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Stock Indices Rise On Data, Easing Geopolitical Tensions

  • Written by Syndicated Publisher No Comments Comments
    August 20, 2014

    An ideal combination of positive economic data along with relatively stable inflation figures helped lift stock markets on Tuesday. Data pointed to an acceleration in housing market activity against a backdrop of stable price pressure, signalling the potential for an ideal mix of strong growth and an extended period of loose monetary policy. Benchmark equity indices rose, while commodities such as gold and oil were sold off.

    After a tepid first half of the year, the US housing market appears to be on the upswing once again. Figures yesterday from the National Association of Home Builders (NAHB) pointed to increasing confidence among firms in that sector. The benchmark index rose two points to 55 (Consensus: 53), marking its third consecutive monthly gain. It has now recovered January high. Positive sentiment appears to be feeding through to activity.

    Housing starts rose by 15.7% (Consensus: 8.1%) to 1.093 million in July after a 4.0% decline in June, pointing to bullish sentiment in the sector. This optimism looks set to support activity later in the year. The number of building permits issued rose 8.1% (Consensus: 2.8%) after a 3.2% decline in June, reaching an annualized 1.052 million figure. Despite sustained recovery in recent years, both numbers remain well below their pre-recession peak and around 25% off their historical average.

    Figure 1: US housing starts rise in July

    (Source: St Louis Fred)


    There was little sign that a more rapid rate of growth is set to translate into increased price pressure. July Consumer Price Inflation (CPI) data was as expected: a muted 0.1% on the month and 2.0% over the past twelve. A 0.4% increase in food prices was largely offset by a 0.3% drop in energy prices. The 0.1% gain was the smallest monthly rise since February. Excluding food and energy, consumer prices increased 1.9% over the past year, which was also in-line with market expectations.

    Fresh data, along with easing geopolitical fears, helped to support equity markets. The Dow Jones Industrial Average continued its positive run from yesterday. By 10:30am in New York, the benchmark index was up close to a third of one percentage point to 16,890.29. The S&P 500 was up by a similar percentage to 1976.60. Both have performed well over the past week, as they attempt to recover ground lost during poor trading at the end of July and beginning of August. In a further sign of bullishness, the tech-heavy NASDAQ index rose to its highest level since March 2000.

    A boon for equities proved to be a bane to gold and oil. Brent Crude for October delivery was down 0.3% to $101.34 in mid-morning trading, following a near-2% decline the day before on the back of easing geopolitical tensions in Iraq and Ukraine. These factors also put pressure on the price of precious metals. Gold faded. BY 10:30 EDT it had fallen below $1300 to around $1296. It was a similar story for silver, which declined slightly to around $19.44.

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