eToro Weekly Market Review - 6/25/2014

What's Going on in the World?

Wall Street Eyes Housing Data

This week there will be one question which will dictate prevailing sentiment and that is how strong is the U.S. economy? At the center of this question will be the reality check of the U.S. housing market, the sector that initiated the crisis that began in 2008. Some recent data, e.g. housing sales and housing starts, presented a challenge for Wall Street and the Fed with the world’s largest real estate market appearing rather sluggish, questioning the Fed’s optimistic tone and driving Wall Street and Dollar sentiment. Yet the data showed mortgage applications, a fair indicator of housing demand, had surprisingly rebounded, rising last week by 11% from the previous reading. With the weakness in housing posing a primary concern and the Fed’s monetary policy at a crossroads Wall Street and FX traders will undoubtedly be focused on the upcoming data.

There will be four major indicators to consider, each deeply entrenched in the other. The first and foremost is existing home sales due later today alongside new home sales due out tomorrow. Existing home sales is the more important, and indicates the dynamics of housing inventories. If existing sales jump closer towards 5.8M houses, then there’s a good chance of that pushing up housing prices and raising demand for new home sales. The remaining two indicators, also due on Tuesday, will be the housing prices index which is exactly as it sounds, indicative of the gains in housing prices. Then comes the S&P/Case-Shiller home price indices which investors hope will show an acceleration in prices compared with last month’s 12.4% YOY. When combining sales and prices, investors around Wall Street and FX traders around the Dollar will get the pulse of the market and could gauge whether or not the housing market is recovering and then carve out their investment strategies accordingly.

Beyond Housing

Despite the temptation to focus solely on housing there will be other important indicators due from the U.S. that could help draw a more accurate picture on the U.S. economy, including durable goods, Richmond Fed’s manufacturing index and U.S. GDP (which, as the third release, is less significant but revisions are possible). Then on Thursday there is consumer expenditures, which will reveal the status of the U.S. consumer (who accounts for two-thirds of the U.S. economy) and personal income which is important as an indicator of wage growth and monetary policy. Last but not least, Friday will bring the Reuters/Michigan consumer sentiment reading.

Down to Business

Wall Street and Dollar bulls will both be eyeing the same data, more or less, and will seek an overall picture of the U.S. recovery which could support Dollar demand vs its peers and sentiment for Wall Street, at least until fears of a rate hike loom.

US Exiting Home Sales (Monday)

Exiting home sales figure will be the opening shot on a series of data on the US Housing market. A strong figure is expected to benefit the Dollar alongside indicators such as the S&P and Dow.

European PMI data (Monday-Tuesday)

In Europe, there will be two major focuses; the sentiment PMI indicators from the Eurozone coming today alongside the German IFO due out tomorrow which will shed more light on chances of a fast recovery on the Eurozone and could have a slight impact on Euro appetite.

UK Inflation Report (Tuesday)

Mark Carney, the BoE governor, recently indicated that several factors were influencing the central bank’s newly hawkish bias and that included an overheating housing sector and efforts to meet the BoE’s inflation target, even as they use up spare capacity in the economy. The markets’ expectations are growing that the central bank is on the verge of raising benchmark rates in order to achieve both goals, i.e. cooling off housing prices and a 2% inflation target. Analysts believe that the BoE Inflation Report, which comes out on Tuesday, will likely show that inflation may have eased last month to 1.7% (yoy), down from April’s read of 1.8%. After Carney’s speech, the Pound Sterling has moved steadily higher, but the outcome of the inflation report might be the determinant for the rally’s continuation.

US Housing Indicators (Tuesday)

The final set of US housing data for the week will be the new home sales and S&P/Case-Shiller home price index . Both will be key for Dollar and Wall Street sentiment. A strong figure will pull dollar demand alongside US equities higher and vise versa.

US Durable Goods (Wednesday)

Durable goods will be more keenly watched then the GDP figure which is already the third release. A good figure will anchor expectations of a US recovery.

UK GDP (Thursday)

Will be the final GDP release of the Q1 growth. An upward revision from last month’s release could support Sterling demand.

Japanese CPI (Thursday)

If inflation in Japan will accelerate that could support a Yen comeback even if a minor one.

Consumer Sentiment (Friday)

US Reuters/Michigan Consumer sentiment will be the last piece of the puzzle in a US economic reality check. A strong consumer sentiment will enhance an already positive sentiment however if the data

Article Written by: Adam Slachevsky