US Housing Data Distracts from Europe

 

As investor focus will be firmly on the start of the European summit in Brussels today, better than expected US housing data sent stocks up in US and Asian trading as the National Association of Realtors reported that pending home sales jumped 5.9% in May, comfortably beating market expectations for a 1% gain whilst matching a two year high hit in March. This followed on from Standard & Poor’s-Case-Shiller reporting that its home price index dropped at an annualized rate of 1.9% in April, better than expectations for a 2.5% drop, whilst reporting that seasonally-adjusted prices increased 0.7% in April from March. Coupled with the release of durable goods data which showed an increase of a seasonally adjusted 1.1% in May, beating the market expectations for a 0.4% gain, this helped provided a boost to investors and gave hope that the US was slowly onto the path of economic recovery.

The Dow Jones closed up 0.74%, whilst the USD fell against most major currencies as European optimism and strong retail figures in Japan saw investors move way from the greenback.

On the eve of today’s highly anticipated summit in Brussels German Chancellor Angela Merkel held two hours of talks with the French President Francois Hollande in Paris as the fate of the beleaguered Euro will be discussed. Already there is talk of the  European Central Bank cutting interest rates next week and fears are already being voiced that the summit will not address the continent’s debt growing debt worries and will not produce enough concrete policies to tackle the crisis and prevent contagion.

The 10 year plan announced by the EU authorities this week is designed to strengthen the eurozone and prevent future crises, creating a European treasury, which would have powers over national budgets. As Spanish 10-year government bonds have been trading at yields above 6.8%, coming close to the 7% considered unaffordable, borrowing costs for countries such as Spain and Italy are likely to remain worryingly high, making the eurozone’s financial situation strained for the foreseeable future at least.

Today’s markets will most likely be a volatile affair with movement on every scrap of information coming out of the first day of the summit. Meanwhile, the release of German unemployment data later in the day should be followed closely too.