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Saturday, 21 October 2017

On US data and the Wealth Effect

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  • Peters 475px June 2014

Anthony Peters sees a mixed bag in US housing numbers.

There are days when economic releases are clearly good or clearly bad. What we saw out of the US was anything but. May New Home Sales were as strong as could be hoped for at an annual run-rate of 504,000 – well ahead of the consensus forecast of 439,000 – and very much the strongest figure since May 2008. This is, however, still a long way from the 2005 peak of just under 1.4 million and also from the unadjusted 25 year average of 720,000 but it is clearly a move in the right direction.

Happy days? Nearly but not quite. Just an hour before New Home Sales hit the screens, we were treated to the April FHFA and Case Shiller which were anything but sparkling. The Federal Housing Finance Agency home price index missed the forecast of +0.5% and reported flat with the weak spots being in what the Agency terms as New England (-1.3%) and Middle Atlantic (+0.2%). The former covers Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont, and the latter New Jersey, New York and Pennsylvania. In other words, where we’d expect to see the lead higher we’re actually seeing price improvements begin to stall. Think wealth effect.

Nobody really wants to be the first long when the Dow tests 17,000

The Case Shiller numbers were also not exactly electric. There was nothing negative in them with the principal house price index advancing from 166.8 in March to 168.71 in April but it missed forecast of 169.09, this demonstrating that the price trajectory is beginning to flatten.

Without the subsequent New Home Sales and an ebullient Conference Board Consumer Confidence number of 85.2 (consensus 83.5) markets might have felt a bit disappointed.

Nevertheless, stocks traded lower but having just come off new all-time highs this is not as such a surprise. Nobody really wants to be the first long when the Dow tests 17,000. That aside, half-year end technicals are beginning to play with most money managers having been long risk through the month and we’re surely facing a bit of risk reduction as the window dressing begins.

Europe had its own little wobble with the key German IFO Business Climate index falling back marginally to 109.7 in June from 110.4 in May with the current assessment unchanged and the expectations elements weakening. Nillus panicus.

The IFO has been drifting since the beginning of the year which is, especially given the uncertainty over economic strength of China, certainty over the weakness in France and the geo-political shenanigans involving Putin’s Russia, not all that surprising. By all measures, 109.7 is not a weak number and I’m sure there are plenty of countries which would give their eye-teeth to enjoy what is perceived as a sign of weakness in the Fatherland.

The Putin put

On the subject of Russia, Vladimir “put-me-in” Putin would appear to have finally clocked that his theatrical hands-off, laissez-fair attitude towards the eastern Ukraine has fooled no one and that we all know that he’s been up to his elbows in it. He looks, however, to be conceding finally that his pan-Russian thing – I commented on that early in the conflict when I likened him to Goethe’s Sorcerer’s Apprentice – is out of control. The breaches of the recent cease-fire by the rebels is clearly not what he was looking for and I’d suspect that there’s a lot of back-pedalling going on in and around the Kremlin.

I would imagine that the atmosphere is much like it was in the White House in 1962 when JFK was battling the military hawks who were straining for a fight. Russia also has a substantial cabal of frustrated militarists who would love to see the country isolated and thus in need of massive investment in upgrading arms and armoury. Vlad is now caught in the middle and, ever the pragmatist, has surely concluded that the Western powers will ultimately be the more accommodating as he aims to avoid a war on two fronts. Ask me today and I’d suggest the worst of the Ukraine crisis is over. More courageous players have been buying Ukrainian and Russian risk again for two or three weeks but I think it now safe enough for the more conservative main-stream investor to come back out to play..

On a lighter note and for those who still believe the World Cup has parallels in the real world, Italy, Spain and England are coming home but Germany, Greece and Belgium aren’t. Discuss.

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