US Housing Data Remains Mixed

Daily Analysis - 17/02/2017

Climb in US Building Permits Offset by Dip in Housing Starts During January


Although more permits were approved for new construction last month, the drop in ground breaking for residential properties during the period has added to anxiety about the uneven developments in the US housing sector over the last few months.

US Building Permits Climb to 1-Year High

While most of the attention was focused on the ramp higher in global equities over the last few sessions following the absence of major fundamental data announcements, Thursday’s housing data from the US Census Bureau showed that the outlook for the sector remains mixed.

Although building permits rising by 4.60% month over month through the end of January was greeted with significant optimism, groundbreaking for housing starts fell by -2.60% during the same period, underlining the mismatch.

In spite of S&P Case-Shiller home price index composite showing that housing prices have risen to a record level, questions about the outlook for residential construction remain, especially as inflation outpaces gains in wages.

Stocks retreated on Thursday following an uninterrupted 7-session rally, with the S&P 500 extending losses early on Friday.


ECB Highlights Downside Risks in Meeting Minutes

Minutes from the European Central Bank’s January meeting of the Governing Council showed that while officials were impressed by the progress being made, risks to the outlook remained significant.  Inflation in particular was a high point in the report, however, policymakers were quick to acknowledge that most of these gains were attributable to the increase in energy costs.

Nevertheless, as the effect passes over time, price gains in other areas will be necessary to keep inflation trending near the Central Bank’s target.  As a result, the ECB is likely to keep accommodative policies in place for some time, especially until the balance of risks shifts.

The main takeaway from the minutes was the idea that sovereign fiscal policy needs to play a greater role in the recovery efforts.  After rising as much as 90 pips from intraday lows on Thursday, EURUSD is coming under renewed pressure in early Friday trade.


Smaller Gas Stockpile Draw Sends Prices Sliding

Natural gas prices fell steeply during Thursday trade, plunging to the lowest point in 11-weeks following a smaller than forecast drawdown from US stockpiles.  According to the Energy Information Administration, the amount of natural gas in storage fell by 114 billion cubic feet last week compared to 152 billion cubic feet a week prior while missing forecasts of a 124 billion reduction.

The reaction to the latest figures was a slide in prices to the lowest point year-to-date after hitting the lowest point since November.  Despite the fact that US producers have been gradually adding new rigs amid seasonal factors that are driving household heating demand higher, warming weather has created immense pressure on prices since the end of 2016 when prices trended as high as $3.900 per MMBtu.

After retreating on Thursday, prices are bouncing modestly on the session.


Labor Disputes Fail to Slow Copper Slide

Although one of the primary catalysts for copper’s most recent rise was the shutdown of production at HP Billiton’s Escondida mine in Chile after workers opted to strike following a breakdown in negotiations, copper prices have been retreated for the last five sessions.

Adding to the upside momentum was the decision by Freeport-McMoRan to shutter production at its Indonesian copper mine as workers protest the Government.  The Government’s decision to curb exports of copper combined with permitting issues have created significant uncertainty for the company’s local operations.

While copper prices have slide the last five sessions now that new talks are underway between BHP Billiton and workers, copper price s nevertheless remain elevated, exhibiting a serious possibility of reversing back higher if discussions collapse once more.


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