U.S. Existing Home Sales Rose 5.1% in March Sales of previously owned homes rose in March, a sign of recovery in the housing market after a rocky start to the year although inventory remained tight.
Sales rose 5.1% in March from the prior month to a seasonally adjusted annual rate of 5.33 million, the National Association of Realtors said Wednesday. The result beat economists’ expectation for a sales gain of 4.3% to a rate of 5.30 million.
February’s sales pace was revised down slightly to 5.07 million. March’s sales were 1.5% higher than a year ago. (…)
The National Association of Realtors said there were 1.98 million existing homes available for sale at the end of March, down 1.5% from a year earlier and a 4.5-month supply at the current sales pace. (…)
Homes stayed on the market for an average of 47 days in March, down from 59 days in February.
Limited supply has also had an impact on prices: the national median sale price for a previously owned home last month was $222,700, up 5.7% from a year earlier, marking the 49th straight month of year-over-year gains.
Sales posted strong gains in the Midwest and Northeast. The Midwest’s sales rose 9.8% from the prior month to an annual rate of 1.23 million. Sales in the Northeast, which have lagged during the recovery, increased 11.1% from February to an annual rate of 700,000.
In the West, sales rose 1.8% in March from February, while the South saw sales rise by 2.7%.
Sales of existing homes, 90% of the housing market, are erratically going sideways, indicative of rather soft and volatile demand.
In fact, the South is the only market with sustained demand.. Data from the large South market (sales, inventory and prices) are heavily impacting the national averages.
IEA chief Fatih Birol said low oil prices had cut investment by about 40 percent in the past two years, with sharp falls in the United States, Canada, Latin America and Russia. (…)
The drop in supply from some producers could be offset by increased production in countries including Russia and Iran, however.
Russia’s energy minister said the country might push oil production to historic highs. Iran has reiterated its intention to reach output of 4 million barrels per day, after a global deal to freeze output collapsed and Saudi Arabia threatened to flood markets with more crude.
Nigeria will hold talks with Saudi Arabia, Iran and other producers by May, hoping to reach a deal on an output freeze at the next OPEC meeting in June, the West African country’s oil minister told Reuters. (…)
Oil gains on stronger market outlook Crude rises on sturdy global demand and falling US output
(…) The government estimates US crude oil production will fall below 9m barrels per day this month, from a peak of 9.7m b/d a year ago.
A weekly supply report by the Energy Information Administration released on Wednesday showed a mixed picture for domestic oil stocks, but a few data points stood out for the bulls. US petrol demand is running about 4 per cent higher than the same time last year, and the oil refineries were mopping up more than 16m b/d of crude as they met demand from motorists and other fuel consumers.
US diesel stocks fell by 4m barrels to 140.9m barrels, helping to propel a 5.5 per cent rally in Nymex diesel futures. Citigroup, in a note, said exports were likely to have caused the decline.
At the same time, US crude stocks swelled another 2.1m barrels to 538.6m barrels, close to record highs. The rise followed a jump in US crude oil imports as fog lifted and enabled ships to unload around the port of Houston, Citi said.
The rally came despite headlines suggesting the world remains awash in oil. In Kuwait, a workers’ strike that crimped crude supplies has ended. In Russia, the energy minister cast doubt on any deal to throttle back production, including from the Opec cartel which is next scheduled to meet in June.
(…) The developed world alone has well over 3 billion barrels of commercial crude and refined-product inventory on hand, according to the International Energy Agency. And supply still slightly exceeds daily demand of 96.8 million barrels of crude. (…)
Geopolitics: Kuwait – Warning Shot
Though the Kuwaiti oil strike was resolved in just days, it signals that gulf monarchies could face public pushback against efforts to scale back entitlement programs in the face of ballooning deficits. It remains unclear exactly what government concessions led to workers standing down, but it purportedly offered to hold off on implementing the new payroll scheme (a reduction in wages and benefits) over the weekend. The parliament has also become more assertive in seeking to shield citizens from the economic impact of low oil prices.
Earlier this month, the assembly blocked electricity and water price increases for Kuwaiti citizens, while allowing a hike for expats and businesses. Signaling proactive intent, the speaker pledged to “continue to pressure the government to shoulder its responsibilities in facing the economic crisis with responsible decisions that won’t hurt citizens.” (RBC)
Oil: Iranian Crude Exports Surge
(…) after a tepid start, shipments printed as high as 1.8 mb/d recently, thanks to a relatively strong, albeit choppy, loading schedule over the past several weeks. Upon sanctions relief, Iran moved quickly out of the gate to ramp up exports to Europe, and certain Asian countries such as India and China have since followed suit in recent weeks. The recent surge in exports, coupled with a relatively slower pace of production growth, suggests that some barrels are in fact being discharged from floating storage. (RBC)
Canada Does the Global Economy a Favor Canadians are acting like model global citizens in macroeconomic policy, with a combination of monetary and fiscal stimulus that may end up helping the rest of the world as much as it helps Canada.
Last month, Prime Minister Justin Trudeau’s Liberals introduced a budget that sharply boosts spending on a raft of initiatives from infrastructure to social benefits. Because of that fiscal stimulus, the Bank of Canada has refrained from cutting interest rates, helping send the Canadian dollar sharply higher.
The higher dollar will be a drag on Canada’s trade sector, diluting the budget’s stimulative impact. But Canada’s loss is the world’s gain. In fact, Canada is faithfully executing the formula that finance ministers and central bankers from the top 20 economies agreed to pursue at their just-concluded meetings in Washington: namely, rely less on monetary and more on fiscal policy to rejuvenate growth. The problem is that Canada is virtually alone in being both willing and able.
The global economy today resembles what game theorists call a collective action problem. This is a situation where countries will end up worse off by pursuing their own interest than by cooperating. Central banks in the eurozone and Japan have cut interest rates into negative territory, for instance, in what others claim is an attempt to cheapen their currencies to bolster exports and inflation. (…)
The International Monetary Fund, the Organization for Economic Cooperation and Development and the U.S. Treasury Department for the past year have urged any country not drowning in debt to stimulate their economies by borrowing. The IMF this month recommended the G-20 stand ready to implement coordinated stimulus equal to 1% to 1.5% of GDP. (…)
Stimulus measures are expected to add 0.5 percentage point to growth over the next two years, while the budget balance will swing from a slim surplus last year to a deficit of 1.5% of GDP by next year. (…)
But just 42% of Canada’s stimulus over the next two years goes toward infrastructure. Most of the rest goes to expanded social transfers such as child benefits, unemployment insurance and old-age pensions. All are permanent obligations and some at the margin may discourage work. Canada, with its pristine balance sheet and manageable pension burden, can easily handle it; not so the U.S., much less Japan.
Politics also matter. For Mr. Trudeau’s Liberals, fiscal stimulus dovetails neatly with a preference for bigger government. That’s a big part of why the conservative parties that control Britain, Germany and the U.S. Congress don’t want to go there. (…)
Eurozone Government Debt Falls, Raising Questions Over Continued Austerity Total eurozone government debt declined for the first time since onset of financial crisis
The European Union’s statistics agency Thursday said spending by eurozone governments exceeded their revenues by €215 billion ($244 billion) in 2015, or 2.1% of gross domestic product. That marked a decline from 2.6% of GDP in 2014, and the second straight year in which the combined budget deficit was below the 3% ceiling set by EU rules.
While the combined debts of eurozone governments continued to rise in absolute terms, to €9.4 trillion from €9.3 trillion in 2014, they declined to 90.7% of GDP from 92.0% of GDP, the first such drop since 2007. (…)
However, any easing of austerity is unlikely to have a major impact on growth without action in Germany, the eurozone’s largest member. According to Eurostat, the German government had a budget surplus in 2015, and it has committed to keeping it that way through at least 2020.
In some other countries that suffered most during the eurozone’s fiscal crisis, governments failed to meet their agreed targets. In Spain, the deficit fell to 5.1% of GDP from 5.9%, but that was well above its 4.2% goal.
Much like in the U.S. housing market, be careful with averages. Germany is a big weight on EU data, particularly on debt-related stats.
- 85 companies (21.9% of the S&P 500’s market cap) have reported. Earnings are beating by 4.4% while revenues surprised by 0.1%. Expectations are for a decline in revenue, earnings, and EPS of -1.6%, -9.1%, and -6.9%.
- EPS is on pace for -3.4%, assuming the current beat rate for the remainder of the season. This would be +1.7% excluding Energy.
(…) “Whether we call it stabilization or not, I am not sure,” Colquhoun said in an interview in New York. “From a credit perspective, we’d be more comfortable with China slowing more than it is. We are getting less confident in the government’s commitment to structural reforms.”
While global equity and commodity markets have rallied on signs that a surge in lending is helping stabilize the economy, the borrowing binge is adding to an already unsustainable debt level, according to Colquhoun. Eventually, the very thing that has been driving the recovery could end up derailing it, he said.
Standard & Poor’s and Moody’s Investors Service cut China’s long-term credit rating outlook to negative last month, citing the country’s surging debt burden and concern that the government won’t be able to implement reforms. Fitch affirmed China’s credit rating at A+, the fifth highest rating, in November, with a stable outlook. That is one grade lower than Moody’s and S&P.
China’s new credit increased a record 4.6 trillion yuan ($712 billion) in the first quarter, surpassing the level of 2009 during the depths of the global financial crisis. Total debt from companies, governments and households was 247 percent of gross domestic product last year, up from 164 percent in 2008, according to data compiled by Bloomberg.
Instead of focusing on reducing debt levels, Chinese policy makers choose to open up the lending tap whenever the economy slows, Colquhoun said. Such a stop-and-go policy weakens the credibility of President Xi Jinping’s administration as a reformer, he said. (…)
(…) Analysts at HSBC led by Qu Hongbin are more confident, saying that there are two good reasons for China’s high debt levels, and neither are causes for concern because its economy works differently to the US.
First, here’s how China reached a 249% debt-to-GDP ratio:
A lot of the debt has been driven by the high savings rate of Chinese households. These savings are generally invested in the debt of domestic companies.
Here’s HSBC (emphasis ours):
The high saving rate of households means more surplus savings can be transferred into corporate sector investment.
And here’s the chart:
All those savings have to go into the debt market because the equity market is so underdeveloped.
Here’s HSBC again:
In 2015, debt financing was 95% of the overall financing provided to the economy; equity financing was only 5%.
Significant reforms to the equity fund raising system – from the IPO process to secondary financing and the exit mechanism – are needed to make the equity market a more viable and important funding channel.
In the absence of a developed equity market, economic growth needs to be financed by debt in the form of bank loans and, increasingly, bonds.
But while this highlights the fact that the structure of Chinese financing is different to places like the US, it won’t do much to soothe people like George Soros who expect the good times to come to an end, painfully.
If companies’ liabilities lie with households rather than the banks, then the prospective losses do to, meaning that any downturn could hit the real economy and consumer spending directly.