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US: Stabilization in Existing Home sales, but no recovery in housing yet

Fri, Jun 27 2008, 07:24 GMT
by KBC Market Research Desk

KBC Bank


Existing home sales rose higher than expected in May (2.0% M/M) to 4.99M annual rate after falling -1.0% M/M to 4.89M in April. Single family homes rose 1.6% M/M and condos rose 5.5% M/M. Sales were only lower in the South. Inventories of unsold houses fell to 4 485 million from 4 549 million in April, driving the months of supply down to 10.8 after reaching a high of 11.2 in the previous month. Looking at prices, on a yearly basis, both average (-6.5%) and median (-6.3%) saw declines, but these were lower than in the three months before. Existing home sales are showing signs of stabilization, but the high number of inventories of unsold houses suggests that there is no recovery around the corner.

Last week, the initial claims stayed unchanged at an upwardly revised 384K. Continuing claims increased from a revised 3 057K to 3 139K which is above the consensus of 3 105K. The four-week moving average of initial claims rose 2 250K to 378 250K, representing the highest level since 2005. These figures indicate that the labour market is very weak and unemployed workers have to search long for a new job.

The first quarter annualized GDP (final figure) came out at 1.0%, which is in line with the expectations and slightly above the preliminary estimate of 0.9% (annualized) last month.


EMU: Rising inflation and high money supply growth will keep ECB alert

M3 money supply growth remained at 10.5% Y/Y in May; slightly above the expected 10.4% Y/Y. The less volatile 3 months average decreased from a revised 10.6% Y/Y to 10.4% Y/Y, which is still very high. Bank lending to the private sector was lower, growing 10.4% Y/Y after increasing by 10.6% Y/Y in April. Growth in household lending (4.9% Y/Y from 5.2% Y/Y) slowed further and also lending to nonfinancial corporations (14.2% Y/Y from 14.9% Y/Y) decreased, but the latter remains very high. Overall, these figures illustrate that the money supply and lending growth are slowing, but only at a moderate pace. This will keep the ECB concerned about medium term inflation risks.

Belgian CPI rose by another 0.56% M/M and 5.8% Y/Y in June against 0.89% M/M and 5.21% Y/Y in May. Looking at the details; fuel, natural gas and related products kept rising, while food prices (except meat) went slightly lower. Consumer prices released in Germany confirmed this trend, also going higher in Saxony (3.4% Y/Y from 3.1% Y/Y), Hesse (3.8% Y/Y from 3.5% Y/Y) and North Rhine-West. (3.0% Y/Y from 2.8% Y/Y). These rising inflation rates raise fears that euro zone inflation will come out even higher than expected near the 4%.

In Italy, business confidence declined from a downwardly revised 89.4 in May to 87.1 in June, which is below the consensus of 88.8. The orders deteriorated further with total orders falling from -16 in May to -18 in June and foreign orders also going lower from -16 to -19. The inventories and the selling prices outlook were higher and the production outlook came out lower. This is the lowest figure in almost three years and shows that the Italian producers are expecting a further slowdown in the economy due to rising energy costs and a stronger euro.

Published on  Fri, Jun 27 2008, 07:59 GMT

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This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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