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While you were sleeping: US housing provides lift

Wednesday 23rd May 2012

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Better-than-expected data on the US housing market helped firm optimism about the outlook for the American economy, and helped equities extend their rebound from recent losses.

Home resales rose 3.4 percent to an annual rate of 4.62 million units in April, according to the National Association of Realtors. The annual sales pace was the best since May 2010.

"We're still a ways from looking at an encouraging picture of the US economy, though when it comes to housing, every little bit helps," Camilla Sutton, a currency strategist at Scotia Capital in Toronto, told Reuters.

It certainly helped Wall Street. In late afternoon trading in New York, the Dow Jones Industrial Average advanced 0.37 percent, the Standard & Poor's 500 Index rose 0.57 percent and the Nasdaq Composite Index edged 0.10 percent higher.

Bucking the trend were Facebook shares, last down 6.7 percent to US$31.76, amid calls by US regulators for a review of the company's initial public offering in which shares were sold at US$38.

An analyst at lead underwriter Morgan Stanley cut his revenue forecasts for Facebook in the days before the offering, while analysts at JPMorgan Chase and Goldman Sachs, which were also underwriters on the deal, each revised their estimates during the road show as well, Reuters reported.

"I think there is a lot of reason to have confidence in our markets and in the integrity of how they operate, but there are issues that we need to look at specifically with respect to Facebook," Securities and Exchange Commission Chairman Mary Schapiro told reporters as she exited a Senate Banking Committee hearing.

In Europe, the Stoxx 600 Index enjoyed a 1.9 percent jump for the day as investors found value among beaten-down equities. Not so with the euro, however, as the battered currency weakened 0.6 percent to US$1.2727.

A day before European Union leaders are set to meet in Brussels to discuss ways to stimulate the euro zone economy, the Organisation for Economic Co-operation and Development warned of the risks Europe's debt crisis poses to the rest of the world.

In its semi-annual report on the global economy, the OECD forecast the euro zone economy will contract 0.1 percent in 2012, before eking out 0.9 percent of expansion in 2013.

"The risk is increasing of a vicious circle, involving high and rising sovereign indebtedness, weak banking systems, excessive fiscal consolidation and lower growth," OECD Chief Economist Pier Carlo Padoan said in the report.

The OECD also forecast that worldwide growth will slow to 3.4 percent this year from 3.6 percent in 2011.

As the Bank of Japan began a two-day policy meeting that is widely expected to result in measures to bolster expansion, Fitch Ratings slashed the nation's long-term foreign currency rating to A plus from AA, and downgraded the local currency rating to A plus from AA minus.

The yen shed 0.9 percent against the greenback, and fell 0.2 percent against the euro.

The mood among investors left enough question marks to bolster the appeal of US Treasuries as the sale of US$35 billion in two-year notes drew better-than-average demand. The bid-to-cover ratio was 3.95, the most since a record high 4.07 in November, and compared with an average of 3.62 for the past 10 sales, according to Bloomberg News.

"It was a tremendous auction," Ray Remy, head of fixed income in New York at Daiwa Capital Markets America, one of the primary dealers obligated to bid in US debt auctions, told Bloomberg. "The most important factor driving demand is the European situation."

BusinessDesk.co.nz

Bond Offer: Infratil Ltd, 7.2 year & 10.2 year unsecured unsubordinated bond


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