US Economy Restores Market Calm
Further evidence that the US economy is in recovery mode helped restore confidence to global share markets over the past 24 hours.
New homes sales have averaged 393,000 pa over the past 6 months. This represents a 28% increase from 2010 when only 307,000 new homes were sold. Improving demand is also having a real impact on real estate values. The median price of a new home was $246,800 last month up 15% from $214,000 in 2009.
The industrial sector also contributed to sentiment with Durable Goods Orders up 5.7% in February. Even excluding the volatile aircraft orders, this figure was healthy and included positive contributions from sectors like electrical equipment, computers and primary metals.
Positive US sentiment flowed through to Asian markets with all major regional markets higher in a solid days trading.
The Bank of Japan will soon join the Fed, the ECB and the Bank of England on the list of the Central Banks in the world’s largest economies with very expansionary and unconventional monetary policies. Currency markets are beginning to focus on next week’s BOJ meeting and the Yen was sold in Asian markets as traders began to position for this. With a 2% inflation target and a new Governor put in place to achieve it, the Bank will not want to get off to a bad start by disappointing markets and causing a major yen rally.
Risk markets will also have a watching brief on the Italian bond auction where up to 7bn of 5 and 10 year bonds will be offered. Bond yields can be one of the key indicators of attitudes on Euro risk. So far the Cyprus situation has had limited impact. However, with Cyprus’s banks scheduled to open tomorrow and an Italian government yet to be formed, a disappointing bond auction could see “risk off” sentiment returning to markets.
Oil prices, especially, Crude Oil West Texas benefited from yesterday’s healthy US data. Brent was also stronger but has now returned to the potential resistance of its 200 day moving average. More good news may be needed for the rally to continue much beyond this. Elsewhere, gold is struggling to improve, showing signs of forming a triangle pattern.
Early indications are that European markets will open slightly higher with CFDs pointing to an 18 point gain in the UK 100. Energy stocks may be a focus today with stronger oil prices and yesterday’s announcement of a shale gas production sharing contract between China and Royal Dutch Shell.