US Homes Rise to Pre-Crisis Prices

Daily Analysis - 27/05/2015

Positive Momentum From the Housing Sector Drives GDP Expectations Higher


US real estate continues to rebound higher following several months of mixed data with the latest new home sales figures reversing the prior month’s decline while median prices are trending near all-time highs.

US Home Prices Rise

The latest US housing figures which include new home sales and the S&P Case-Shiller home price index both improved according to the latest readings. Home sales increased by 6.80% versus the prior months -10.00% slide. On an annualized basis, home prices tracked across 20 metropolitan areas rose at a 5.00% pace, adding to other optimistic housing figures. However, other data on the economy was not quite as promising after durable goods orders fell more than expected, contracting by -0.50% while the core figure rose a modest 0.50%, slowing versus the previous 0.60%. The data was broadly received positively by the Atlanta Federal Reserve GDP model which upgraded the second quarter outlook to 0.80%. The dollar continued to gain ground against peers as data increasingly supports higher interest rate policies just as gold sharply corrects lower on the dollar momentum higher.


Greek Negotiations Postponed

Yesterday’s proposed meeting between Greece and creditors was abruptly canceled yesterday with no official reason as negotiations come down to the wire ahead of the June 5th repayments. The Eurogroup will be meeting with Greek counterparts today in Brussels as rumors float around that capital controls and new restrictions on withdrawals are just around the corner as the country explores its options. A vote over the weekend within the Syriza party showed that the members were largely divided on whether or not to exit and default on outstanding obligations. The majority of the party chose to remain a part of the Euro Area citing the uncertainty of leaving the Monetary Union just as other regional officials push the idea of creating a parallel currency to help the nation back to its feet. Meanwhile, EURUSD continues to trend near 1-month lows as optimism fades.


Australia Sees Weak Investment Outlook

The collapse in iron ore prices along with other base metals has seen a sharp downturn in investment in the commodity industry boom that arose from the ashes of the last financial crisis. A government committed to austerity and Central Bank focused on accommodative measures have seen prospective commodity investments for next year slashed to less than 10% of outstanding approved projects presently financed and underway. The sharp reversal higher in the US dollar has aided the local economy by increasing the competitiveness of the Australian dollar. However, the outlook continues to dim on the Australian economy as neighboring China also slows. Import growth continues to decelerate despite the decline in prices which usually see bargain buyers bidding for raw materials for stockpiles. The AUDUSD has continued to tumble, trending below 0.7750 and further towards RBA Governor Steven’s target of 0.7500.


Brent Equidistant Channel Technical Pattern

A lull in new hostilities and anticipated output gains from Iraq have sent crude oil benchmarks lower, with losses exacerbated further by the rising US dollar. The upcoming OPEC meeting is expected to have no impact on production targets and quotas as main producers Saudi Arabia does not want to be the member to implement cuts while other producers gain at their expense. The weakness yesterday saw crude prices fall to one-month lows on concerns the rebound in prices has officially ended. The equidistant channel pattern setting up in the Brent crude benchmark has a bearish bias with trend following strategies suggested to take advantage of the recent weakness. Short positions taken near the upper channel line should target the lower channel line, following the near-term downtrend in prices.


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