Sept. Housing Data, PPI, Russia and China Talk of Replacing the US$ on energy Trade, UK Real Estate Heats Up

More economic numbers out this morning that suggest a continuation of the status quo.

The Fed can point to the PPI numbers and pretend there is no inflation…

September Core PPI Y/Y +1.8% vs +2.0% consensus, prior +2.3%

September PPI Y/Y -4.8% vs -4.3% consensus

…So rates can remain low to help the listless housing market…

September Housing Starts 590K vs 610K consensus, prior revised to 587K from 598K

September Building Permits 573K vs 595K consensus, prior revised to 580K from 579K

Somehow, all this data results in a U.S.$ rally, T-bond advance (rate decline) and an equity market sell off. I would expect this counter trend move to be short lived. In fact, there have been some developments regarding the U.S.$ that should concern any U.S. $ optimist.

Last week, Russia and China conducted meetings to begin settling trade between the two countries using their own currency. The trade will involve the energy markets. This development brings to mind recent denials we highlighted in the October 5th post out of the middle east that a similar plan is in the works. I believe the appropriate axiom begins, “Where there’s smoke….”

BEIJING, October 14 (RIA Novosti) – Russia is ready to consider using the Russian and Chinese national currencies instead of the dollar in bilateral oil and gas dealings, Prime Minister Vladimir Putin said on Wednesday.The premier, currently on a visit to Beijing, said a final decision on the issue can only be made after a thorough expert analysis.”Yesterday, energy companies, in particular Gazprom, raised the question of using the national currency. We are ready to examine the possibility of selling energy resources for rubles, but our Chinese partners need rubles for that. We are also ready to sell for yuans,” Putin said. MORE…

A possible accelerant about to be poured onto the pile of burning U.S.$s may have a UK label. The real estate market in the UK appears to be heating up. Prices for both residential and commercial properties in London are hitting records. If this recovery turns into a trend that moves across the channel to the rest of Western Europe then Ben and Pinocchio could have a real problem.

The U.S. $ carry trade will gain steam if a European economic recovery/inflation outpaces the U.S. and leads to rate increases much like in Austraila
(see Oct. 7th post). A lagging real estate market here in the U.S. will make it difficult for Ben to raise rates. Meanwhile, Pinocchio (Geithner) will continue to express the desire for a strong $ as his nose grows…

London Agents ‘Sold Out’ as Home Asking Prices Jump to Record Oct. 19 (Bloomberg) — London home sellers raised asking prices to a record high this month and led gains across the U.K. as the shortage of properties for sale intensified, Rightmove Plc said. MORE…

UK property undergoes dramatic recovery – FT
FT reports the UK commercial property market delivered the highest monthly price growth for more than three years in September, capping a remarkable comeback for a sector that looked to have been wiped out only a matter of months ago. Investors are now chasing commercial property and some are complaining that the market has become too hot again. The switch in sentiment has been tangible as investors look to take advantage of a slump that wiped off about 45% from prices from the peak in 2007 by the beginning of the summer. The recovery has been building since, with IPD, the benchmark index, rising 1.1% for September, the highest since June 2006

About Bret Rosenthal

Interpreting the news that moves markets. Principal of RCM, LLC, and founding partner of the Fortune's Favor Family of Funds
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