U.S. Existing-Home Sales in July: Ending Four-Month Skid, with Prices Hitting New Highs

Economic

Data Interpretation

Summary:

On Thursday, the National Association of Realtors released data showing that the U.S. existing-home sales grew 1.3% in July to a seasonally adjusted annual rate of 3.95 million, stopping a four-month sales decline that began in March. The median existing-home sales price elevated 4.2% from July 2023 to $422,600, the highest for July in the NAR data.

On August 22, the National Association of Realtors released the existing-home sales data:

The existing-home sales came in at an annual rate of 3.95 million units, compared to an expected reading of 3.93 million and the previous month's 3.90 million.

The existing-home sales grew 1.3% month-over-month in July, in line with expectations, compared to a 5.1% decrease in June.

Existing-home sales grew 1.3% in July to a seasonally adjusted annual rate of 3.95 million, stopping a four-month sales decline that began in March. Three out of four major U.S. regions registered sales increases while the Midwest remained steady. However, year-over-year, sales fell 2.5% (down from 4.05 million in July 2023).

The median existing-home sales price elevated 4.2% from July 2023 to $422,600, the 13th consecutive month of year-over-year price gains. Prices in all four major U.S. regions rose.

The existing-home sales in July extended the previous uptrend. Total housing inventory registered at the end of July was 1.33 million units, up 0.8% from June and 19.8% from one year ago (1.11 million). Unsold inventory sits at a 4.0-month supply at the current sales pace, down from 4.1 months in June.

According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.49% as of August 15. That's up from 6.47% one week ago but down from 7.09% one year ago.

In general, despite a slight pickup in U.S. existing-home sales in July, the sales were at the lowest July level since 2010. However, the drop in mortgage rates may have improved affordability for potential homebuyers, which is expected to help stabilize the housing market.

U.S. July Existing-Home Sales

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

S&P Global Inc.

Data Interpretation

Japan's private sector expansion accelerated in August to the fastest since May 2023, driven by improvements in the service sector alongside renewed modest growth of manufacturing output.

That said, forward-looking indicators hint at growth slowing in the coming months. Manufacturing new orders remained in contraction while overall confidence levels fell to a 19-month low.

Concerns over the outlook and price pressures have meanwhile further led to Japanese private sector firms raising selling prices at a slower pace despite rising input cost inflation.

Japan's flash PMI signal fastest business activity expansion in 15 months

The au Jibun Bank Flash Japan Composite PMI, compiled by S&P Global, rose to 53.0 in August, up from a final reading of 52.5 in July. This indicated that Japan's private sector activity expanded for a second successive month and at the fastest pace since May 2023. The third-quarter average sits at 52.7 thus far, which is above the 51.5 recorded in the second quarter, where we have seen gross domestic product rising at 0.8% quarterly rate. This suggests that the third quarter expansion is likely to further accelerate based on current PMI indications.

Broad-based expansions in private sector activity

A broad-based expansion in private sector activity across both manufacturing and service sectors was observed in August for the first time since May last year. This was with a renewal of manufacturing production growth following a brief decline in July. While marginal, the latest rise in manufacturing output was the most pronounced since May 2023, and is only the third time that output has risen since mid-2022.

Underpinning the latest rise in Japanese manufacturing production was the expansion of workforce capacity, which enabled firms to work through their existing orders. However, incoming new orders into factories sustained in contraction to signal that demand remained subdued. Notably, trade conditions have yet to improve, with export orders falling at the most pronounced pace in five months. That said, the easing of the pace at which overall new orders declined, and a slight uptick in the PMI Future Output Index (which tracks manufacturers' sentiment about output in the year ahead) offer some hope that the worst may be behind us.

Turning to services, business activity rose at the quickest pace since April. This was with services new business increasing at a rate that was solid and unchanged from July. Export business for service providers also returned to growth in August after falling briefly in July. Improvements in underlying demand conditions and rising tourism demand supported the expansion of services activity according to panellists.

Confidence slumps to 19-month low

While the overall picture of current activity has shown signs of improvement, future confidence levels declined in the latest survey period. A slight improvement in manufacturing sector confidence was more than offset by falling optimism among service providers. The service sector Future Output Index fell to the lowest in just under two-and-a-half years, as concerns gathered over labour constraints amid an aging population and elevated price pressure according to anecdotal evidence. This brought the overall level of business confidence to the lowest since January 2023.

Moreover, concerns over the growth outlook have also led to Japanese private sector firms - across both manufacturing and service sectors - to raise selling prices at a slower pace despite rising cost pressures. This represented a heightening of margin pressures across both sectors, including the outperforming service sector, where demand conditions remained robust.

While Japanese firms have remained more conservative with raising selling prices in August, the sharper increase in costs nevertheless represents a risk for Japan's inflation to heighten. This is given the likelihood that firms may eventually have to share their additional cost burdens with clients by keeping selling prices high.

The prospect of higher inflation would be supportive of the Bank of Japan in raising interest rates again, which has become a topic of discussion amid speculation that the Bank of Japan is due for another move before the end of year. While higher interest rates will be supportive of the yen and help curb import-inflation, the tightening of monetary policy settings may also dampen domestic demand and have a negative impact on exports and domestic spending, thereby providing a risk for the economic outlook into the end of 2024.

Risk Warnings and Disclaimers

Add to Favorites

Danske Bank

Economic

Central Bank

In focus today

The annual Jackson Hole Economic Policy Symposium organized by the Kansas City Fed continues today and runs until Saturday. Markets pay close attention to Powell’s assessment of the current state and monetary policy, and any kind of forward guidance, which will give a hint on how fast interest rates should decrease during the fall.

Economic and market news

What happened overnight

In Japan, CPI inflation was unchanged at 2.8% y/y in July, while inflation excluding fresh foods increased as expected to 2.7% (2.6% prior). However, inflation excluding fresh food and energy dropped to 1.9% y/y (2.2% prior), falling below 2% for the first time since September 2022. The underlying price pressures, illustrated by m/m seasonally adjusted growth, dropped compared to June, when excluding fresh food and energy. With inflation coming in around expectation the figures support Bank of Japan’s message of a gradual tightening of monetary policy.

What happened yesterday

The euro area PMIs for August rose to 51.2 from 50.2 in July, above expectations of 50.1. The move was driven by the service sector where the PMIs rose to 53.3 from 51.9, while the manufacturing PMIs declined slightly to 45.6 from 45.8. Hence, the overall picture is the same with a struggling manufacturing sector and growing service sector. We note that the entire increase in the service PMIs can be explained by France where the service PMI rose by five index points, which contributes with 1.4 index points to the euro area data as France has a weight of 28%. Excluding France, where activity was impacted by the Olympic games, the service PMIs were unchanged in the euro area, which suggests that the economy has still lost some momentum compared to the first half of the year.

We got quite a big drop in euro area negotiated wages in Q2, which in Q1 increased by 3.55%, from 4.72%. The decline was especially due to Germany. The traditionally most important wage gauge for the ECB is the compensation per employee, which will be out on 6 on September. The June ECB staff projections estimated that wage growth would remain unchanged in Q2 2024 compared to Q1, measured as compensation per employee (CpE). Hence, with today’s decline in negotiated wages it seems like ECB will get a pleasant surprise with lower-than-expected wage growth.

In the US, PMI figures showed mixed signals with manufacturing weakening further below 50, but services sector activity holding up well at 55.2. The weekly initial jobless claims figures were in line with consensus expectations of 232k and did not have the same market impact as in the last couple of weeks.

In the UK, PMIs came in stronger than expected both regarding the manufacturing and service sectors. The PMIs point to a continued expansion of the UK economy with private sector output increasing with uptick in order intakes, improved business activity and demand providing support. On inflationary pressures, prices moderated across both manufacturing and services input/output prices. Overall, positive news for the BoE with continued expansion in the economy and prices moderating across sectors.

In Norway, Mainland GDP rose 0.1% Q/Q in Q2 – both consensus and Norges Bank expected 0.2%. For the monetary policy outlook, the most important thing has been indications on rising capacity utilisation in late Q2 which essentially has been the key reason for Norges Bank turning among the most hawkish central banks in town. Meanwhile, since then the labour market has turned out weaker-than-projected which still leaves the door open for a December rate cut despite Norges Bank’s revealed preferences.

Market movements

Equities: Global equities were lower yesterday as US markets lost momentum throughout the day and closed near the day’s low. Interestingly, at a first glance, it appeared that there was a full-fledged defensive rotation in the US. However, a closer look at the rotation reveals that banks were the best-performing industry, up almost 1%, while semiconductors and automobiles were the losers, down 3.4% and 4.8%, respectively. Hence, it was a significant value rotation, seemingly triggered by a repricing of the Fed closer to a 25bp cut in September.

Please note the interesting relationship between the relative performance of banks and lower yields that we have currently. Over the last six months, banks have been the best-performing of all 25 industries in Europe, and they ranked fifth in the US, despite lower yields at both the short and long ends of the curve on both sides of the Atlantic. In the US yesterday: Dow -0.4%, S&P 500 -0.9%, Nasdaq -1.7%, and Russell 2000 -0.95%.

Equity markets are mixed in Asia this morning, and the same is true for European futures. US futures are higher this morning, with a group of growth stocks leading the advance, thereby recouping some of the territory lost yesterday.

FI: Global yields staged a 5bp sell-off across the board after a choppy session, thus 10y German Bunds ended at 2.24%. Weak German and French PMI (outside French service PMI likely due to the Paris Olympics) sent yields lower, yet after the euro area PMI aggregate rates started to sell off even through the euro area negotiated wages recorded a significant decline to 3.6% from the 4.7% print in Q1. The front end continues to price 25bp for the September meeting and 66bp for the year end in ECB cuts. While yesterday’s data supported the case for a September rate cut, the year-end pricing is still stretched in our view.

FX: The weakening of the USD came to a halt yesterday, where the USD was top performer together with the GBP among the G10 currencies. Meanwhile NOK took another hit and JPY also lost some ground. EUR/USD remained above 1.11 and EUR/NOK neared 11.80.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Warren Takunda

Central Bank

Economic

The Bank of Japan will continue to pursue policy normalization as long as the economy continues to progress toward stable 2% inflation, Gov. Kazuo Ueda reiterated on Friday as he responded to lawmakers' questions in a hearing by a financial affairs committee.

"There is no change to our basic stance that we will adjust monetary policy as we gain confidence in the likelihood" of the economy achieving stable 2% inflation, said Ueda. The hearing was called after a rate hike by the BOJ on July 31 sparked major market turmoil in the ensuing week, prompting lawmakers to demand explanations about how the BOJ intends to proceed with the policy it embarked on in March.

Ueda also reiterated the bank's view that its monetary policy is still highly accommodative after the July 31 hike and that a much higher policy rate is justified if inflation stays above 2% on a sustained basis.

"Real interest rates are substantially negative," Ueda said, comparing the 0.25% policy rate to consumer inflation that is running above 2%. "The current situation remains accommodative," he added, no matter how one estimates the natural interest rate -- the point that is neither expansionary nor contractionary.

Core consumer inflation, which excludes fresh food, logged 2.7% in July, according to a government report released earlier on Friday. Excluding energy and fresh food, inflation stood at 1.9%.

The yen strengthened against the dollar as Ueda testified, rising from 146.00-146.10 before the session started to 145.30-145.40 as of 11 a.m.

The remark came as some market players assumed that the recent turmoil would discourage the BOJ from further normalization. "The stock market has risen from levels that have been significantly devalued since mid-August," Ueda said. He added, however, "We will continue to monitor the situation closely with a very high sense of urgency."

A separate hearing is scheduled to take place in an upper house committee in the afternoon, and like the first one is set to last for two hours.

BOJ Gov. Ueda Restates Stance on Policy Normalization After Market Rout_1

The central bank is tasked with the complicated mission of weaning the economy off ultra easy monetary policy, which has been blamed for the yen's sustained weakness against the dollar, without causing a shock to an economy that has been accustomed to monetary stimulus for more than two decades.

The market is keeping close tabs on Ueda's remarks, and his words have sparked sharp swings this year. In April, he made remarks downplaying the yen's weakness, triggering a yen sell-off that sent it to 160 against the dollar and forced the Ministry of Finance to conduct a record $62 billion intervention to support it.

On July 31, when the BOJ raised policy rates to 0.25% from between 0% and 0.1%, Ueda went in the opposite direction and voiced concern about the yen's weakness, citing its potential to stoke inflation, and suggested a further rate hike this year was in the cards. This sent the yen soaring to a seven-month high of 141 on Aug. 5, triggering a massive unwinding of yen carry trades (borrowing yen at low interest rates to buy higher-yielding currencies) and causing the Nikkei Stock Average to dive 20% in just three days.

The Nikkei average recouped all the losses by Thursday, while the yen is now substantially higher than the level before the BOJ meeting, which was around 153 versus the dollar.

Two days later, on Aug. 7, BOJ Deputy Gov. Shinichi Uchida eased market concerns about a rapid policy shift, saying there would be no rate hike while financial markets remained unstable and that the BOJ would maintain the policy rate where it is for the time being.

Many market players say the direction of the financial markets is not entirely in the hands of the BOJ because it also depends what the U.S. Federal Reserve will do about its hawkish monetary stance, the main reason for a large disparity in interest rates between Japan and the U.S. in the last two years and the yen's depreciation against the dollar.

Later on Friday, Fed Chair Jerome Powell is scheduled to give a speech. Financial markets are expecting reductions of 100 basis points (1%) to a range of 4.25% to 4.50% in the Fed policy rate this year and are looking for clues to the pace and size of rate cuts in his speech.

Source: NikkeiAsia

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Warren Takunda

Stocks

London stocks were set to gain at the open on Friday as investors eyed a speech by Federal Reserve chairman Jerome Powell at Jackson Hole.

The FTSE 100 was called to open around 35 points higher.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said Powell is expected "to douse the jumbo rate cut expectations because there is no reason for the Fed to start cutting the interest rates by big chunks in the absence of a severe economic slowdown, market stress, or a crisis".

"This is at least what the data suggests and what other Fed members nudge toward, as well," she added.

"The swap markets continue to price in around 95bp cut from the Fed from September to the end of the year. A this-size cut means that the Fed should cut its rates every time it meets this year and cut by 50bp in one of the meetings. From where we stand right now, it seems more likely that this will not happen than the opposite.

"Therefore, the pricing must readjust to match at least a 75bp cut by the year end. The real risk here - for the doves - is if the Fed starts cutting rates in September and decides to pause - like did the European Central Bank (ECB) in July for example.

"If that’s the case, if there is a pause to Fed rate cuts in November, then the year will end with only a 50bp cut for the Fed - and that could weigh heavier on risk appetite and give a serious positive jolt to the US dollar."

On home shores, a survey out earlier from GfK showed that consumer confidence remained stable in August, as improving sentiment towards personal finances was offset by the first fall in economic expectations in six months.

The GfK Consumer Confidence Barometer came in at -13, in line with the July reading and up from -25 in August of last year.

Three of the five sub-indices of the survey measuring people's personal finances improved in August while two measuring sentiment towards the economic environment worsened.

Notably, the sub-index measuring sentiment towards people's personal financial situation over the next 12 months jumped by three points to +6, which GfK client strategy director Joe Staton said could be due to the recent Bank of England interest-rate cut "and hopes of more to come".

Meanwhile, the major purchase index, which tracks the public's confidence in making major purchases such as furniture or electrical goods, improved to -13 from -16.

"The three-point jump in the major purchase index is great news for retailers with more shoppers agreeing that now is a good time to buy big-ticket items," Staton said.

However, two sub-indices measuring consumers' views on the economic situation both declined further into negative territory, with economic sentiment for the coming year falling four points to -15 - the first drop since February.

Nevertheless, Staton said that all the key numbers this month are "significantly more encouraging" than 12 and 24 months ago. "But as we move into autumn and winter, how much further will this slow improvement in the mood of the nation run?"

In corporate news, Direct Line Insurance said that it had identified a miscalculation in its 2023 Solvency II own funds related to the reinsurance arrangement, which did not affect IFRS figures.

Correcting the error, the company said its year-end solvency capital ratio was revised from 197% to 188%, still above its risk appetite range.

The group said it anticipated a solvency capital ratio of around 200% by June, thanks to strong capital generation, and had implemented measures to strengthen its control environment.

Evoke announced the acquisition of New Gambling Solutions (NGS), which operates Winner.ro, making it the number four online betting and gaming operator in Romania by combining 888.ro with Winner.

It said the deal involved a €10m cash consideration for a 51% stake in the enlarged Romania business, with an option to increase ownership to 100% after three years.

The transaction aligned with Evoke's strategy to focus on high-growth, regulated markets, expected to enhance earnings and reduce leverage from 2025 onward, while positioning Romania as Evoke's fifth core market.

Source: Sharecast

Risk Warnings and Disclaimers

Add to Favorites

FXCM

Forex

Central Bank

EUR/GBP Analysis

The Bank of England slashed rates at the start of the month due to the steep deceleration in price pressures and fragile economic activity, in a move that sent EUR/GBP to the highest levels since April. However, the 5-4 split vote highlights the uncertainty around the intentions of policymakers and Governor Bailey warned that they "will need to be careful" to not lower rates "too quickly or by too much".

Although at least one more reduction seems reasonable within the year, a back-to-back move in September does not look easy, with the latest Reuters poll pointing to a hold. After two months at BoE's 2% target inflation picked up again in July as expected, while the economy is improving and pay growth remains high by historical standards despite significant moderation.

The European Central Bank was faster than its UK counterpart, as it lowered rates back in June. Although at last month's hold President Lagarde said the September decision is "wide open", another rate cut looks increasingly likely. Some of its colleagues like Mr Rehn pointed to such move this week. Despite exiting its brief recession the European economy remains weak, disinflation is on track and the latest data showed a substantial moderation in Q2 wage growth.

The monetary policy differential remains unfavorable for EUR/GBP, which runs its second straight losing week, moving below the EMA200 (black line). Bias is on the downside with scope for further losses towards the lower border of the daily Ichimoku cloud, although new 2024 lows will need fresh catalyst.

On the other hand, the ECB's next move if far from certain and recent inflation figures have shown persistence, while the BoE has a habit of surprising markets. Furthermore, the RSI pints to overbought conditions so a recovery effort would not be surprising, bust sustained strength looks hard under current conditions. EUR/GBP Falls Below Key Support on ECB Rate Cut Prospects_1

EUR/GBP Falls Below Key Support on ECB Rate Cut Prospects_1

Risk Warnings and Disclaimers

Add to Favorites

Warren Takunda

Stocks

Asian shares were mixed in muted trading Friday ahead of a speech by Federal Reserve Chair Jerome Powell that might deliver clues on how quickly and deeply the Fed may cut interest rates.

Japan’s benchmark Nikkei 225 rose 0.5% to 38,408.44. Australia’s S&P/ASX 200 slipped 0.1% to 8,017.10. South Korea’s Kospi edged down 0.1% to 2,704.79. Hong Kong’s Hang Seng slipped 0.4% to 17,569.38, while the Shanghai Composite gained 0.3% to 2,856.73.

Japan’s plans for interest rates were also closely watched. Bank of Japan Gov. Kazuo Ueda in his comments to parliament appeared to indicate more increases may be coming, but they would be gradual. The Bank of Japan was closely monitoring the recent gyrations in stock prices and currencies but saw recent wage increases as a positive sign, he said.

Japan’s economy was dragged down for years by deflation, a gradual decline in prices that reflects a stagnant economy. The bank ended negative interest rates in March then raised rates in July.

“We stuck to a very loose monetary policy until March. The point was our commitment to that until it’s confirmed the economy is on track to realize a gradual, stable rise in prices that’s sustainable,” Ueda told lawmakers.

Data is due next week on GDP, or gross domestic product, the value of a nation’s products and services, from the U.S., Canada, Germany and India.

On Wall Street, the S&P 500 fell 0.9% for its worst day following a two-week rally. The Dow Jones Industrial Average dropped 177 points, or 0.4%, and the Nasdaq composite sank 1.7%.

Weighing on stocks was a mixed picture on the U.S. economy, which has been slowing under the weight of high interest rates meant to get inflation under control.

One report showed slightly more U.S. workers applied for unemployment benefits last week than expected.

A second report suggested U.S. business activity remains deeply split. Growth for services businesses is accelerating, according to preliminary data from S&P Global Market Intelligence. But the country’s manufacturing sector appears to be contracting at a more severe rate.

“Growth has become increasingly dependent on the service sector as manufacturing, which often leads the economic cycle, has fallen into decline,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

The Fed has pulled its main interest rate to the highest level in more than two decades. With inflation slowing, the wide expectation is for the Federal Reserve to cut interest rates at its next meeting in September, which would be the first easing since the COVID-19 pandemic crash of 2020.

That’s why so much attention is on Jackson Hole, Wyoming, where Powell will speak Friday at an economic symposium that’s been home to big Fed policy announcements in the past.

One danger is if expectations for coming cuts have gone overboard among investors. U.S. companies continue to report mostly better-than-expected profits for the springtime.

Shares of Zoom Video Communications, one winner of the pandemic that saw its fortunes weaken afterward climbed 13% after delivering better results and revenue than expected.

Overall, more stocks fell on Wall Street than rose, including Nvidia, which was the heaviest single weight on the S&P 500.

All told, the S&P 500 fell 50.21 points to 5,570.64. The Dow dropped 177.71 to 40,712.78, and the Nasdaq lost 299.63 to 17,619.35.

In the bond market, the yield on the 10-year Treasury rose to 3.86% from 3.80% late Wednesday.

In energy trading, benchmark U.S. crude rose 9 cents to $73.10 a barrel. Brent crude, the international standard, rose 10 cents to $77.32 a barrel.

In currency trading, the U.S. dollar fell to 145.78 Japanese yen from 146.24 yen. The euro cost $1.1131, up from $1.1115.