Archive for category: DEVELOPED MARKET EQUITIES

New housing construction rose in August, boosted by the strongest pace of single-family home starts in more than two years that shows an improving U.S. real estate market – says the news headlines… Beginning construction climbed 2.3 percent to a 750,000 annual rate, less than forecast and restrained by a drop in the building of apartments, from a revised 733,000 annual pace in July, Commerce Department figures showed today. The average rate on a 30-year fixed mortgage held at 3.55 percent in the week ended Sept. 13, near the 3.49 percent on July 26 that was the lowest in data dating to 1971, according to McLean, Virginia-based Freddie Mac.

I’ve frequently updated the U.S. housing starts data with a historical perspective. Today I’m adding the latest data and reviewing this important chart once again. Given the amount of liquidity out there (QE1, QE2, QE3 and QE Unlimited…) and the lowest level of mortgage rates and the relatively low level of median home prices don’t you think the recovery so far looks anemic? In 1966, 1975, 1982 and 1991 each rebound has taken a “V” shape reversal and resulted in a strong recovery. It has been 3 years since the bottom and the U.S. housing starts are still below the 850K threshold. Yes, housing starts data shows improvement and there has been a 2.3% increase MoM, though let’s not forget that the July figure was revised down! My conclusion is that; I still see the housing market fragile. Until we get the U.S. housing starts data above 850K levels (historical support), I will NOT be bullish on the U.S. housing market.

One of the most important time series that I’m following is the employment situation in U.S. The other one is related to housing. In this post I’m updating my charts with the latest data. On Thursday initial jobless claims data was better than expected with 365,000. Expectation was a range between 365,000-380,000. What is the importance of this data and how should we read it? Since the beginning of 2009, initial jobless claims have been trending down. Over the past few months downward momentum has weakened. In other words the pace of an improving job market has slowed down. That’s why it is crucial to see the resumption of the last 3 year downtrend.  A critical threshold is the 52-week moving average which is now at 380K. As long as we see the initial jobless claims below its long-term average we will expect better jobs market. A trend reversal (to the upside) would occur only if jobless claims break above the 52-week moving average.

Unemployment rate dropped to 8.1% in August. Payroll jobs were anemic even though the unemployment rate dipped.  The unemployment rate slipped to 8.1 percent from 8.3 percent in July due to a sharp drop in the labor force. Is this positive? Well any number that helps the unemployment rate maintain its downtrend is positive in my opinion. After we have seen the 1 & 2 year moving average crossover (bearish crossover suggesting lower unemployment rate) on the unemployment rate, our expectation was to see better numbers month after month. However, unemployment has been sticky and took longer to drop from 9% to 8% levels. What we need to see is the continuation of this downtrend. For now donwtrend remains intact and we should expect better numbers in the following months.

Gold is shining again… read the headlines over the weekend and today. I’ve updated metal charts in August and drew attention to possible strong breakouts. Now is the time for some long-term charts. This time I wanted to put Gold price in euros. The chart below is very powerful and gives a very important message. Since the beginning of 2009 strong uptrend formed a clear parallel trend channel and over the past year price formed a perfect symmetrical triangle. We are now seeing a clear breakout from a year-long consolidation range. If we are going to see the Euro strengthening in the next couple of weeks than Gold is going to outperform the Euro. Gold in euros is likely to start a new uptrend. This chart is telling us that yellow metal is breaking out of a medium/long-term consolidation range and price can target 1,500 levels. (please note that price scale is denominated in euro).

Jobless claims rose by 4,000 for a second week to reach 372,000 in the period ended Aug. 18. Unemployment has been above 8 percent since February 2009 – – the longest stretch in the post-World War II era. Last week I drew attention to the loss of momentum on the U.S. Jobless Claims data. There is a downtrend, and yes Jobless claims have been going down when compared with April 2009 peak. However, the pace of the downtrend has been decelerating. As of this week, the 52 week moving average is at 382,000 level and I believe this technical resistance should be respected. Further weakness in unemployment data has the risk of breaching 382,000 level and reversing the 3 year-long downtrend. This could result in higher unemployment rate.

Here is an update on major currency pairs including U.S. dollar index, GBP/USD, EUR/USD, AUD/USD, NZD/USD, USD/JPY, USD/CAD and USD/CHF.

CURRENCIES (PDF Document)

Highlights:

U.S. dollar index continues to hold above its intermediate-term trend.

Best intermediate-term trading opportunity will present itself on GBP/USD.

AUD/USD & NZD/USD might have another leg up.

USD/JPY might be forming a major base formation.