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Market Essentials - Global Housing Sector in the Spotlight

Last updated 6/27/2012 7:44 PM EST (GMT -5) 2 Comments

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Andrew Taylor

Market Strategist, GFT

Follow @ATaylor_GFT

Markets were reminded what optimism feels like overnight as US data provided a sprinkle of positive releases to shift the focus from the doom and gloom of the Euro Zone. The US and European equities enjoyed another session of restricted positive gains. This suggests that trader ware not getting too carried away with the data especially with pressing events still ahead.

EU Watch

EU leaders have publicly announced their polarisation in thoughts before the Summit it clearly suggests that the situation is not dire enough for compromise. This will see them abandon any real discussions on structural reforms and produce an action plan that will look great on paper. The leaders fall back option, is to force the ECB to carry the weight of the situation by undertaking what they have successfully being doing for the past 2 years, nothing.

US Watch

A rise in US Durable Goods Orders were offset by soft shipment figures which initial left markets neutral but it was the additional positive housing sector news that underpinned moves higher. As much as traders would love to believe that this enormous economy is turning the corner, realists know that these housing sector reads are known to be volatile. This latest release confirms this theory when you compare May +5.9% to Aprils -5.5%. The markets were within their right to feel confident enough for short term risk asset buying but with pending issues across the Atlantic and more deep seeded employment concerns in the US, conviction for a major move higher will occur on global fundamental shifts rather than local ones at this point.

Australia

Today Australia will release new home sales data for the month of May. Although we are aware that housing data can provide skewed reads month to month we are able to gauge an average when equating the past 3 or 6 reads depending on trading time frames.

For April we saw +6.9%, March -9.4%, Feb +3.0%, Jan -7.3%, this should give you some idea of the reliability and limited use in assessing on just one monthly figure. This is congruent with most markets around the world where a 3, 6 or even 12 month average has more meaning. However we do need to understand the state of this all important sector.

Australia housing sector has held up well during the GFC, this has been aided by government subsidies, increase in migration levels, low employment and rising income levels. Its main concern is a distinct shift in household debt-to-income ratios which stood at 46% in 1990, 94% in 2000 and is now one of the highest in the developed world at 150%. Alarming as this sounds, Australians have been able to manage this increase with loan arrears and defaults remaining very low.

Looking ahead, the risk for Australia will be any shifts to macro economic trends as well as a slowing of migration levels, neither looks to be taking a backward step at this stage which should support the housing market.

Outlook

The Asian session today should see a positive start to proceedings and should retain the current confidence set by overnight markets. However with the light volumes of late we should remain range bound with a slight biddish tone.

Economic Events to watch:

2350 JP            May Preliminary Retail Sales

2350 JP            Jun Provisional Trade Statistics

0030 JP            May Detailed Import & Export Statistics

0100 NZ           Jun NBNZ Business Outlook

0130 AU          May Job Vacancies  

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Comments (2)

Darkdoji

June 28, 2012 at 10:19 AM ET

On Boris and Kathy,

Fair enough and sincerely hope they continue to do well wherever they are with best wishes (I am sure not just from me alone). This site has been for me a most useful resource while they were here and it seems you guys are set to keep it that way if not improve on its dependability in both fundamental and technical professionalism. I wish all of us luck and thanks for responding.

Neal

June 28, 2012 at 11:28 AM ET

Thank you for your kind words Darkdoji. While they have relatively large shoes to fill, we hope that the time we have spent learning from them and adding in our own flavor of commentary provides you everything you would expect from FX360. Thank you for your continued support!

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About The Author

Andrew Taylor's financial markets career started in 1991 in the interbank FX market,where he worked for one of the largest banks in Australia. Andrew then went on to trade on behalf of some of the biggest global banks, working across five of the world's major financial hubs: Sydney, New York, Singapore, Auckland, and Tokyo.

His more than 20 years of experience spans market borders and asset classes, covering global equities, commodities, options and futures. Andrew's wealth of trading experience and ability to communicate with traders of all levels has put him in demand as a first point of contact for clients and the media alike when seeking information and guidance.