US Markets began the morning session slightly higher as indicator releases from India and China showed expansion in manufacturing which sent equity markets racing high. The Hang Seng index broke to the highest level since mid-October with a greater than five percent move. Elsewhere, several European markets including Germany's DAX broke into positive year-to-date growth. Following positive surprises in Pending Home Sales and Construction Spending, US markets raced higher with gains in excess of two percent in the Dow30 and S&P500. On the currency front, dollaryen remains above 99.40 as investors move out of the safe-haven while the EUR/USD remains above 1.33 and looks poised to climb higher. Confidence continues to remain high as equities rallied in the past two months. Investors are seeing the positive effects of efforts to aid the struggling US housing market while expectations for the stimulus package grow as examples of success become visible in China following implementation of their four trillion yuan package.
US Pending Home Sales rose 3.2% in March following a 2.0% gain in the previous month. Economists had expected no change in March. The second-consecutive monthly increase follows on a sharp 7.7% decline back in January. It appears that falling mortgage rates and incentives to buyers are having a positive effect on the housing market and may finally help prices to bottom out. Stability in prices will further aid the ailing banking sector and provide some level of comfort to consumers that may help to increase spending in the months ahead. Dwelling deeper into the release, sales rose in areas of the country that have been hit the hardest, including California and Florida, with an 8.5% increase in the south and a 3.9% rise in the western US. Consequently, areas that saw smaller declines in housing prices showed declines in resales with the northeast region falling 5.7% and a 1% slide in the midwest. Despite the fall in two of the four regions, those seeing declines outperformed in the previous month and may simply be correcting.
Construction Spending snapped a five-month losing streak with a small increase of 0.3% for March. While not a large rise, the move surprised economists polled by Bloomberg who had expected a sixth consecutive decline of 1.5%. Improvement in the figure is clear as the rise in spending follows a narrower 1% decline in February that came after three consecutive months of greater than three percent declines. Dwelling deeper into the release, construction of residential property decreased 4.1% in March with the increase overall having been attributed to a 2.0% rise in non-residentials. Builders continue to cut back on new homes as inventory remains above a 10-month supply and prices continue to fall. At the same time, the positive effects of the stimulus package are beginning as contraction eases and construction in non-residentials rose for the second time.
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