New Home Sales Slump Most in Two Years

Daily Analysis - 24/04/2015

US Housing Sector Continues To Display Lopsided Recovery


After a substantially better than expected existing home sales number, new home sales data released yesterday saw the optimism fade after the biggest miss to expectations in 2 years.  Blaming the weather is difficult especially after the existing home sales rally, but highlights the shaky foundation of any supposed housing recovery.

New Home Sales Disappoint

In contrast to the previous session’s gains in existing home sales, new home sales tumbled by -11.40%, much more than the expected -5.40% contraction.  Analysts quick to blame the weather were left without an answer after the lauding the previous sessions housing data.  Other data points confirmed that the latest slowdown in US growth is not just temporary after the manufacturing PMI fell to 54.2 from 55.7 in the prior period with new orders also declining.  Most important was the weakness in export orders as global demand continues to contract.  Meanwhile, initial jobless claims continue to creep back towards the key 300,000 level, printing at 295,000 with losses in the energy sector forecast to continue rising.  Nevertheless, US stocks greeted another sign of worsening economic data with a rally, seeing the S&P 500 and Nasdaq Composite close at new record highs.


European Manufacturing Crumbles

In strong confirmation of the earlier Chinese HSBC Manufacturing PMI, the Euro Area manufacturing PMI took a slide, falling from 52.2 in the prior period to 51.9.  Despite the weakness in the Euro, exports are not growing because demand remains anemic as evidenced by the German and French manufacturing figures.  The German Manufacturing PMI fell from 52.8 to 51.9 after forecast to expand to 53.0.  Services also missed expectations, but both measures managed to remain in expansionary territory unlike France which saw manufacturing endure in contractionary territory for nearly 12-months straight.  Despite the best efforts to boost export competitiveness, Mario Draghi cannot stimulate growth in the global economy vis-à-vis the ECB’s monetary policy measures.  The poor data saw exuberance in the benchmark German DAX fade, with the equity index tumbling back towards key support levels.


Bank of Japan Discusses Inflation Target

Realizing that the country is unlikely to meet its ambitious inflation target, the Bank of Japan’s Haruhiko Kuroda stated the possibility that the goal is more likely to be met a year from now considering the current macroeconomic circumstances.  This highlights the growing chorus of Central Bankers talking down inflation expectations as global trade flows ebb.  The Chinese HSBC Manufacturing PMI confirmed just this point, with the important metric tumbling to the lowest level in 12-months.  Export competitiveness can only aid in growth if there is demand for the exports, which remains in notable short supply at the moment.  Regional stock benchmarks are still trading in optimistic territory despite the macro disappointments with retail investors piling into Chinese stocks.  The US dollar however continues to give up ground against peers, with the USDJPY currency pair falling -0.30% to just over 119.25.


AUDJPY Ascending Triangle Technical Pattern

In spite of recent remarks from Bank of Japan Governor Kuroda, the Yen continues to weaken against most major peers, notably the Australian dollar.  Even though Reserve Bank of Australia Governor Steven’s has highlighted the upcoming rate cuts that are in the pipeline, the Australian Dollar has trended higher against peers.  The economy is still growing, even at a reduced pace, thanks to the monetary policy accommodation.  With the Japanese outpacing the Australian’s monetary easing, losses in the Yen will continue to outpace weakness in the Australian dollar.  The ascending triangle technical pattern setting up in AUDJPY has a bullish bias, with resistance bounding the upside at 93.190.  Any break above this key level will likely see an additional 75-90 pips of upside while a move below the uptrend line could signal a reversal lower.


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