Over the past year, housing starts had fallen 31% where single-family starts dropped 42% marking the largest decline since 1991; while building permits plunged 34% as single-family permits followed as they were down 40%.
Large revisions are very common and a reading such as the new construction of multi-family units is sensitive to change and has added or lost 20% in each of the five past months. This month, the number of units completed fell 16% in April marking the lowest in 26 years. Single-family completions also dropped 13% to 792,000 marking the lowest in 25 years. Region-wise, single-family permits rose in three of the four regions but fell 13% in the Northeast. In the West it rose 19%, 24% incline in the Midwest and a 4% rise in the South.
In a different report, the University of Michigan released its preliminary reading for the month of May showing that it has dropped to the lowest level since 1980 as soaring food and energy prices made consumers turn pessimistic. The reading came in at 59.5 from 62.6 in April where expectations were for a fall to 62.0.
After calm trading, markets were relieved to see such data as the dollar index rose causing the dollar to rise against all majors! As for the stock markets which have advanced after the release of the housing data, it got just that little extra kick after Goldman Sachs stated that it has risen its forecasts for oil prices to new high…and today we just saw the beginning of the journey!
Oil was able to soar above the $127 per barrel level hitting an all time high at $127.42 per barrel after China said it would purchase more diesel to run its power plants sending indices to the upside as the S&P 500, Nasdaq 100 and Dow Jones industrial Average all advanced.
It seems that the housing data released today is more like a double-edged blade! It’s good to see such a positive leap in both the starts and permits, yet if you think about it, this could add more woes to the supply factor as there is excess inventories in which this will just add up to stockpiles.
The Feds cutting wheel might have finally came to a stop. Prices on the consumer level have eased and the bad sector in the nation seems to have recovered. The interest rate outlook could be hawkish yet I personally think the right thing to do is remain neutral and hold steady until things become clearer! Well, it’s the weekend dear reader, so kick back and enjoy it while you can before the beginning of another new week.
Crown Forex
disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.
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