U.S. Housing Starts Tumble in August
U.S. housing starts fell more than expected in August likely as bad weather disrupted building activity in the South, but a solid increase in permits for single-family dwellings suggested demand for housing remained intact.
Tuesday’s weak housing report came as officials from the Federal Reserve were due to gather for a two-day meeting to assess the economy and deliberate on monetary policy.
It joined a stream of recent soft economic data such as retail sales, nonfarm payrolls and industrial production, which, together with low inflation are expected to encourage the U.S. central bank to leave interest rates unchanged on Wednesday.
Groundbreaking decreased 5.8 percent to a seasonally adjusted annual pace of 1.14 million units after two straight months of strong gains, the Commerce Department said.
Single-family housing starts in the South, which accounts for the bulk of home building, tumbled 13.1 percent to their lowest level since May 2015. Economists said flooding in Texas and Louisiana was probably behind the drop in starts last month.
“We believe that the slowdown in August starts likely owes to a temporary weather effect rather than a substantive shift in the underlying trend,” said Rob Martin, an economist at Barclays in New York. “Excluding the South, housing starts increased a robust 4.2 percent.”
Permits for future construction slipped 0.4 percent to a 1.14 million-unit rate last month as approvals for the volatile multi-family homes segment tumbled 7.2 percent to a 402,000 unit-rate. Permits for single-family homes, the largest segment of the market, surged 3.7 percent to a 737,000-unit pace.
Economists polled by Reuters had forecast housing starts falling to a 1.19 million-unit pace last month and building permits rising to a 1.17 million-unit rate.
U.S. financial markets were little moved by the data as investors awaited Wednesday’s outcome of the Fed’s meeting. The broader PHLX housing index .HGX, which includes builders, building products and mortgage companies, fell 0.76 percent.
STRONG HOUSING FUNDAMENTALS
Last month’s decline in starts was largely anticipated as groundbreaking activity has been running well ahead of permits approvals over the past several months, especially in the single-family housing segment.
The drop left starts just below their second-quarter average, suggesting little or no contribution from residential construction to economic growth in the third quarter.
Spending on home building was a small drag on output in the April-June period. Following the report, the Atlanta Fed trimmed its third-quarter gross domestic product estimate by one-tenth of a percentage point to a 2.9 percent annual rate. The economy grew at a 1.1 percent rate in the second quarter.
Demand for housing is being driven by a tightening labor market, which is lifting wages. A survey of homebuilders published on Monday showed confidence hitting an 11-month high in September, with builders bullish about current sales now and over the next six months, as well as prospective buyer traffic.
Housing market strength boosted Lennar Corp’s (LEN.N) profits in the third quarter. Lennar, the second-largest U.S. homebuilder, said it sold 6,779 homes in the three months ended Aug. 31, up 7.3 percent from a year earlier, while its average sales price rose more than 3 percent.
“Conditions seem well aligned for strong new home building. Borrowing costs remain low, the inventory of homes for sale, both new and existing, are relatively low and failing to make meaningful progress,” said Kristin Reynolds, a U.S. economist at IHS Global Insight in Lexington, Massachusetts.
Groundbreaking on single-family homes dropped 6.0 percent to a 722,000-unit pace in August, the lowest level since last October. But with permits for the construction of single-family homes rising last month, single-family home building could rebound in the months ahead.
The single-family housing market is being supported by a dearth of previously owned homes available for sale.
Housing starts for the volatile multi-family segment fell 5.4 percent to a 420,000-unit pace. The multi-family segment of the market has been buoyed by strong demand for rental accommodation as some Americans shun homeownership in the aftermath of the housing market collapse.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
Oil Gains Slightly on Thursday as China Eases COVID-19 Measures
Oil prices rebound on Thursday following China’s announcement that it was easing COVID-19 measures imposed to curb the spread of the virus.
China on Wednesday announced the most sweeping changes to its resolute anti-COVID regime since the pandemic began, while at least 20 oil tankers faced delays in crossing to the Mediterranean from Russia’s Black Sea ports.
Brent crude rose 27 cents, or 0.4%, to $77.44 a barrel, while U.S. West Texas Intermediate (WTI) crude gained 49 cents, or 0.7%, to $72.50.
“Today, we do see some green price action,” said Naeem Aslam, analyst at Avatrade. “Prices are oversold due to the intense sell-off for the past few days. However, the price action still doesn’t show a strong bullish bias.”
The 14-day relative strength index for Brent was below 30 on Thursday according to Eikon data, a level taken by technical analysts as indicating an asset is oversold and could be poised for a rebound.
Both Brent and U.S. crude hit 2022 lows on Wednesday, unwinding all the gains made after Russia’s invasion of Ukraine exacerbated the worst global energy supply crisis in decades and sent oil close to its all-time high of $147.
Western officials were in talks with Turkish counterparts to resolve the tanker queues, a British Treasury official said on Wednesday, after the G7 and European Union rolled out new the restrictions on Dec. 5 aimed at Russian oil exports.
Wind Out of the Sails
UK consumer spending remains subdued, with BRC reporting a 4.1% annual increase
By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
Stock markets are making small losses on Tuesday, while US futures are relatively unchanged ahead of the open.
The recovery rally has lost momentum in recent sessions which is understandable after that jobs report. That’s not to say optimism can’t and won’t return but that wages component was a huge body blow. Investors are a little winded and it may just take a little time to get their breath back.
The PPI data on Friday could offer a helping hand on that front but even then, it will be hard to ease the concern Fed policymakers will undoubtedly have about the pace of wage growth, consumer resilience and the still large savings buffer. None of this aligns with a swift and relatively pain-free return to 2% inflation.
RBA maintains flexible approach
The key takeaway from the RBA meeting today was flexibility. There is no pre-set path and while policymakers expect to need to raise rates at upcoming meetings, the data will dictate if so and by how much. That doesn’t help investors gage exactly what we can expect from the central bank but in such uncertain times, that makes a lot of sense. And you can see that reflected in the interest rate probabilities for the first quarter of next year. As it stands, no change or 25 basis points in February is a coin toss, while 3.35% in March (25bps above the current rate) is seen as being 50% likely with 25bps either side around 25% each. Clearly the RBAs communication strategy is going to plan.
Households feeling the squeeze this festive season
It will come as a surprise to no one that UK consumer spending remains subdued, with BRC reporting a 4.1% annual increase. With inflation running at 11.1%, spending is falling well behind, as is the case with wages, which suggests people are buying less and being more selective with what they do this festive season. Again, what can you expect when the economy is probably already in recession amid a terrible cost-of-living crisis that hurts those worst off most. The road to recovery for the UK is going to be long and painful, it seems.
The only guarantee for oil markets
It’s been a volatile start to the week in oil markets, continuing in much the same way we ended last, with traders still working through the announcements from the G7 and OPEC+, as well as the latest Covid moves from China. In many way, none of the above improve visibility in the crude oil space; they arguably actually make the outlook more uncertain.
But the intial response to the above has seemingly been negative for crude prices, with the loosening of Chinese Covid curbs not enough to offset the $60 price cap and unchanged OPEC+ decision. The cap is probably viewed as a business as usual for now, with Russia reportedly selling below these levels already and improving its ability to get around the sanctions. Which means output remains broadly steady.
The move from OPEC+ was probably driven by the lack of visibility on China and Russia but as the group has warned in the past, should prices fall too far and the market become imbalanced, it won’t wait until the next scheduled meeting to respond. It seems that the only thing guaranteed in the oil market for now is volatility.
Gold paring losses
The dollar recovered strongly on Monday as trade became increasingly risk-averse, hitting gold and forcing it back below $1,800 where it briefly traded above. It’s attempting to pare those losses today, up around half a percent on the day but it may struggle in the short-term. It’s been an incredible recovery until now but Friday was a massive setback. We now have to wait for PPI on Friday for some good news, with Fed policymakers in the blackout period ahead of the final meeting of the year, next week.
The risk-reversal trade on Monday took the wind out of bitcoins sails, not that it would have taken much in the circumstances. It’s trading back around $17,000 where it has spent most of the last week, which the community will probably be relieved about. Anticipating what’s going to come next for cryptos feels incredibly difficult and dependent on the ongoing fallout from FTX. To reiterate what I’ve said recently, silence is bliss.
A Nervy Start to the Week
By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
What could have been a really positive week for equity markets is off to a much more nervy start, with stocks in Europe treading water and US futures slightly lower.
The inflation report on Friday was red hot once more, extinguishing any hope that investors could hop aboard the Fed pivot train and ride stock markets higher into year-end. Perhaps it’s not quite so dramatic but it was a real setback, something we should be used to by now.
The wages component was the killer blow. That was not just a beat, it obliterated expectations and came in double the forecasted number. It may be a blip, but it’s a huge one and it will almost certainly take more than one much cooler report in January to comfort those that still fear inflation becoming entrenched.
That’s ultimately where we’re now up to in the inflation story. Many accept that base effects and lower energy prices will drive the headline inflation figure much lower next year, among other things, while a slower economy – maybe recession – will eventually hit demand and contribute to the decline. But what the Fed fears now is fighting entrenched inflation and these wage numbers won’t make for comfortable reading.
An economic victory for China amid gloomy PMIs
Chinese stocks were the clear outperformer overnight as authorities continued to work towards a softening of the country’s zero-Covid stance with the end goal seemingly being the end of it altogether. It’s thought that it will be downgraded to category B management as early as next month with officials claiming it’s less threatening than previous strains, a huge move away from the rhetoric and approach of the last few years.
This came as the Caixin services PMI slipped to 46.7, much lower than anticipated. That said, I’m not sure anyone will be shocked given the record Covid surge, but the more targeted – albeit seemingly confused – approach being taken has ensured less disruption, as evidenced by how much better the PMI has performed compared with earlier this year.
And it’s not just China that’s seeing surveys underperforming and, in many cases, putting in sub-50 readings. Europe is either already in recession or heading for it and the surveys highlight just how pessimistic firms are despite the winter getting off to a warmer start.
Japan is among the few recording a growth reading, although having slipped from 53.2 in October to 50.3 last month, you have to wonder for how long. Input prices are punishing firms, with some now raising prices in order to pass those higher costs on. That won’t help activity or convince the BoJ to declare victory, as higher energy and food costs are also hitting domestic demand. The one major outlier is India where the services PMI accelerated higher to 56.4 buoyed by domestic and external demand. An impressive feat in this global environment.
Oil higher as China looks to ease Covid restrictions
Oil prices are higher on Monday, rallying 2%, after the G7 imposed a $60 price cap on Russian oil and OPEC+ announced no new output cuts. Both bring a degree of uncertainty, with the details of the cap and the impact on Russian sales still unclear.
From the OPEC+ perspective, it can’t be easy to make reliable forecasts against that backdrop and the constantly evolving Covid situation in China, which currently looks far more promising from a demand perspective. The decision to leave output unchanged was probably the right one for now and there’s nothing to stop the group from coming together again before the next scheduled meeting should the situation warrant it.
A major setback
It goes without saying that the jobs report on Friday was a big setback for gold as it leaves huge uncertainty around where the terminal rate will land. Of course, we should be used to bumps in the road by now, having experienced many already this year. There’s no reason why the path back to 2% should be any smoother.
But the yellow metal did recover those jobs report losses and even hit a new four-month high today. Perhaps the big difference now is momentum. It’s run into strong resistance around those August highs around $1,810 and simply doesn’t have the momentum it would have had the report been cooler. We’re now more than four weeks into the recovery rally in gold and a corrective move of some kind may be on the cards.
Silence is bliss
Bitcoin continues to enjoy a mild relief rally and has even moved above $17,000 to trade at its highest level in almost a month. It’s probably too early to celebrate yet though as these are very cautious gains that could be quickly and easily wiped out by more negative headlines related to FTX. Silence is currently bliss for the crypto community.
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