Summary:

• Mixed US data as PMIs improve but housing data misses forecasts
• Flash manufacturing PMI rises to 53.2 vs 52.3 exp and 52.0 prior
• Housing starts fall to 5.52M – lowest level since March 

The latest data on the US economy has shown a better than expected level of confidence in the manufacturing sector amongst purchasing managers but a larger than expected decline in housing starts has mitigated the good news to some extent. 

A reading of 53.2 for the flash manufacturing PMI was better than the 52.3 expected and ends a run of 5 successive readings that have disappointed in coming in below the consensus forecast. This economic indicator seems to be supporting what the more widely viewed ISM equivalent has been suggesting lately, in that the outlook for the manufacturing sector in the US has improved.   

 The latest US manufacturing PMI data supports the ISM reading in suggesting a more favourable outlook for the sector going forward

As for the flash services PMI a reading of 54.2 is pretty much in line with the expectations but an upward revision to 54.2 from 53.0 for the prior reading means that this is also a good data point on the whole. Similar to the manufacturing reading there has been a recent trend of disappointment for the services PMI with misses far more common than beats of late.   

 

 The services PMI reading appears to be recovering after a large drop around the end of 2015 and start of 2016. Similar to the manufacturing PMI the services is also under performing the ISM equivalent

If the overall picture from the PMIs is one of strength, the existing home sales release shortly afterwards was a disappointment. A reading of 5.52M was the lowest in 4 months and well below both the consensus forecast (5.59M) and the prior reading (5.62M). There has been a clear uptrend in existing home sales in the last 5 years and last week other data on the housing market painted a positive outlook.   

 Existing home sales have been rising since 2012 on the whole, but there has been some weakness in recent readings. 

One of the possible reasons for the recent weakness in home sales could be the rise in mortgage rates. With the Fed already raising rates twice so far this year the interest charge on mortgages has increased, which naturally dampens demand for houses. This inverse correlation is fairly strong historically and note that the current level of mortgage rates (green line below) suggests that there could be further declines ahead for the existing home sales metric.  

 The 30-year mortgage rate (inverted axis) has increased lately and could be seen as suggesting that further declines may lie ahead for existing home sales 

In terms of market reaction the US dollar is fairly mixed overall today and sits near the middle of its peers. We earlier noted how Gold had made another leg higher to trade at its highest level in a month. 

 The US dollar has no clear direction on the day and sits pretty much in the middle of its peers in terms of relative strength