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Weekly Economic & Financial Commentary: ECB’s Easing Measures Going Nowhere Fast

United States: COVID Rise Jitters Financial Markets, while Housing Perks Up

  • July’s NAHB Housing Market Index slipped one point to 80. Housing starts beat expectations and rose 6.3% during June, although building permits fell 5.1%. Existing home sales climbed 1.4%. The Leading Economic Index (LEI) advanced 0.7% in June. Initial jobless claims rose to 419K for the week ended July 17.
  • Next week: Durable Goods Orders (Tuesday), Q2 Real GDP (Thursday), Personal Income & Spending (Friday)

International: ECB’s Easing Measures Going Nowhere Fast

  • The European Central Bank made it clear at its monetary policy meeting this week that its main policy rates are unlikely to increase for the next few years amid a shift in its thinking about its inflation target. Eurozone PMI data for July were generally encouraging, but rising COVID cases present a downside risk.
  • Next week: Canada CPI (Wednesday), Eurozone GDP (Friday)

Interest Rate Watch: Faster Growth and Inflation, Tapering Ahead, but Lower Rates?

  • When the 10-year Treasury yield peaked in late March, markets were pricing a fed funds rate of roughly 2.25% for that one-year period five years out, not too far from the FOMC’s “long-run” dot of 2.50%. Fast-forward to today and market pricing has tumbled to less than 1.50% for roughly the same period.

Credit Market Insights: Will Canada’s Housing Market Sustain Its Frothiness?

  • Around the world, house prices have been soaring, and Canada’s housing market has emerged as one of the frothiest. While the Canadian economy is on track for a strong year in 2021, the lack of affordability and easing lending standards have raised some concerns.

Topic of the Week: Housing Is Moving Back into Balance

  • While declining affordability and supply shortages have pressured housing activity in recent months, we believe the housing market is now beginning to come back into balance.

U.S. Review

COVID Rise Jitters Financial Markets, while Housing Perks Up

The week started off with a bang as an upturn in new COVID cases jittered financial markets. The Dow Jones Industrial Average fell almost 726 points on Monday, the sharpest one-day drop since last October. The yield on the 10-year Treasury note also fell nearly 10 bps to 1.18%. The drop was somewhat surprising, considering the spread of the Delta variant of the coronavirus is not necessarily breaking news. Cases have been climbing higher in Arkansas, Missouri, Louisiana and Florida for the past few weeks, mostly in areas with low vaccination rates. However, more recently, case counts in nearly every state have started to tick higher. Notably, Los Angeles County has seen an upturn in cases, which has prompted local officials to reimpose indoor mask mandates. Overall, case counts now moving in the opposite direction have raised the possibility that the economic recovery, which is still in its early innings, could be derailed if consumers head back indoors and more restrictions are imposed on businesses.