Forex Fundamental News Facts for 24th May, 2024

Forex Fundamental News Facts for 24th May, 2024

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[Quick Facts]
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1. U.S. 30-year mortgage rates fell below 7% for the first time in over a month.
2. Japan’s inflation cools, but the ineffectiveness of foreign exchange intervention will lead to rate hikes.
3. U.K. consumer confidence extends recovery.
4. Fed’s Bostic notes the need to keep rates high for longer.
5. U.S. goods disinflation is close to running its course.
6. PMI shows that the U.S. economy will grow strongly in Q2.
7. Eurozone PMI has been above 50 for the third straight month.
8. RBNZ ‘Absolutely’ Prepared to Hike Rates If Necessary, Silk Says.
9. Market Pricing for RBA Rate Cuts Is ‘Too Shallow’.
10. Consumer Confidence Continues to Improve: GfK.
11. Gold Price and Crude Oil Price Signal Bearish Acceleration.

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[News Details]
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U.S. Mortgage Rates Dip:

For the first time in over a month, U.S. 30-year mortgage rates have dropped below 7%. The average rate during the week ending May 23 was 6.94%, the lowest since the second week of April. This decrease could potentially stimulate the sluggish real estate market. Data from this month indicates a slowdown in the real estate market in April following a robust first quarter. Both existing and new home sales saw a decline last month, with single-family housing starts and building permits also experiencing a drop.

Data from the U.S. Commerce Department reveals a 4.7% decrease in new home sales, falling to a seasonally adjusted annual rate of 634,000 units. This decline is more significant than economists’ forecasted rate of 679,000 units, indicating the housing market’s struggles in the second quarter. The resurgence in mortgage rates and escalating home prices have undermined affordability for many prospective buyers.

The drop in new home sales varied across the U.S. The Northeast saw the most substantial decrease at 20.9%, followed by the West and South with 7.3% and 4.8% declines, respectively. Contrarily, the Midwest experienced a 10% increase in sales.

New home sales, recorded at contract signing, serve as a key health indicator for the housing market. However, these figures can fluctuate monthly. Year-over-year, sales dropped by 7.7% in April.

The average rate on a 30-year fixed-rate mortgage rose above 7% in April, according to Freddie Mac data. This rise in borrowing costs has dampened the housing market’s momentum. Reports show a decrease in existing home sales in April, along with declines in single-family housing starts and building permits.

Builders have tried to offset higher mortgage rates by building smaller homes and offering buyer incentives. Despite these efforts, the median price of a new home increased by 3.9% year-over-year, reaching $433,500 in April. The majority of new homes sold fell within the $300,000 to $499,999 price range, suggesting a market leaning towards higher-priced homes.

As of April’s end, the market held 480,000 new homes, up from 470,000 in March. Given the current sales pace, it would take 9.1 months to clear this inventory, an increase from March’s 8.5 months. This supply increase suggests continued builder activity, but higher prices and mortgage rates are restricting the buyer pool.

The rise in new home prices and mortgage rates has also affected affordability. In 2024’s first quarter, a median household needed to allocate 38% of its income to afford the mortgage payment on a median-priced new single-family home, according to an index from the National Association of Home Builders (NAHB) and Wells Fargo. This percentage jumps to 77% for low-income families.

Higher costs for land, labor, and materials limit builders’ ability to reduce prices. Larger builders like DR Horton and Toll Brothers have reported strong earnings by using their scale to lower mortgage rates and sustain demand. However, the overall market remains below the five-year average for new home sales.

Robert Dietz, NAHB’s chief economist, stressed the need for policy changes to address the housing shortage. He stated, “With a nationwide shortage of roughly 1.5 million homes, the lack of housing units is the primary cause of growing housing affordability challenges.” Dietz advocated for quicker permit approvals, resources for skilled labor training, and improvements in building material supply chains to help alleviate the housing crisis.

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Japan’s Inflation Slows:

In Japan, inflation has cooled for two consecutive months but remains above the Bank of Japan’s (BOJ) price target. The Core CPI increased by 2.2% in April year-on-year, aligning with market predictions. Despite this slowdown, the BOJ is likely to continue seeking opportunities to further tighten monetary policy.

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U.K. Consumer Confidence Improves:

In the U.K., GfK consumer confidence rose to -17 in May, marking a recovery for the second consecutive month and reaching its highest level since December 2021. This improvement is largely due to a positive economic outlook and an increase in household budgets as inflation hits a three-year low.

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Fed’s Bostic Advocates for Higher Rates:

Atlanta Fed President Bostic noted in a recent speech that inflation stagnated in the first quarter of 2024. He emphasized the need to keep interest rates higher for longer to bring inflation down.

Raphael Bostic, the President of the Federal Reserve Bank of Atlanta, has stated that monetary policy has been less effective in slowing growth than in previous cycles. This highlights the need to maintain higher rates for a longer period to control inflation.

During a virtual discussion with Stanford Graduate School of Business students, Bostic expressed satisfaction that inflation has started to decline after stagnating in the first quarter of 2024. However, he noted that the progress is slow.

Bostic explained that individuals and businesses are less sensitive to interest rates due to the economic changes brought about by the pandemic. As inflation rose, those with debt sought to secure low-cost debt, leading to a significant amount of debt being refinanced at lower rates. This has reduced the impact of the Fed’s primary monetary policy tool.

Minutes from the Federal Open Market Committee meeting that ended on May 1 revealed that while participants believe monetary policy is well-positioned, some officials are open to further tightening if necessary.

Since last July, Fed officials have maintained rates between 5.25% and 5.5%, a two-decade high, in an attempt to reduce inflation to the central bank’s 2% target. Policymakers have welcomed recent data showing a slowdown in a key measure of underlying inflation in April, the first in six months. However, some Fed officials have indicated that they need more evidence of a sustained decrease in inflation before they would consider reducing rates.

Bostic, a voting member of this year’s monetary policy, believes that the central bank will be in a position to start lowering interest rates by the end of the year, likely not before the fourth quarter. Fed Governor Christopher Waller stated that he needs to see several more positive inflation figures before initiating interest-rate cuts, adding that maintaining steady rates for a few months won’t harm the economy.

Bostic emphasized that he would be hesitant to change direction once the central bank begins lowering rates due to the potential uncertainty it could create in the economy. He stressed the importance of moving in one direction only to avoid policy uncertainty.

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U.S. Goods Disinflation Nearing Its End:

U.S. businesses faced higher input prices in May. This suggests that goods disinflation is close to running its course. Companies sought to pass higher costs onto customers by increasing selling prices.

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U.S. Economy Set for Strong Growth in Q2:

The U.S. May manufacturing PMI came in at 50.9, slightly higher than the previous and expected readings of 50; services PMI was 54.8, also higher than the previous and expected readings of 51.3. This suggests that the U.S. economy will grow strongly in Q2.

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Eurozone PMI Above 50 for Third Consecutive Month:

The HCOB Flash Eurozone Composite PMI Output Index climbed to 52.3 from 51.7 in April. It has been above 50 for three consecutive months, suggesting that the Eurozone economy has gained recovery momentum further.

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RBNZ ‘Absolutely’ Prepared to Hike Rates If Necessary, Silk Says:

New Zealand’s central bank is ready to increase interest rates if necessary to control inflation, according to Assistant Governor Karen Silk. She highlighted that the bank is vigilant and prepared to respond to any significant economic risks. Despite leaving the Official Cash Rate at 5.5% recently, the bank hinted at a potential hike due to domestic inflation pressures. This led to a shift in market expectations, with investors and economists predicting no rate cut until next year.

The New Zealand economy, which experienced a recession in the latter half of 2023, is projected to grow by a mere 0.4% this year. This sluggish growth could impact corporate profits and employment rates, potentially tempering inflation. Silk expressed concerns about the persistence of domestic inflation and the economy’s limited growth capacity without price pressures.

The Reserve Bank of New Zealand (RBNZ) anticipates that headline inflation will return to its target range of 1-3% by the end of this year, but it doesn’t foresee achieving its 2% target until mid-2026. The RBNZ has consistently underestimated non-tradables inflation, a key indicator of domestic price pressures, for four consecutive quarters. This has led to a reassessment of the economy’s capacity pressures and an adjustment in their models.

Silk emphasized the importance of monitoring a broad mix of measures, including labor market data, to inform their decisions. She stated that a fifth consecutive underestimation of non-tradables inflation wouldn’t necessarily be problematic, as long as other economic indicators continue to show signs of easing.

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Market Pricing for RBA Rate Cuts Is ‘Too Shallow’:

Goldman Sachs Group Inc. believes that the current money market pricing for Australian interest-rate cuts over the next year is underestimating the potential for change. They predict that the combination of slowing inflation and increasing unemployment will prompt the Reserve Bank to take action sooner than expected.

Market traders are currently betting that the Reserve Bank of Australia (RBA) will maintain the cash rate at the existing 4.35% for approximately another year, with the first reduction anticipated in July 2025. However, Goldman Sachs forecasts three cuts by that time, resulting in a cash rate of 3.6%.

Goldman Sachs economists, led by Andrew Boak, argue that financial markets are underestimating the extent of the easing cycle over the medium term. They expect the RBA to begin easing as early as November 2024, driven by softer inflation data, a cooling labor market, and the likelihood of easing cycles across key G-10 peers.

Despite the RBA maintaining its cash rate at a 12-year high since an unexpected increase in November, Goldman Sachs notes that the overall demand still surpasses the economy’s supply capacity. The central bank continues to operate in a data-dependent mode, with inflation remaining above the 2-3% target. However, it has also indicated that the threshold for any further increases is quite high.

Australia’s economy experienced a slowdown in the last quarter of the previous year, and retail sales volumes have decreased in five of the last six quarters. Additionally, a significant decline in business forward orders in April suggests a considerable risk of a contraction in domestic demand.

Boak anticipates that unemployment will increase to 4.6% by the end of the year, up from 4.1% in April. Goldman Sachs’ proprietary measure of underlying inflation also demonstrated stable price pressures in the first quarter.

Furthermore, the increase in mortgage rates for Australians has exceeded that of global counterparts in both speed and scale. This reflects Goldman Sachs’ proprietary measure of financial conditions, which has tightened further in the past month alongside the rise in the real trade-weighted currency, posing a significantly larger obstacle to growth than in the US.

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Consumer Confidence Continues to Improve: GfK:

The UK’s leading consumer confidence survey reveals a consistent upward trend, primarily driven by strengthening household finances and positive economic expectations. The GfK Consumer Confidence Index rose by two points to -17 in May, with four out of five measures showing an increase compared to the previous month.

The most significant factor contributing to this improvement was a 5-point increase in the forecast for personal finances. Expectations for the UK’s overall economic situation also saw a substantial boost. The only downturn in May was a minor decrease in the major purchase measure, which fell by one point to -26.

Joe Staton, Client Strategy Director at GfK, highlighted that the recent decline in headline inflation and the potential for future interest rate cuts have contributed to a positive trend following a prolonged period of stagnation. He emphasized that consumers are evidently perceiving an improvement in conditions. This positive outcome suggests a potential for further growth in confidence in the upcoming months.

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Gold Price and Crude Oil Price Signal Bearish Acceleration:

Gold Price Analysis Gold prices saw a significant rally, surpassing the $2,350 resistance and peaking above $2,425. However, a sharp decline followed, with prices falling below the $2,400 support level and further down to the $2,325 zone. The price is currently showing bearish signs with immediate resistance near $2,355, which is the 23.6% Fibonacci retracement level of the recent downward move from $2,450 to $2,326. The main resistance is around $2,388, and if the price breaks above the $2,450 resistance, it could potentially reach $2,480 or even $2,500. On the downside, the first major support is near the $2,312 level, and a break below this could lead to a further decline towards $2,250.

Oil Price Analysis On the WTI Crude Oil chart, the price struggled to rise above $80.00 and started a fresh decline below $78.00. The price steadily fell below the $77.40 pivot level and even dropped below $76.50. The price is now consolidating losses after testing the $76.30 zone. Immediate support is near the $76.30 level, and the next major support is near $75.00. A downside break could lead to a decline towards $73.50 or even the $72.00 support zone. On the upside, immediate resistance is near $76.80, which is the 23.6% Fibonacci retracement level of the recent downward move from $78.52 to $76.31. A clear move above the trend line resistance could send the price towards $79.05 or even $82.00 if the price continues to climb.

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🔥News releases on THIS WEEK :

23/05 Thu Day 1 All G7 Meetings

23/05 Thu 6:30pm USD Unemployment Claims

23/05 Thu 7:45pm USD Flash Manufacturing & Services PMI

23/05 Thu 8:00pm USD New Home Sales

23/05 Thu 8:30pm USD Natural Gas Storage

24/05 Fri 12:00pm GBP Retail Sales m/m

24/05 Fri 1:45pm CHF SNB Chairman Jordan Speaks

24/05 Fri Day 2 All G7 Meetings

24/05 Fri 6:30pm CAD Core Retail Sales m/m

24/05 Fri 6:30pm USD Core Durable Goods Orders m/m

24/05 Fri 7:35pm USD FOMC Member Waller Speaks

24/05 Fri 8:00pm USD Revised UoM Consumer Sentiment

N.B. Time mentioned here is on Gmt +6

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Sources :
– CNBC, Bloomberg, Reuters, Fastbull, Yahoo Finance, CNN, ForexFactory News, Myfxbook News etc

Prepared to you by “Akif Matin“

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