Housing and jobs markets show signs of cooling
Summary
New data this week indicated signs of cooling in both the housing and jobs markets, as the impact of rate hikes and ongoing recession fears continue to weigh on consumers and businesses. The European Central Bank also raised rates by more than economists forecasted, lending strength to the euro.
Housing data
On Monday, a new reading from the NAHB Housing Market Index came in at 55, significantly below the expected 66, and the lowest since May 2020. The index is based on a survey of NAHB members and is meant to pulse-check sales activity in the single-family housing market. Existing home sales data meanwhile showed a 14.2% decline in year-over-year activity, as high prices and rising mortgage rates continue to deter potential buyers. With the Fed expected to hike rates by another 75 basis points at next week’s FOMC meeting, there will be significant downward pressure on home purchases over the next few months.
Jobs data
Initial jobless claims came in at 251,000 on Thursday, a 7,000 increase over the previous week, and the highest reading since November 2021. The jobs market in the U.S. is still very strong overall, with unemployment sitting at only 3.6%, but investors are monitoring weekly claims carefully for signs of weakness as recessionary fears persist.
ECB rate hike
The European Central Bank elected to increase rates by 50 basis points on Thursday in its first rate hike in more than ten years. Markets were only forecasting a 25-point hike at this meeting, but the more dramatic increase should lend strength to the euro in the short term. The euro had reached parity with the U.S. dollar last week for the first time since 2002 but has since rebounded as high as 1.02.
Inflation was the main driver of the ECB’s decision to pursue a more aggressive hike, as the latest readings for some European countries have shown prices increasing by more than 9% year-over-year. In brighter news, there was a positive development on the energy side of things last week, as natural gas flows from Russia’s Nord Stream 1 resumed after a 10-day pause for maintenance. There had been concerns that Russia would not restart the flows for political reasons, which would have put significant supply pressure on the EU going into this winter.
The week ahead
All eyes will be on the FOMC next week as markets anticipate another 75-basis-point hike. There will also be new data related to durable goods orders and GDP, which will provide some insight into the macroeconomic outlook in the U.S.
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