US New Home Sales beat expectations

March 24, 2016

FX News Today

European Outlook: Asian stock markets sold off overnight, oil prices are below USD 40 per barrel, and the USD continues to rise after hawkish Fed comments. The EUR is also up against most currencies, highlighting one of Draghi’s problems, which haven’t gone away after the last round of easing measures. US and UK stock futures are also down and it seems markets will be going into the Easter holidays with in a risk off mode, amid fresh uncertainties about the US rate outlook and geopolitical risks. EU Interior Ministers will meet today to talk about terror threats. The ECB publishes its monthly bulletin and the data calendar includes, French business confidence and UK retail sales.

US New Home Sales beat expectations: There was a 2.0% rise to a 512k rate in February after net upward revisions that left a 12.0% five-month climb from a 10-month low of 457k in September, though sales remain 6.1% below last February’s 545k cycle-high. Both inventories and median prices also beat estimates after upward revisions, with a 1.7% inventory rise to a six-year high in January and a 6.2% median price rise that leaves a 2.6% y/y increase. New home sales are poised for a 511k average in Q1 after disappointing 2015 rates of 510k (was 509k) in Q4, 488k in Q3 and 497k in Q2, but a higher 517k cycle-high rate in Q1 of last year. New home sales have risen 90% from the 273k record-low in February of 2011, alongside smaller cyclical climbs of 39% for pending home sales and 47% for existing home sales from lows in 2010. We saw big cyclical climbs of 146% for housing starts and 127% for permits from lows in 2009, and 142% for new home construction from a low in 2011.

Fed’s Bullard makes a case for April: In a Bloomberg TV interview, he has growing concerns about its guidance. He thinks policy is in reasonably good shape, but the odds the Fed falls behind the curve have increased modestly. There will likely be an overshoot on NAIRU near term, with the unemployment rate falling below 4.5% this year and that may force the FOMC to have to hike rates more rapidly later on, he acknowledged. Core PCE inflation should be over 2% in 2017. It’s unlikely the Fed will go to a negative rate policy. He also noted all meetings are “live.” Neither of those should be revelations, however, as the mix of data have indeed kept the door open for action next month (indeed, that was the surprise with the March FOMC, that it seemed to disregard the increase in inflation).

US VIX equity volatility has turned higher:  with the downdraft on stocks after the perverse terror-rally on Tuesday succumbed to a round of hawkish Fedspeak, dollar gains and a commodity downturn yesterday. The VIX closed 5.43% higher just shy of the psychologically important 15 at a day high of 14.94. Having roamed as low as 14.17 after basing at 13.79 2016 lows on Monday. That’s still well off 32.09 2016 highs set back in January, but the VIX keeps getting capped by central bank policy largesse as the BoJ followed the ECB into NIRP and the Fed took a dovish tack in its statement last week. Looks like the VIX is getting complacent again relative to global risks, which could put in a floor in the 12-14 zone before a run back over 20 if the S&P 500 retests its 2,017 200-day MA on the downside again.

Main Macro Events Today

UK Retail Sales:

Expected to fall -0.7% from a rise in February of 2.3% It’s the primary gauge of consumer spending, which accounts for the majority of overall economic activity. If the fall is less than expected then this could be positive for GBP.

US Durable Goods:

Durable goods orders expected to fall 2.0%., Shipments expected at -0.5%.Inventories expected to grow 0.1%.I/S ratio expected at 1.65 from 1.64 in January. Forecast risk: downward, as there was a decrease in Boeing orders in February.

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