Mortgage applications plunge in the USA as mortgage rates jump, New Zealand central bank keeps base rate at 2.5%

Sep 12 • Morning Roll Call • 3532 Views • Comments Off on Mortgage applications plunge in the USA as mortgage rates jump, New Zealand central bank keeps base rate at 2.5%

There are many times when the UK takes its economic lead from the USA. The USA appeared to ‘enjoy’ a secular rally in house prices and mortgage applications late 2012 and early 2013. That renewed impetus had many analysts fearing that a repetition of the boom and bust of 2008 could re-occur. However, lately the recent USA house building boom and house price hike have stalled and the reason many analysts are using is the rise in mortgage rates…

Applications for U.S. home loans plunged as mortgage rates matched their high of the year, with refinancing activity falling to its lowest in more than four years, data from an industry group showed on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, sank 13.5 percent in the week ended Sept. 6th, after rising 1.3 percent the prior week. That puts the index at its lowest since November 2008 and at the depths of the financial crisis.

In the UK the latest jobs numbers were printed on Wednesday and on the face of it the data was encouraging. The unemployment rate fell by 0.1% to 7.7%. And there was an interesting statistic contained within the data; Britain now has a record number of estate agents, underlining fears that the fledgling economic recovery is based on inflating an unsustainable housing bubble.

The number of people employed in “real estate activities” increased by 9.9% between March and June (the latest month for which data are available), according to the Office for National Statistics. That was the fastest percentage increase in any sector of the economy; and a rise of 77,000 in the number of estate agents over the past year has taken the total number of people employed in the sector to 562,000, the largest number since records began in 1978.

New Zealand base rate maintained at 2.5%

The Reserve Bank today left the Official Cash Rate (OCR) unchanged at 2.5 percent. Reserve Bank Governor Graeme Wheeler said:

“The global outlook remains mixed. GDP growth in Australia and China has slowed and some emerging market currencies have come under considerable downward pressure. At the same time, the major developed economies continue to recover and New Zealand’s export commodity prices remain very high.

“Although long-term interest rates have risen globally in recent months, largely due to uncertainty around the timing of the Federal Reserve’s exit from quantitative easing, global financial conditions overall continue to be very accommodating.

“In New Zealand, GDP is estimated to have increased by 3 percent in the year to the September quarter. Consumption is rising and reconstruction in Canterbury will be reinforced by a broader national recovery in construction activity, particularly in Auckland. This will support aggregate activity and start to ease the housing shortage.”

Market overview

Although a relatively slow news day on Wednesday, particularly in relation to USA based data and high impact news events, the DJIA enjoyed another day of significant gains. The DJIA closed up 0.89% at 15,326, the SPX closed up 0.31%, whilst the NASDAQ closed down 0.11%.

European indices also enjoyed positive gains; STOXX closed up 0.42%. UK FTSE up 0.07%, CAC up 0.06%, DAX up 0.58%, with the Italian index the MIB closing up by the most on the day at 17,562, up 1.33%.

At the time of writing ICE WTI oil is up 0.16% at $107.56 per barrel, NYMEX natural is down 0.14% on the day. COMEX gold is up 0.26% at $1366.00 per ounce, whilst silver is up 0.026% at $23.14 per ounce.

Looking at the equity index futures market the DJIA is currently up 0.05%, the SPX also up 0.05%, European equity index futures are mixed. The FTSE down 0.33%, CAC up 0.21%, DAX up 0.31% with the MIB looking strong – up 1.41% as an equity index future.

Forex focus

Sterling advanced 0.5 percent to $1.5811 late in the London session after rising to $1.5827, the highest level seen since Feb 8th. The U.K. currency rose 0.2 percent to 84.16 pence per euro after appreciating to 83.83 pence, the strongest level seen since Jan 23rd. Sterling has strengthened to a seven-month high versus the dollar after the government (ONS) report revealed unemployment declining, adding to signs that the U.K. economy is finally gaining momentum.

Sterling has strengthened 7.6 percent over the past six months, the best performer amongst the 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indexes. The dollar gained 0.9 percent and the euro advanced 3.1 percent.

New Zealand’s dollar surged 0.7 percent to 81.33 U.S. cents in Sydney and touched 81.36, the strongest level witnessed since Aug 19th. It advanced 0.6 percent to 81.23 yen and rose 0.6 percent to NZ$1.1476 per Aussie dollar. Australia’s currency was little changed at 93.31 U.S. cents from yesterday, when it reached 93.38 cents, the highest level since June 27th. The New Zealand dollar climbed to the highest in more than two weeks after the Reserve Bank signaled it may raise its key rate from a record low earlier than previously expected.

The loonie rose 0.3 percent to C$1.0319 per U.S. dollar in the Toronto session after touching C$1.0314, the strongest level seen since Aug 16th. One Canadian dollar buys 96.91 U.S. cents.

Fundamental policy decisions and high impact news events for September 12th

Industrial production for Europe is expected to fall to -0.1% from the previous month’s 0.7%. The UK conducts its inflation hearings. The main event of the day could turn out to be Mario Draghi, the president of the ECB, giving his monthly speech.

The USA unemployment insurance claims are published with the expectation that the usual tight range figure of circa 330K will be printed. The USA federal budget balance is expected to print at -$155.3 bn and FOMC member Dudley will give a speech with many analysts and market commentators once again looking for clues regarding the timing of any tapering exercise the Fed may begin to implement.