US Pending Home Rebound Modestly

Daily Analysis - 01/12/2015

More Concerns are Arising at the State of the Housing Market on the Back of Weak Data

US home sales pushed higher in October, bouncing back from two consecutive monthly declines. Pending home sales rose 0.20% leading to an annualized increase of 3.90% compared to the 3.00% yearly rise record back in September.

Chinese Manufacturing Remains in Contraction

In another blow to recent efforts to stabilize the economy and provide a better outlook for growth, Chinese manufacturing remained in contractionary territory according to the overnight PMI figures. The Caixin PMI managed to rise to 48.6 from 48.3 prior while the China Logistics Information Center PMI figure slipped from 49.8 to 49.6 in a growing sign that further stimulus might be on the way. The Chinese Yuan has continued to weaken as per interventions by the People’s Bank of China. However, should the US raise interest rates in the coming weeks, it could force the US dollar higher and bring the Yuan up with it, decreasing the nation’s export competitiveness. Despite the softness in the economy, China did manage to see the addition of the Yuan to the IMF basket of SDR currencies alongside the US Dollar, British Pound, and Japanese Yen in another sign of the nation’s growing global influence.

Oil Drops Ahead of OPEC

A strong dollar and a supply glut are deepening losses in oil prices with the OPEC meeting slated for the end of the week nearing. After a sharp uptick yesterday following speculation that OPEC might opt to cut output targets for producers, prices quickly retreated, retracing the entire move higher in a sign that continued excess production will prevail. Prices declined nearly 10% in the month of November alone on rising supply fears. Brent for January, a major benchmark price for oil worldwide, dropped to $44.60 with WTI mirroring the move, reaching a price of $41.50. Despite production declines from North America, the sheer amount of supply sloshing through the system might continue to weigh on prices especially with Middle East producers likely to keep output high and the potential for Iran to add to the export glut.

European Inflation Mixed

Despite the European Central Bank’s mandate for price stability, consumer prices across the Euro Area continue to trend mixed with economies prominently displaying differing results. Italian preliminary consumer price figures have shown a surprising downtick with monthly deflation accelerating to -0.40% versus the 0.20% recorded in the month prior while annualized CPI slipped to 0.10% from 0.30%. Meanwhile, in Germany, the same preliminary results showed that CPI made several gains, meeting expectations of a rise from unchanged to positive consumer price inflation on a monthly basis while annualized inflation rose to 0.40% in a sign that the asset purchase efforts undertaken by the Central Bank are finally showing positive results. Efforts to expand asset purchases further in the upcoming meeting will likely lift equity benchmarks like the German DAX 30 even higher.

Australia Holds on Policy

As was widely forecast by economists, the Reserve Bank of Australia moved to keep interest rates on hold at 2.00% amid positive developments in the Australian economy and speculation that moves by other global Central Banks such as the Federal Reserve will be constructive for exchange rates. However, large declines in capital expenditures recorded recently should be taken as a worrisome sign as key sectors of the economy retrench amid the downturn in commodity prices. According to RBA Governor Stevens, policy is set to remain accommodative despite the firming of the economy and moderate expansion. While spare capacity might be on the rise, the unemployment rate remains stable amid strong job creation and growing lending to sectors outside of housing. If inflation continues to fall, the door is still open for further easing of policy and interest rate cuts to continue supporting the economy.