US House Prices in the Hit a New Post-Crisis Low

Good day. The dollar rebounded from three straight days of declines yesterday as data released in the U.S. increased investors’ worries about the recovery here in the U.S. The Case-Shiller Home Price Index released yesterday morning showed U.S. home prices are now at the lowest level since the U.S. financial crisis began. Prices have yet to find a bottom, as huge bank inventories of foreclosed homes continue to keep prices down. Economists had predicted the fall, and most believe the housing market will plateau sometime this year before beginning a sluggish recovery.

Another report showed U.S. consumer confidence is holding steady. The confidence number came in at 70.2 for the month of March, a drop from the previous month. February’s reading was revised up, from 70.8 to 71.6. Increased gas prices are being partially offset by an improving labor market.

The last report released yesterday here in the U.S. showed growth of manufacturing in the Richmond Fed region slowed to the lowest level this year. Any number above zero still indicates growth, and the reading was at a 12-month high of 20 last month, so a slowdown had to be expected.

Today, we will get the durable-goods numbers for the month of February, which are predicted to have increased to 3% from a negative 4% reading last month. Orders for aircraft surged last month, which should help push this number back into positive territory. Capital goods orders are also expected to have turned positive in February, after posting a negative number in January. Tomorrow, we will get the GDP readings along with our weekly jobs data, none of which are expected to show a big gain.

The euro (EUR) was one of the few currencies that increased in value yesterday, as European leaders projected confidence that the region’s crisis could be nearing an end. Euro-area finance ministers will be meeting this weekend in Copenhagen to discuss an increase in the capacity of the bailout fund.

Currently, there are two different bailout funds that the EU has funded. The first is the European Financial Stability Facility, which was originally meant to be a temporary source of funds for troubled countries. This lending facility was hastily put in place as the European bond markets were nearing collapse. Another fund, the European Stability Mechanism, was organized as a more-permanent solution, and was meant to take the place of the first. But many EU finance ministers would like to see both of these pools of money stay in place, creating a larger backstop for the sovereign debt markets. Germany swings the biggest hammer in the EU, so German Chancellor Merkel’s indication that her country would back plans for the funds to run in parallel was positive news for the euro area.

The euro surged through a resistance level just below $1.33 two days ago, and has been trading in a relatively tight range since. According to a couple of reports I read last night, the next “resistance” level for the euro is at $1.3487, which was the highs it posted back at the end of February. There is strong support for the euro at $1.33, so that seems to be the range we will see it trade within until we get something to move it one way or the other. The European debt crisis may have been pushed off the front pages by the Supreme Court hearings on health care, but I’m pretty sure we have not seen the end of drama out of Europe.

Sweden’s krona (SEK) had a good day, advancing against all of the major currencies. Sweden’s consumer confidence index rose, as did the manufacturing confidence index, according to reports released today. The consumer confidence index rose to a 0 reading, from a minus 3.2 last month, and the manufacturing confidence number rose from minus 13 to positive 1. Economists had predicted both readings would remain in negative territory. Sweden is one of Europe’s most productive manufacturers, so the gain in manufacturing confidence was a welcome surprise. The positive confidence readings will probably keep the Swedish central bank from further cuts to its benchmark lending rate. The Riksbank lowered these interest rates for a second consecutive time during its meeting last month, but rates now look like they will remain where they are for the remainder of the year.

The pound sterling (GBP) fell versus the euro and was also down a bit versus the U.S. dollar after a report showed the U.K. economy shrank more than originally estimated during the last quarter of 2011. U.K. GDP dropped 0.3% during the fourth quarter of 2011, against an earlier estimate of 0.2%. As Pfennig readers may recall, the BOE voting members were split last month on whether to increase the amount of bond purchases making up their latest round of quantitative easing. BOE Governor Mervyn King said yesterday he has an open mind on whether more monetary stimulus is needed.

The possibility of the need for additional stimulus measures caused the pound sterling to fall the most in five weeks against the euro. Technical analysts over at Citibank are now predicting the pound could fall to levels we haven’t seen since the 1980s. Neither Chuck nor I are big techie guys, but we definitely listen to what these guys say, as the currencies do seem to follow patterns. According to the guys over at Citi, the pound’s gains this year versus the U.S. dollar put it close to a 200-week moving average, a technical level breached in August 2008. This moving average, coupled with a trend line dating back to 2007 could reverse the pound’s direction and potentially push it back to $1.3255. So the recent move higher is the reason the technical analysts now believe the pound will drop to a 20-plus year low?!? Clear as mud, right? We actually have some technical traders who will call into the desk and want to place an order to buy a currency at higher levels than it is trading right now (so you don’t want to buy euros at $1.30, but you want to buy them if/when they reach $1.32). Again, neither Chuck nor I pretend to understand what these technical guys are looking at, but I did feel the need to share this news on the pound, as it is definitely predicting a big dip for the sterling.

The commodity currencies suffered yesterday as global stock markets fell, indicating investor confidence in the global recovery was waning. So it was a “risk-off” day. I had a couple readers ask me what I meant by risk-on/risk-off, so I will take a second to explain. When investors feel confident regarding the global economy, they are willing to take more risks, including placing investments into higher-yielding “risky” currencies such as the New Zealand dollar, South African rand and Brazilian real (a risk-on day). In contrast, when investors are worried about global growth, they tend to pull funds out of riskier assets and move into what they consider safe havens of the U.S. Treasury market; the Japanese yen; and, to a lesser extent, recently, the Swiss franc. So yesterday was a risk-off day as global equity markets declined and caused investors to move back into the dollar.

Then there was this…I have been sharing the improvements our new WorldMarkets system will be bringing to our investors. Another improvement will be monthly consolidated statements. Those of you who hold one or several WorldMarkets access accounts have become accustomed to a deluge of mail from EverBank on a monthly basis. Beginning in April, these statements will now be combined in one convenient consolidated statement of your WorldMarket holdings. These statements will include the current estimated values of all of your WorldMarkets investments, including Access accounts, WorldCurrency single and basket CDs, Non-FDIC insured metals and any MarketSafe CDs which you own. You will be receiving one last group of statements from our existing system for the month of March, but you can look forward to an improved consolidated statement at the end of April.

Chris Gaffney
for The Daily Reckoning

The Daily Reckoning