New Home Sales Bite The Dust!

Good day. And a Happy Friday to one and all! Well, if you thought you heard me screaming at the walls earlier in the week, I’m certain you’re hearing me now! More examples of demented trading thoughts and some interest inflation reports to talk about today before we head off to the West (Southwest for me) for the weekend.

First of all, new home sales in the United States, for July, printed yesterday following up July’s existing home sales debacle from the previous day. New home sales fell 4.3% to a seasonally adjusted annual rate of 1.072 million units. This reading comes below market expectations of a 1.100 million unit sales. And, they fell 21.6% on a year-over-year basis. This falls under the category of “Biting The Dust!” However, after this report printed, the dollar rallied.

I heard some pundits say that the dollar rallied because the median house price edged up 0.3%, but Holy Home Sales, Batman, isn’t this a significant slowing from the recent rapid pace of increase? Correct, Robin. In fact, the number of homes on the market at current selling rates (a measure of supply) rose relative to last month’s level and currently stands at 6.5 months at the current sales rate. This level is the highest since November 1995.

This news should have been very negative for the dollar, especially following up on the existing home sales falling 4.1%. But Noooo! To top off the awful looking data, durable goods for July fell more than was expected. Durables fell 2.4% in July, but once again the spin-doctors placed their imprint on this report too, taking out the transportation piece that fell 9.7%. They said that durable goods gained during the month. What? Of course, last month when the data for durable goods orders printed, the spin-doctors lauded the 7.1% increase in transportations. But since it didn’t suit them this month, they decided to take it out.

When is the American public going to put their foot down and say? When will they stop accepting trumped-up data? Probably never. So, with each report I sit here and point out the discrepancies, but nobody cares. Or I should say, the markets don’t care! So, to recap yesterday’s events: We had an awful showing in durable goods and new home sales, but the dollar rallied. Give me a break!

OK. For some inflation reports. Two Big Kahunas have reported their latest consumer inflation reports overnight. Japan and Germany. Japan reported first, so I’ll cover them first. Japanese consumer inflation rose in July 0.2%. In Japan, they always exclude “fresh food,” a trick they learned from their friends in the United States. Anyway, there were some changes to how the number is calculated, like rebasing the number and other measurements. The experts had forecast a 0.5% gain in inflation, but I doubt they had taken into consideration these changes.

The yen got sold on the report, but I doubt seriously this changes anything with regard to the Bank of Japan’s plans to raise interest rates on a quarterly basis. So, look at the yen sell off for what it is: nothing more than providing cheaper levels to buy!

Now, Germany. Here, I fully expected consumer inflation to have risen, thus keeping the spotlight on the ECB’s rate-hike intentions. However, consumer inflation in Germany actually saw the oil component of the report fall, which allowed inflation to print at 2.2% versus the 2.3% that printed last month. How did the oil component fall? Interesting, don’t you think?

Anyway, 2.2% with a falling oil component isn’t going to scare the ECB one iota. They are not going to fall for a “Norman Greenbaum” oil component, and 2.2% is still above their ceiling target of 2%. However, the euro has been sold since the report printed. What are these traders/investors thinking about? Oh, by the way, in case you’re wondering who/what a Norman Greenbaum is, it’s a reference to a “One Hit Wonder” – Spirit In The Sky.

OK. So, the good finish to the week I thought would be going on, isn’t. In fact, it’s the exact opposite. I’m shaking my head. I’ve already screamed at the walls. I’ve got to stop though, because I don’t need my blood pressure to go higher! All I can say is that I’m still holding onto the thought that this trading pattern is put to bed once everyone gets back to their desk after Labor Day.

Big Ben Bernanke speaks today. This ought to be interesting, eh? Big Ben is attending the Annual Big Boondoggle at Jackson Hole, Wyoming. Big Al Greenspan used to be good for a market-moving comment or two. I don’t expect any less from Big Ben. With the data cupboard bare to the bone today, the key focus will be Bernanke’s comments. Since Big Ben last spoke (July 20, 2006), the news has been dominated by weaker-than-expected second quarter GDP, another soft payroll report (+113K in July), and a weaker CPI than previous months.

I think the markets will be listening for any “Hawkish Tones.” If he gives us some, or the markets perceive him to have given them some, the dollar will remain in rally mode. If he doesn’t, the dollar could be sold.

Two currencies that haven’t gotten caught up in all this “dollar buying” are the pound sterling and the Canadian dollar/loonie. Both of these currencies have been underpinned this week by data that suggests each respective central bank has more rate-hike work to do.

So, on that piece of good news, I’m going to head to the big finish. At least I can feel good going into the weekend about those two!

Currencies today: A$ .7610, kiwi .6360, C$ .9045, euro 1.2775, sterling 1.8905, Swiss .8075, ISK 70, rand 7.1350, krone 6.3150, SEK 7.22, forint 217.19, zloty 3.07, koruna 22, yen 117.10, baht 37.60, sing 1.5775, INR 46.55, China 7.9740, pesos 10.92, dollar index 85.29, silver $12.46, and gold $623.

That’s it for today. I sure hope this weekend slows down a bit so I can enjoy it! It’s a Cards/Cubs weekend at Busch Stadium, and I don’t have one ticket! Ugh! We actually had a full desk most of this week, which is pretty cool when that happens! I’ve got the con on the Pfennig Monday and Friday of next week, Chris will have it the remainder of the week. So, have a great Friday and week!

Chuck Butler
August 25, 2006

The Daily Reckoning