Housing Prices Are Climb Stoking Inflation

window-839824_640The Fed analyzes two specific components when evaluating inflation.  The first is wage growth which continues to edge higher, while the second is home prices, which is also on the rise.  The Fed will have a tough decision come December as it appears that the ECB is poised to extend its bond purchase program, which was inferred by traders following the ECB decision to keep rates unchanged on Thursday.  If the Fed raise rates

Home sales are picking up as low level of inventories, will likely make the spring season a seller’s markets. U.S. existing home sales rose 3.2% to 5.470 million in September, a little better than expected, following the 1.5% decline to 5.300 million in August which was revised from 5.330 million. Single family sales bounced 4.1% after drops of 2.9% in August which was revised from -2.3% and 2.2% in July. Condo/coop sales declined 3.2% after climbing 10.5% previously following the 12.3% July dive. The months’ supply of homes fell to 4.5 from 4.6, and a lack of inventory remains problematic. The median sales price is up 4.2% year over year.

The September leading economic indicators index grew 0.2% which was in line with expectations. The six-month annualized reading fell to 2.3% from 1.8% in August, still underperforming the 8.4% surge in July of last year which was the highest reading since 10.6% in April of 2010. Component data strength was driven by improvements in claims and building permits.

The ECB Left Interest Rates Unchanged

The ECB left interest rates unchanged but the tone of Draghi’s comments was relatively dovish. The QE extension was not discussed, but also not ruled out and indeed Draghi said an abrupt end to the bond buying program is unlikely, which with monthly purchase targets for the current program being confirmed at 80 billion Euro which likely means there will be a successive QE program.  German yields whipsawed first climbing on the fact that an extension was not mentioned and then reversing once Draghi started to speak at his press conference.

Natural gas prices continue to whipsaw as warmer than normal weather through the east coast of the United States is providing the backdrop for dipping heating demand, during a period when the weather is usually cooler. Inventories continued to build which is the norm during October, according to the latest inventory released from the Department of Energy.

According to the Energy Information Administration, total natural gas storage was 3,836 Bcf in the latest week. The increase is a net rise of 77 Bcf from the previous week. Stocks were 46 Bcf higher year over year and 185 Bcf above the five-year average of 3,651 Bcf. At 3,836 Bcf, total working gas is above the five-year historical range, which is keeping the lid on prices.

In its short term energy outlook, the EIA reported that natural gas production declined from 79.7 billion cubic feet per day in September 2015 to 76.5 Bcf per day in July 2016. EIA expects marketed natural gas production to average 77.5 Bcf/d in 2016, a decrease of 1.6% from the 2015 level.  The EIA also sees a decline in oil production in 2016, which you can read about on iforex.

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