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Morning Roll Call

Aug 29 • Morning Roll Call • 1530 Views • No Comments

That Recent House Price Boom May Be Over Before It’s Started building-house

You know we can’t be alone in rolling our eyes when reading of the return of ‘house flippers’ in the USA. Many had hoped that these beasts had become extinct with the collapse of the mortgage backed securitization model that went down with the likes of Lehman Brothers. The flippers typically buy a house with low rate finance, do nothing and then attempt to sell it on for more money. If ever there was a sign that capitalism was nearing collapse in dying embers of its own making surely this was it? Well the good news is that the supposed house price boom the USA has ‘enjoyed’ over the past few months may be coming to a shuddering halt.

Mortgage rates in the USA are creeping up, whilst sales of existing homes and sales of new homes have fallen significantly over the past two months. House prices are simply too high, again…

Existing home sales fell 1.3% in July, the most this year, whilst mortgage rates are at their highest for two years causing buyers to not only baulk at the sale price, but also the financing cost. And as an aside you have to question whether something is very wrong in a market where rates are 4%, yet the base rate is close to zero.

In the UK it was good to hear Mark Carney state that he’d introduce measures if necessary to curb house price inflation, naturally no one would be brazen enough to remark that Mr Carney is ‘guilty’ of causing rampant personal debt and house price inflation in Canada, before (with impeccable timing) quietly exiting stage left to take up his new position as the BoE governor…

 

Market overview

The markets in the USA recovered some of yesterday’s lost ground, whilst European markets remained subdued and closed mainly down. The DJIA closed up 0.33%, the SPX closed up 0.27% and the NASDAQ closed up 0.41%.

In Europe’s markets the majority of indices closed in the red; the FTSE closed down 0.17%, the CAC down 0.21% and the German DAX closed down 1.03%. The ISE Istanbul exchange closed down 0.10% after one point threatening to close down another 4%, similar to the previous day. Turkey’s close proximity to Syria and sharing a border is naturally affecting investor sentiment. However, the lira once again came under intense selling pressure.

Looking at the equity index futures the DJIA at the time of writing is currently down marginally by 0.04%, the SPX is down 0.07%, whilst the NASDAQ is down 0.02%. European markets look set to open down; the STOXX equity index future is down 0.62%, the FTSE down 0.22%, DAX down 1.32% and the CAC down 0.23%. The ISE is set to open up, currently printing up 0.72% as an equity index future.

Naturally, given the escalation of the Syrian conflict looking imminent, commodities were in demand as a sell or buy. ICE WTI oil closed up 1.00%, ICE Brent crude closed up 1.97% at $116.61, the highest price over the past two years. NYMEX natural closed down 0.11% at $3.58 per therm.

COMEX gold closed down 0.16% at $1416.5 per ounce, whilst silver closed down 0.28% at $24.37 per ounce.

 

Forex focus

Sterling pared its decline versus the dollar after BoE governor Carney spoke. It was at $1.5522 late in the London session, down approx. 0.2 percent from yesterday. Bank of England Governor Mark Carney said officials are ready to add monetary stimulus if investor expectations for higher interest rates undermine the recovery.

The Aussie slid versus all of its 16 major counterparts reaching at one point a three-year low versus the euro. The Aussie slid 0.9 percent to 89.08 U.S. cents late in Sydney after touching 89.02 cents, the lowest level seen since Aug 5th, when it dropped to a three-year low. The Aussie touched A$1.5031 per euro, the weakest level seen since May 2010, before trading 0.8 percent lower at A$1.5023. New Zealand’s currency reached 77.48 U.S. cents, the weakest since Aug 5th, before buying 77.60 cents, 0.5 percent lower from yesterday’s close. The Australian dollar dropped to its three-week low as global equity collapses curbed demand for the higher-yielding assets due to prospects of military action versus Syria.

The U.S. Dollar Index, tracking the greenback versus its 10 major peers, advanced 0.4 percent to 1,028.68 late in the New York session. It earlier advanced 0.5 percent, the biggest intraday increase seen since Aug 21st. The dollar rose the most in a week as the prospect of U.S. military action against Syria deterred risk-taking, encouraging investors to buy safest assets.

 

Fundamental policy changes and high impact news events that could affect investor sentiment on August 29th

Thursday is a day packed with medium to high impact news events. Perhaps the main  high impact news will be the publication of the preliminary USA GDP figure, predicted to come in at 2.2% from the previous month’s 1.7%. Unemployment claims are predicted to stay in their narrow range at 330K for the week.

Later on in the New York session FOMC member Bullard speaks therefore investors and market analysts will be looking for code regarding tapering. The German Bundesbank president Weidmann will also give a speech in the afternoon session.

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