Today’s Comment
In the US, new home sales data are important because rising sales traditionally support residential construction, and residential construction has contributed to pulling the economy out of recession in eight out of the past nine recessions.
Therefore it is serious that new home sales data disappointed massively in the past two months. Sales dropped back by 16% to 342,000. The decline may be due to the cancellation of the tax rebate to home buyers and bad weather conditions.
Normally, there is a close connection between new home sales and residential construction, but so far residential construction has not shown any reaction to the decline in home sales. Since the tax rebate has been re-introduced and even expanded, we anticipate an increase in new home sales in January. The prices of new homes have fallen less than the prices of existing homes which may put a damper on new home sales. We will also see focus on the development in the supply of new homes for sale, which has fallen dramatically and is considerably below the historical average.
JPY strengthened comfortably overnight primarily on the basis of the falling equity markets and poor consumer confidence data from the US. Again Greece caused a stir but it was not revolutionary news. EUR has, however, generally been slightly under pressure. Pound sterling was at some point in time under pressure in the middle of the European trading session due to several announcements from official representatives from the Bank of England. It was primarily on comments on the quantitative easing where it was announced that the bank had been close to expanding its purchasing programme and that it may be necessary at a later date. Pound sterling regained the lost ground in the course of the afternoon and is currency slightly higher than 24 hours ago.
Today’s Key Events
- 09:30 Minutes of Riksbanken’s monetary-policy meeting (SEK)
- 11:00 Industrial orders (EUR)
- 16.00 Mr Bernanke of the Fed testifies before the House of Representatives (financial committee) (USD)
- 16:00 New home sales (USD)
Today’s Chart – EUR/GBP 1-hour chart
