June 18, 2019
U.S. Housing Starts Stabilize as Building Permits Edge Up
U.S. new-home construction fell in May after an April reading that was stronger than initially reported, signaling stabilization in the market amid lower borrowing costs. Residential starts dropped 0.9% to a 1.27 million annualized rate after a revised 1.28 million pace in the prior month, according to government figures released Tuesday that compared with a 1.24 million estimate in Bloomberg’s survey. Permits, a proxy for future construction, increased 0.3% to a 1.29 million rate that was about in line with estimates. Permits increased to the best level since January in a sign that the market is poised to hold up during the busy summer season despite the dip in starts. Still, housing has shown signs of weakness including a report Monday that homebuilder sentiment fell for the first time this year on rising construction costs and trade concerns. Reports due over the next week are forecast to show existing home sales, which make up the majority of the U.S. housing market, rose in May while the pace of new home sales also increased.
ECB Rate Cut Is Weapon of Choice as Draghi Threatens Action
European Central Bank policy makers anticipate using an interest-rate cut as their first stimulus move if they need to act again to boost inflation, according to three euro-zone central bank officials. Lowering borrowing costs further below zero would be the most likely initial step rather than resuming asset purchases, said the officials, whose alarm at the descent of market inflation expectations to a record low is nudging them all toward favoring action. They didn’t want to be identified, citing the confidentiality of such discussions. An ECB spokesman declined to comment. ECB President Mario Draghi appeared to set a low bar for action on Tuesday when he said additional stimulus will be needed “in the absence of any improvement” to the outlook for growth and inflation. He specifically cited rate reductions as an option, sending the euro lower and prompting money markets to price in a 10 basis-point cut by December. Investors subsequently brought forward their expectations to September after Bloomberg’s report. Commerzbank now predicts such a policy step in July. “Draghi is going to finish his tenure with a cut,” said Claus Vistesen, chief euro-zone economist at Pantheon Macroeconomics. “The door is now open and I don’t see how they can not walk through it.” An ECB rate reduction could stoke trade tensions with U.S. President Donald Trump’s administration. He tweeted on Tuesday that ECB action that weakens the euro is unfair.
Drop in Autos Leads Surprise Decline in Canadian Manufacturing
Factory production unexpectedly fell in Canada on a temporary slowdown in the auto sector. Manufacturing sales fell 0.6% in April, Statistics Canada said Thursday from Ottawa. Economists surveyed by Bloomberg were expecting factory output to increase 0.4%. The pullback follows a revised 2.6% gain in March, which was the largest since the end of 2017. In volume terms, sales fell 0.8%. Slowing output in the transportation sector was the primary drag, declining 6.7%. Motor vehicle production fell 8.9%, mostly due to “temporary plant shutdowns and fewer units assembled,” according to Statistics Canada. The nation’s economy is emerging from two quarters of stagnant growth, but Tuesday’s report may shake confidence in a quick return to form. The Bank of Canada, which has indicated interest rates are on hold even as the Federal Reserve weighs a cut, expects output to pick up in the second half of this year. April’s sales drop, however, was somewhat isolated. Output fell in just 8 of 21 industries, and excluding the auto sector factory production rose 0.5%. Inventories increased 1.3%, led by petroleum and coal, bringing the inventory to sales ratio to 1.53 — the highest since 2009.