After a minor setback yesterday, the S&P 500 resumed its upward march on Tuesday, buoyed by expectation-beating economic news, to set another intraday record high.
By Peter Martin
Wednesday, June 25, 2014
Following on from yesterday’s upbeat sales figures for existing homes, there was further evidence of a resurgence in the housing market provided by a report showing strong sales growth in new homes. New home sales jumped to an annualized pace of 504,000 in May, an 18.6% change from April’s downwardly-revised rate of 425,000. This smashed forecasts, which had pointed to a level of 441,000 and will raise hopes that housing can make a significant contribution to economic growth.
House prices went through a soft patch in April, according to two separate reports released this morning. The Federal Housing Finance Agency (FHFA) reported that its house price index was unchanged in April, after a 0.7% gain in March, whiles Case-Shiller’s 20-city home price index rose by just 0.2%, on a seasonally-adjusted basis, lagging the consensus estimate of 0.8%. The impact of these price reports on the financial market was dampened by their timeliness trailing the new home sales data, which reported a 4.6% price increase.
Perhaps the most significant indicator released this morning was the Conference Board’s consumer confidence index. Along with the University of Michigan’s consumer sentiment index, this is one of the most widely-followed measures of how consumers are feeling, which is important as a guide of expectations for consumer spending, a major driver of US economic growth. The consumer confidence index pushed up to 85.2 this month from May’s reading of 82.2 and now stands at a post-recession high, with strength in both the way consumers view the present situation and in their expectations for the economy. We know that the US economy had a weak, winter-hit first quarter and we have seen evidence of a solid bounce-back in the spring. This report will now bolster hopes for growth to continue in the second half of the year.
By early afternoon in New York, the stock market had made solid gains, with the S&P 500 index rising 0.15% to 1965.6 after earlier climbing as high as 1968.17, its all-time high. The more narrowly-focused Dow Jones Industrial Average gave back its morning gains, however, and slid 0.02% or 3 points to be little-changed from yesterday’s close.
The combination of the strong home sales with the increase in consumer confidence has bolstered the US dollar today, sending EUR/USD 0.13% lower to 1.3586 and GBP/USD down to 1.6971, a drop of 0.33% for the pound. The dollar was also aided by hawkish comments made by Charles Plosser, the President of the Philly Fed, in a speech in New York today. ‘The current data suggest economic strength is fairly broad-based,’ said Mr Plosser and called for the Fed to adopt a rule-based procedure for guiding monetary policy in order to provide greater clarity. He warned that the Fed is closing in on its goals faster than some people think and accordingly ‘We may have to adjust our communications in the not-too-distant future. Specifically, I believe the forward guidance in the statement may be too passive.’
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