Today: U.S. economy strengthening, E.U. economy weakening. Another shortage of bears.
Pending Home Sales Rose in July The number of contracts signed to buy previously owned homes rose in July, a new sign that steady job growth is supporting a rebound in housing demand.
An index of pending home sales, reflecting purchases under contract but not yet closed, rose 3.3% to 105.9 in July from June, the National Association of Realtors said Thursday. That was a bigger gain than the 0.6% rise forecast by economists and placed the index comfortably over the 100 level that the trade group says indicates “normal” sales activity.
Pending home sales have now risen four of the last five months, though the index remains 2.1% below its level from a year ago. A regional breakdown of the July data showed sales rising in the Northeast, South and West, though they fell in the Midwest.
U.S. Banks Boosted Lending in Second Quarter U.S. banks increased their loan balances in the second quarter of 2014 by an amount not seen since before the financial crisis, a government report said, offering evidence of a pickup in lending as the economy slowly recovers.
The Federal Deposit Insurance Corp. said banks’ loan and lease balances rose to $8.11 trillion, a 2.3% increase over the first quarter of 2014 and the largest quarter-over-quarter jump since the end of 2007.
It was the first time U.S. bank lending has topped $8 trillion, as banks boosted construction loans, agriculture loans, credit-card balances and auto loans. Mortgage lending also was up compared with the first quarter but down from the year-ago period, reflecting a retreat from that market by some banks amid new regulatory and legal risks. (…)
FDIC Chairman Martin Gruenberg said Thursday’s data marked a transition for banks from a period of recovery to one in which they are putting more money at risk. (…)
Lending for Construction Grows 4% in 2nd Quarter
Figures released Thursday by the Federal Deposit Insurance Corp. show that outstanding construction loans for both residential and commercial projects increased to $223.2 billion in the second quarter, up 4% from the first. The gain is the sector’s largest since it began rising from its nadir of $201.5 billion in the first quarter of 2013.
The trajectory has been similar for lending for construction of one- to four-family homes. Home-construction lending increased to $48.2 billion in the second quarter, up 5.4% from the first quarter, according to the FDIC.
That, too, is the largest gain for home construction since the sector started rebounding from its low point of $40.7 billion of outstanding loans in last year’s first quarter. (…)
Kansas City Fed Launches New Job Market Index, Sees Improvements
The Federal Reserve Bank of Kansas City launched Thursday a new gauge to track labor market conditions, which signaled in its first outing a hopeful outlook for hiring in the U.S. economy.
The bank said that its Kansas City Fed Labor Market Conditions Indicators activity measure moved to -0.6 in July, something the report deemed a “substantial improvement” from the low of -2.1 seen in December 2009, in the depths of the greatest economic and financial downturn seen since the Great Depression. The new gauge also tracks labor market momentum, and found gains there as well.
GDP Expanded at 4.2% Rate in Second Quarter The U.S. economy’s second-quarter rebound was more robust than previously thought, putting the recovery back on track as it ended its fifth year.
U.S. Bonds Continue to Defy Bears Government-bond yields touched new lows in the U.S. and Germany, as investors piled anew into ultrasafe debt amid growing concern about the pace of European growth.
(…) Thursday’s bond-price rally was driven by expectations the European Central Bank will follow in the footsteps of the U.S. Federal Reserve and commit to purchasing bonds to boost economic growth. Expected ECB bond purchases drive up prices by adding a new source of demand, traders said.
Data released Thursday showed German inflation stabilized at a very low rate in August, while Spanish consumer prices fell at an accelerated pace.
The yield on the benchmark U.S. 10-year note fell to 2.334%, the lowest closing level since June 2013. Yields fall as prices rise.
The 10-year German yield settled at 0.885%. (…)
U.S. bonds offer superior yields compared with those of some other developed countries.
Adding to the appeal of U.S. bonds for buyers from other countries, the dollar has strengthened by about 1.5% this month against the euro, this week hitting its highest level since September 2013. (…)
Ruble Hits New Low The Russian ruble hit its all-time low as geopolitical conflict in eastern Ukraine intensified with an alleged participation of Russian troops.
Euro-Zone Inflation Cools Further
Annual inflation in the euro zone cooled to 0.3% from 0.4% in July, according to a preliminary estimate from Eurostat, the European Union’s statistics agency, driven by a fall in energy, food, alcohol and tobacco prices.
Hmmm, things may not be as bad as the headline numbers show. Annual “core” inflation is actually rising.
Italy Posts Biggest Consumer Price Decline on Record Amid Slump
Based on Italian methodology, prices fell 0.1 percent from a year earlier, the first reading below zero since 1959, Istat said. The fall in consumer prices was mostly due to an increased year-on-year decline of energy costs and to a slowdown in the price of services, Istat said.
The inflation rate based on European Union measurements fell 0.2 percent in August from a year earlier, Rome-based national statistics office Istat said in a preliminary report today.
German Retail Sales Drop German retail sales in July posted the biggest monthly decline in real terms since January 2012, the country’s statistics office said Friday.
Retail sales in July fell 1.4% compared with the previous month in real, calendar- and seasonally adjusted terms, sharply underperforming expectations for a 0.0% reading in a Dow Jones Newswires survey of analysts. The data followed a revised increase of 1.0% in June, from a first estimate of 1.3% rise.
On an annual basis, retail sales were up 0.7% in real terms in July, the statistics office Destatis said. In the first seven months, retail sales grew 1.3% in real terms compared with the same period of last year.
Schaeuble Sees Draghi’s Instruments for Growth Exhausted
The European Central Bank has run out of ways to help the euro area, putting the burden on governments to spur growth without running excessive deficits, German Finance Minister Wolfgang Schaeublesaid.
In an interview with Bloomberg Television at the Medef business leaders’ conference near Paris, Schaeuble said he agrees “100 percent” with ECB President Mario Draghi’s appeals for governments in the 18-country currency union to complement monetary policy with “structural reforms” to boost competitiveness and overcome the legacy of Europe’s debt crisis.
‘‘Monetary policy can only buy time,’’ Schaeuble said in the interview yesterday. “Liquidity in markets is not too low, it’s even too high. Therefore I think monetary policy has come to the end of its instruments and therefore what we urgently need is investments, regaining confidence by investors, by markets, by consumers.”
SENTIMENT WATCH
Running of the Bulls Hits Fever Pitch Trading volume may be pinned near rock-bottom levels, but the few folks still trading stocks are more bullish than they’ve been all year.
For the week ended Wednesday, the percentage of bullish investors in the American Association of Individual Investors’ survey rose above 50% for the first time since Dec. 26. Bullish sentiment has now gained three weeks in row, climbing from 30.9% in early August to 51.9% this week, the biggest three-week advance since September 2010. (Charts from Bespoke Investment)
ISI’s hedge fund survey shows their net equity exposure at a fresh high of 53.9 while institutional investors maintain a low 65% invested position.