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Prospects daily: U.S. housing markets get big reprieve in February

Global Macroeconomics Team's picture

Important developments today:

1. Equities and oil climb in global markets, government bonds fall

2. Service sector activity in the U.S. expands

3. U.S. housing market gets big reprieve in February


Global markets: equities and oil continue climb, government bonds fall. Stocks around the world extended their gains on Monday as robust U.S. job data for March bolstered optimism that the global economic recovery is gaining strength. European stocks led gains with the benchmark Stoxx-Europe 600 Index rising 1.5% to an 18-month high. The gauge advanced for a fifth straight week, which is the longest stretch of advances in almost a year. Emerging-market equities climbed for a seventh-day, poised for the highest close since July 31, 2008. Oil prices also edged higher, rising to above $85/bbl as investors speculated that an improving U.S. job market will eventually boost demand for crude oil.

Meanwhile, Treasury prices fell in early trading Monday, pushing yields higher, before the U.S. government’s sale of $8 billion in inflation-indexed notes this week. The yield on benchmark 10-year U.S. Treasury notes crept up 2 basis points (bps) to 3.95%, the highest it has been since June 11 2009, according to BG-Cantor Market Data. The continued rise in yields is likely to raise the cost of borrowing for companies and consumers over the longer term, since government bond yields often set the benchmark for fixed-rate longer-term loans.

U.S. services sector expands in March. The Institute of Supply Management’s (ISM) index for activity in the services sector jumped to 55.4 in March from a reading of 53 a month earlier, indicating the fastest pace of expansion in the non-manufacturing sector since 2007. Activity picked-up in 14 of the 18 service sectors surveyed by the ISM, suggesting that recovery in the dominant part of the economy is broad based now.

The service sector’s recovery has been a since September 2009, when the index first moved above the benchmark 50 level, which separates expanding- from contracting activity. Activity declined in the sector for most of the fourth quarter of 2009, but the New Year has seen firming of sales and orders in the non-manufacturing sector, a favorable development looking forward.


Source: National Association of Realtors

U.S. pending home sales increase. Housing markets got a big reprieve in February, as consumers hastened to purchase homes before the extension on the Federal Income Tax Credit expires on April 30. Pending home sales, or purchases where contracts have been ratified but loans have not yet been disbursed, grew by 8.2% in February (m/m) following average declines of almost 7% in the preceding three months [see ]. Consumers have been slow to respond to the incentives in the extended tax credit program, but the latest improvement in the National Association of Realtor’s pending home sales index provides the first sign that the housing sector may be catching a second wind despite offsets from high unemployment and tight credit conditions.


Among emerging markets:

In Latin America and the Caribbean, Chile's IMACEC economic activity index, inched up 2.7% year-on-year in February, below expectations, as the impact of the February 27 earthquake is now evident in the data.

In Central and Eastern Europe and the CIS, Russia’s consumer price inflation eased to 6.5% in March from 7.2% in February (y/y) as a stronger ruble made imports cheaper and as consumer demand remained sluggish. Meanwhile, growth in the services sector picked-up on stronger new orders, as indicated by the PMI released by VTB, which inched up to 53.6 in March from 51 the previous month.

In Sub-Saharan Africa, Ghana’s gold output increased 12% in 2009 to 2.9 million ounces, as production at the country’s two largest mines increased. Gold revenues increased to $2.8 billion from $2.2 billion. Meanwhile bauxite output dropped 29% and manganese output was down 7%.