Important developments today:
1. Emerging market equities rebound
2. U.S. new housing construction increases
3. Consumer sentiment in Japan reaches highest since 2007
Emerging market equities rebound. Developing country stocks increased for the first time in three days, as recovering oil prices lifted energy companies and Chinese stocks advanced after hitting a one-year low yesterday. Growing optimism over the EU/IMF aid package also increased investor appetite for EM assets. The MSCI Emerging Market Index advanced 0.5% today, after a 3.7% tumble the previous two days. China’s benchmark Shanghai Composite Index gained 1.4%, reviving from its biggest slump since August. Meanwhile, emerging-market bond spreads over comparable U.S. Treasuries tightened by 1 basis point to 295bps today, according to JPMorgan’s EMBI+ Index. This level represents a sharp decline from this month’s high of 340bps on May 6th.
Source: Department of Commerce
U.S. new housing construction increases. Construction on new single family homes increased by 5.8% in April from the previous month to a seasonally adjusted annual rate of 672,000 homes, the highest since October 2008 [see ]. However, the number of permits issued to authorize new construction fell sharply in April, by 5% (m/m), the sharpest decrease in permits since September 2009. This suggests that builders will likely pause in their construction activity to assess housing demand once the effects of the federal tax credit have passed (since the program’s expiration on April 30).
The federal tax program brought considerable stability to housing, stimulating purchases and bringing a floor to crashing prices. With the expiration of the program, and a low chance of a second extension to the incentives, the recovery in housing remains unclear. While it is encouraging to see traction in new construction, the decline in permits suggests that demand in the housing market may weaken once again.
U.S. producer prices unexpectedly fall in April. Producer prices dipped by 0.1% in April (m/m) - a surprise to market expectations, and a second decline in three months. This follows a 0.7% increase in the month preceding. Core prices, which exclude food and energy costs climbed 0.2% in the month, according to the Labor Department. Headline producer prices stood 5.5% higher than in April 2008, ticking below the 6% inflation measured in March.
Consumer sentiment in Japan reaches highest since 2007. Consumer confidence in Japan surged in April to the highest level since October 2007, as economic recovery showed further signs of increasing private sector participation. The Cabinet Office’s confidence index climbed to 42 in April from 40.9 in March, as nominal wages in the country increased for the first time in almost two years. Although any reading below 50 indicates that more survey respondents were pessimistic than optimistic, it is important to note that the confidence index was last at the threshold 50 level in April 2006, and remained below it for most of the 2007-08 pre-crisis period.