FOREX TRADING

Framed by an United States housing market in far worse shape than previously expected, an American GDP revision not quite a poor as predicted, a German economy exhibiting almost 9.0% annual growth in the second quarter and widening sovereign spreads in Europe, currency markets choose the better part of valor and kept to a narrow two figure range all week. The slowdown in trading volatility cannot last; a new narrative will emerge in September. We have already seen a preview and it depends on the intensity of the US contraction.

If the US best economic news of the week is a choice between a second quarter GDP revisions down to 1.6% from 2.4% rather than to 1.4% and initial jobless claims at 473,000 rather than 490,000 the next leg down in the economy cannot be long delayed. But let’s look at some of the weeks’ statistics first.

The housing sector continues to drag the US economy lower as sales for existing homes fell 27.2% in July, more than double the 13.4% forecast. The 3.83 million (annualized) residences that changed hands was the lowest number on record. This National Association of Realtors statistic goes back more than eleven years to January 1999 and includes sales of single family homes, townhouses, condominiums and co-ops. The average monthly selling rate has been 5.75 million for the history of the statistic.

The total number of dwelling for sale in July rose to 3.984 million from 3.887 million, a gain of 2.4%. This supply would last 12.5 months at the current selling rate, an increase of 3.6 months over June. It is the steep decline in the selling rate, not a large jump in the number of properties on the market that boosted the duration of the supply to the all time high. The median sales price dropped slightly to $182,600 from $183,000 and the average price rose slightly to $232,200 from $230,000.

The sharp decline in closed sales in July was predicted by the collapse in pending home sales in May after the end of the government $8,000 credit. Most home purchase contracts close with two months of the initial contract signing. In May pending home sales sank 29.9% presaging the collapse in actual closings two months later.

Sales of new homes in the United States fell 12.4 % in July to their lowest level since Census Bureau record keeping began in 1963 and the American population was only 189 million, 40% less than it is now. New single family homes purchases dropped to a 276,000 annual rate, well beneath the 330,000 estimate. The supply of homes for sale at the current selling pace rose to 9.1months from 8.0 in June due to the much slower rate of sale. The median price in July was $204,000, off 4.8% from a year ago. The average price was $235,000, 13.2% lower than last year.

Some of the decline can be attributed to the continuing fallout from the ending of the home buyers’ credit in April. From April to May sales plummeted from 414,000 to 281,000, a 32% drop the largest on record. Sales recovered somewhat in June to 315,000 but have now completely erased that 12.1% gain. The housing credit pulled forward sales from several subsequent months as prospective rushed into contracts before the April credit deadline. But with unemployment at 9.5% and underemployment almost double that, the economy is not generating enough confident buyers to replace those who pushed their deals into April. The draining effect of the credit will probably continue in diminishing fashion until at least the end of the third quarter.

New home sales are recorded at contract as opposed to existing home sales which are recorded at closing. That is why the big drop in existing home sales that we saw yesterday (3.83 million on a forecast of 4.65 million) did not happen until two months after the end of the credit in April. Most home purchase closings take place within two month of contract signing. Since the end of the credit new home sales have averaged a dismal 291,000.

Orders for goods designed to last more than three years took a nosedive in July, registering only a 0.3% gain, according to the Commerce Department, barely a tenth of 3.0% increase that had been forecast. It was the first positive reading in three months. The June result was revised higher to -0.1% from -1.0%. The number of orders for goods excluding transportation equipment was down 3.8%, far more than the 0.5% rise predicted in the Bloomberg survey of 75 economists. This was the largest month to month decline in the ex-transport number, 4.0%, since April when it dropped 5.8%. Aircraft orders, primarily for Boeing Company rose 75% in July and accounted for much of the growth in the overall number, and, when subtracted, for the weakness in the ex-transport result.

The capital goods minus aircraft and defense orders category, which had been one of the positive measures this year, plunged in both orders and shipments. Orders sank 8.0% in July, the first down month since April and the third since January, which was also negative. Shipments fell 1.5%, only the second negative month since this year.

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