Wall Street got off to a good start this week and the upbeat mood has continued today, setting new 14-year highs for the NASDAQ 100, with the stock market supported by more evidence of a rebound in the housing market and indications that inflation remains at acceptable levels.
By Peter Martin
Tuesday, August 19, 2014
By early afternoon in New York, the Dow Jones Industrial Average had gained 0.46% or 77 points to stand at 16,915, while the S&P 500 advanced at a similar pace, climbing 0.43% to 1980.2. The NASDAQ 100, which is into its fifth straight session of gains, rose 0.36% to 4035.1, its highest level since the summer of 2000.
Dow component Home Depot gained more than 6% after reporting better-than-expected second-quarter earnings and raising its full-year earnings guidance. ‘In the second quarter, our spring seasonal business rebounded, and we saw strong performance in the core of the store and across all of our geographies,’ said Chief Executive Frank Blake.
Yesterday we saw a bounce in the NAHB’s survey of house builder confidence, which has been followed up today by a surge in the number of construction starts on new residential buildings. Housing starts leaped to an annualized pace of 1.093 million units in July, advancing from June’s upwardly-revised pace of 945,000 (originally reported as 893,000), a gain of 15.7% which smashed expectations. Strength was also seen in the number of building permits last month, rising 8.1% to an annualized 1.052 million units. If there’s any caveat to these numbers, is that they are led by the multi-family component, which has become a familiar refrain, but nonetheless, the swelling numbers is an upbeat result.
The latest measure of prices at the consumer level suggests inflation is creeping higher, but at a measured pace that is unlikely to deeply trouble the Fed. The Consumer Price Index increased 0.1% month-on-month in July, in line with expectations, which takes the year-on-year change to 2.0%— in line with the Fed’s longer-term inflation target. Excluding the more volatile components of food and energy, the month-on-month change was also 0.1%, giving a year-on-year change of 1.9%. Doves at the Fed will point out that the gains are modest, while the hawks are likely to focus on the annual rates being at target while the trend is upward. More clues on the Fed’s thoughts could be contained in the minutes from the July FOMC meeting, which are released on Wednesday afternoon.
In the forex market, the US dollar strengthened against the euro to a nine-month high, buoyed by the housing market resurgence: EUR/USD slid 0.35% to 1.3317, breaking its lowest level since last November. GBP/USD plunged 0.67% to 1.6615 after UK CPI data for July surprised to the downside, declining 0.3% against expectations of a 0.2% fall. The twelve-month change for UK CPI was 1.6%, easing from the 1.9% seen in June, and therefore easily undershooting the Bank of England’s 2% inflation target. Forex traders are consequently readjusting their expectations for when we might see a rate hike in the UK in order to reflect this softer-inflation scenario.
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