U.S. Housing Strong, Treasuries Weak

Posted Thursday, May 16, 2019 by
Shain Vernier • 2 min read

The U.S. real estate market is coming alive, as it usually does May through August. This morning’s collection of housing metrics, as well as a disappointing T-bill auction, suggest that lending is picking up. If this turns out to be the case, we may be in for a summertime boom in the U.S. economy.

U.S. Housing Improves In April

The construction numbers from April are in and they show a significant uptick in activity. It is full speed ahead for American developers ahead of the rapidly approaching summer months. Here is a quick look at the data:

Event                                                  Actual       Projected       Previous

Building Permits (MoM, April)       1.296M         1.290M           1.288M

Housing Starts (MoM, April)           1.235M         1.205M           1.168M

Philadelphia FED Survey (May)        16.6                9.0                   8.5

4-Week T-Bill Auction                      2.365%            NA                 2.385%

Gains in Building Permits and Housing Starts suggest that capital is readily available. Falling yields in the 4-Week T-Bill second this notion, as does the recent downturn in mortgage rates. At least for now, lenders are happy to put money on the street at an affordable price. This is a positive for U.S. economic growth and may foster a banner year in the real estate sector.

June USD Index Futures Rally, Take Out 97.500

The winning streak for the USD Index stands at three sessions and appears ready to add a fourth. Despite falling Treasuries and a growing belief that the FED may cut rates toward the end of the year, the USD Index is in position to threaten 98.000.

June USD Index Futures (DX), Daily Chart
June USD Index Futures (DX), Daily Chart

Overview: As of this writing, the CME FEDWatch index is assigning a 41% chance of a ¼ point FED rate cut in December. Even more interesting is that a ½ rate point reduction is garnering a 22% probability.

In comparison to what we heard from the FED last December, these are astonishing numbers and should bring some weakness to the Greenback. Regardless of the growing odds of rate cuts, today’s USD Index is on the bull and pushing toward fresh yearly highs.

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