The latest new home sales data release out at 10 AM came in well below expectations. New home sales fell 13.4% in July (economists predicted a 2.0% drop), and June’s 8.3% growth figure was revised down to 3.6%.
Stocks initially fell in the wake of the release but are starting to bounce back, while bonds and gold are surging. The dollar is dropping fast against the euro and the yen.
Right now, the S&P 500 is up 0.1%, trading at 1658. Meanwhile, gold is up 1.5%, trading at $US1391 an ounce, and the yield on the 10-year Treasury note is at 2.83%, down 5 basis points from yesterday’s close.
Investors may be worried that the Federal Reserve is marginally less likely to announce a reduction in the pace of monthly bond purchases it makes under its quantitative easing (QE) program at its September 18-19 FOMC meeting.
The release of the minutes from the July FOMC meeting Wednesday indicated that the Fed is watching the housing data closely, especially given the recent rise in mortgage rates sparked by the prospect of tapering back QE.
“While recent mortgage rate increases might serve to restrain housing activity, several participants expressed confidence that the housing recovery would be resilient in the face of the higher rates, variously citing pent-up housing demand, banks’ increasing willingness to make mortgage loans, strong consumer confidence, still-low real interest rates, and expectations of continuing rises in house prices,” said the minutes. “Nonetheless, refinancing activity was down sharply, and the incoming data would need to be watched carefully for signs of a greater-than-anticipated effect of higher mortgage rates on housing activity more broadly.”
The chart below shows the surge in gold following the new home sales release.