Wall Street Lower Despite Jump In Housing Starts

Wall Street Lower Despite Jump In Housing Starts

Housing has been one of the weaker areas of the US economy in recent months, but it is also one of the first sectors to show a clear spring rebound, based on data released today for new home construction.   



Wall Street Lower Despite Jump In Housing Starts
Wall Street Lower Despite Jump In Housing Starts

Housing starts surged to a seasonally-adjusted, annualized pace of 1.135 million in April, representing a bounce of more than 20% from March’s upwardly-revised rate of 944,000 (originally reported as just 926,000). This result is much higher than expected and is the strongest pace in housing starts in more than seven years. Moreover, the strength was also reflected in building permits, which climbed to an annual rate of 1.143 million (a seven-year high) from 1.038 million in March. The data will buoy hopes that a rebounding housing market allied with a tightening labor market can gain traction and drag GDP out of its first-quarter doldrums back to more respectable levels of economic growth. We’re yet to get the complete picture of just how bad that first quarter was: the initial estimate was for 0.2% growth, but a revised estimate due at the end of next week could well show contraction, based on March data released subsequent to the initial estimate.

Despite the encouraging signs in the housing report, stocks quickly retreated from Monday’s record closing levels in early trading on Wall Street. Shortly after the opening, the Dow Jones was down 27 points or 0.15% at 18,272, while the broader gauge of the S&P 500 Index dropped 0.08% to 2127.5.

The fall in the Dow Jones came despite a 0.55% rise in index component Home Depot ($HD). The home improvement retailer reported better-than-expected quarterly revenue and earnings and also raised its earnings and growth guidance for the year.

In the forex market, the pound slid against several major currencies after a key measure of UK inflation showed a negative annual rate for the first time on record. UK CPI rose 0.2% from March to April, but the 12-month change in CPI was -0.1% in April, compared to no change in the year to March — this is the first time that CPI has fallen over the year since official records began in 1996. The UK’s Office for National Statistics also says this is the first time since 1960 that the rate has been negative ‘based on comparable historical estimates’. Transport was a major factor, with lower rises in air and sea fares comparted to a year ago, which the ONS claims is due to the timing of Easter this year. GBP/USD fell 0.85% to 1.5519 in early trading, while GBP/JPY eased 0.50% to 186.88.

 

The euro has weakened even more sharply than the pound today, as the ECB revealed it would up the pace of its asset purchases over the next couple of months ahead of expected lower liquidity in July and August. ECB executive Board member Benoit Coeure said the central bank would increase its purchases ‘slightly’ in May and June, but claimed this was unrelated to the recent rises in bond yields. ‘I do not see the recent reversal in the price of bunds and other sovereign bonds as a cause for concern, insofar as it reflects a market correction,’ Coeure said. ‘It is the rapidity of the reversal that worries me more.’ EUR/USD plunged 1.47% to 111.49.


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