Euro Area Rebound Accelerates

In another sign that the exceptionally accommodative stance of the European Central Bank is aiding efforts to restore economic activity, preliminary figures released by the EuroStat showed that the economy grew by 0.50% during the fourth quarter.  For the calendar year, the economy expanded by 1.70%, however, there are two more revisions to the figure due over the coming months.

Nevertheless, the positive economic momentum was also felt in several other areas including inflation and employment.  Headline consumer prices rose by 1.80%, marking the fastest pace of price growth since February of 2013.  The gains were driven primarily by higher energy prices while core inflation remained on hold at 0.90%.  Unemployment, which has remained elevated for years, showed further progress, falling to 9.60% which is near an 8-year low.  After climbing 100 pips against the US dollar, EURUSD is pulling back from recent momentum higher in early European trade.

Data reported by Standard & Poor’s showed that US residential real estate prices hit a new record exceeding the last housing bubble according to figures compiled within the Case-Shiller Home Price Index composite.  Through the end of November, prices in a non-seasonally adjusted average of 20 major US cities showed that prices grew by 5.30% on an annualized basis, beating forecasts of 5.10% growth and the prior reading.

However, despite the optimism on the pricing side, there are some concerning trends and the possibility of emerging weakness on the housing front.  For one, higher interest rates are likely to raise mortgage financing costs across America, leading to fewer sales and pressure on prices.  Furthermore, rising pending home sales could indicate buyers postponing decision-making amid rising mortgage rates and costs.