Both US housing starts and permits surprised on the upside of expectations in May. Housing starts rose by 17.2% M/M from a downwardly revised 454 000 to 532 000, while an outcome of 485 000 was expected. The rebound was led by a 61.7% M/M increase in multi-family homes, while single family homes rose by 7.5% M/M. Building permits grew by 4.0% M/M, from an upwardly revised 498 000 to 518 000 due to a 7.9% M/M rise in single family homes, while multi-family homes dropped by 8.3% M/M. Housing under construction dropped by 4.5% M/M and housing completed fell by 3.3% M/M. The May improvement is a positive sign but it is too early to conclude that the housing market showing a sustained recovery.
In May, producer prices rose by 0.2% M/M, while an increase by 0.6% M/M was expected. On an annual basis, PPI inflation plunged from -3.7% Y/Y to -5.0% Y/Y. Looking at the details, gasoline rose by 13.9% M/M, energy by 2.9% M/M and tobacco by 0.7% M/M. Significant downward pressure came from residential gas (- 4.7% M/M) and food (-1.6% M/M). In the coming months, recent gains in commodity prices may exert some upward pressure.
US industrial production dropped by 1.1% M/M in May, broadly in line with the consensus estimate. The April figure was downwardly revised from -0.5% M/M to - 0.7% M/M. The details show that weakness was broad based with a 1.0% M/M decline in manufacturing, a 1.4% M/M drop in utilities and a 2.1% M/M fall in mining. The decline in manufacturing was led by a plunge in motor vehicles and parts (-7.9% M/M) and machinery (-3.4% M/M).
EMU: ZEW extends impressive rebound
In Germany, the ZEW survey surprised again on the upside of expectations in June. The headline (expectations) index rose from 31.1 to 44.8, while the consensus expected a more moderate increase (35.0). Also the current situation index came out better than expected (-89.7 from -92.8), after falling to a new cyclical low last month. The index is now at its highest level since May 2006, which is an encouraging sign. But it will be interesting to see whether also the other confidence indicators will extend their upward trend in June.
In May, the final figure of euro zone CPI came out flat on a yearly basis, which is exactly in line with the first estimate. On a monthly basis however, CPI inflation rose by 0.1% M/M, while the consensus was looking for an outcome of 0.0% M/M. Looking at the details, recreation & culture dropped significantly (-0.4% M/M) and prices of food, housing and health showed more moderate declines. Prices of energy and transport, on the contrary, rose significantly. Core CPI, excluding food and energy, dropped from 1.8% Y/Y to 1.5% Y/Y, slightly more than expected.
In Spain, home sales plunged by 16.0% M/M in April, compared with the previous month. On annual basis, the number of housing transfers dropped by 43.3% Y/Y in April, from -24.3% Y/Y in March. This is the sharpest annual decline so far and the 16th consecutive month that home sales dropped in Spain, which indicates that the Spanish housing market remains extremely fragile.
Other: UK inflation remains above the 2% Y/Y target
In the UK, CPI inflation rose by 0.6% M/M, while the consensus was looking for a more moderate increase (0.3% M/M). On a yearly basis, CPI dropped slightly from 2.3% Y/Y to 2.2% Y/Y. The breakdown shows only a decline in fuel & light (-1.0% M/M), while a significant positive contributions came from seasonal food (2.4% M/M), auto related (2.0% M/M), fares & travel (1.9% M/M), tobacco (1.4% M/M), alcohol (1.2% M/M) and household goods (1.1% M/M). Core CPI rose from 1.5% Y/Y to 1.6% Y/Y. This outcome raises expectations that UK inflation is unlikely to drop as quickly as previously anticipated.
