US housing market comes under pressure - Foreign Exchange
Posted by Darren Hutchinson on Wed, Aug 25, 2010 @ 04:07 AM
Home sales of existing properties in the US fell to a 15 year low yesterday heightening the belief that the US economy is heading further towards a double-dip recession. The figure fell by 27% in the month of July against an expected fall of around 13%.
The release caused traders to exit risky positions in search of favourable ‘haven’ plays and while the stock markets fell the Japanese yen rallied to a fresh 15 year high. The government in Japan seem trapped at the moment and in an emergency press conference yesterday morning they reiterated their desire to monitor the situation. The market decided to try and force their hand as a result pushing USDJPY below the 84 handle. But this isn’t just a housing thing; retail sales, consumer confidence, export data, all have been poor recently and have contributed to the market’s view.
This is the currency world’s perfect storm; stock markets are falling and market commentators (including this one) see a down leg for equities in Q3, the Federal Reserve is split over how to deal with a slowdown in the American economy with a US GDP reading due Friday which is bound to show that growth is continuing to falter, and a Japanese government trapped like a rabbit in the headlights.
Things get little better in Europe as Ireland has had its sovereign debt rating downgraded by Standard and Poor’s. The Irish have called the decision ‘flawed’ while S&P said “a further downgrade is possible if the fiscal cost of supporting the banking sector rises further, or if other adverse economic developments weaken the government’s ability to meet its medium-term fiscal objectives,” Irish assets were pummeled yesterday with the ISEQ, the main stock exchange, down around 6% and the yield on Irish debt hitting a 10 year high against its German counterpart. The euro weakened as a result of this back into the 1.22s against the pound but has found some overnight strength.
The UK government is attempting some spin this morning after a report from the Institute for Fiscal Studies that the tax and spend decisions made in Osborne’s budget in June were regressive and have affected the poor much more than the rich. This will mainly be due to the increase in VAT due in January but also as a result of benefit cuts due in the October spending review. There is no UK data due however.
We do however have yet more volatile data from the US and EU today. Starting in Germany at 09.00 we have German IFO and we will get closer to understanding exactly the sentiment in the industrial heart of Europe. Staying with the US housing market we also get mortgage data at 12.30 and sales of new homes at 13.30; both are expected to fall.
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