US Pending Home Sales Index Decline for Third Consecutive Month

The euro dollar gained ground against the greenback following the report of weak pending home sales and wider than anticipated trade deficit data. Notably, the upbeat Chicago PMI data had little impact on the US dollar.

The higher-than-anticipated decline in the US crude inventories also paved way for the US dollar’s weakness. The EUR/USD pair rallied from a low of 1.2234 to a high of 1.2260.

According to the US Census Bureau, the country’s trade deficit widened to $84.80 billion in November, from $80.40 billion in the earlier month and worse than the $81.50 billion deficit anticipated by economists.

While export of goods increased $1.10 billion m-o-m to $127.20 billion in November, imports rose by $5.50 billion to $212 billion during the same period.

Furthermore, the statistical organization stated that preliminary wholesale inventories fell by 0.1% m-o-m in November, following an increase of 1.1% in the earlier month. Economists had anticipated the preliminary wholesale inventories to increase 0.7% for the reported period. In value terms, wholesale inventories stood at $649 billion. On y-o-y basis, this represents a decline of 2.2% in November.

Retail inventories increased 0.7% m-o-m to $616.90 billion in November. However, on y-o-y basis, retail sales decreased 7.1% from November 2019.

According to the data published by the Institute of Supply Management-Chicago, the city’s purchasing managers index increased to 59.50 in December, from 58.20 in the earlier month and greater than the reading of 56.60 predicted by economists. The reported reading is the strongest since the fourth-quarter of 2018.

Fresh orders index decreased 2 points, while production rose by 1.10 points as business activities increased. On q-o-q basis, fresh orders and production surged to 2-year high, with corresponding indices increasing to 61 and 61.60, respectively.

Order backlogs increased 3.60 points in December, reflecting second successive rise. Inventories surged to seven-month high in December as the quarterly index stood at 47.60 in Q4.

Data published by the National Association of Realtors, pending home sales decreased 2.6% in November, following a drop of 1.1% in the earlier month. Economists had anticipated pending home sales to increase 0.1%. Accordingly, the index fell to 125.70, reflecting the third successive month of decrease. On y-o-y basis, contract signings inched 16.4%.

Lawrence Yun, NAR’s chief economist, said “The latest monthly decline is largely due to the shortage of inventory and fast-rising home prices. It is important to keep in mind that the current sales and prices are far stronger than a year ago.”

Yun forecasts an optimistic view for the housing market in the forthcoming year. As per his 2021 outlook, there will be a small increase in mortgage rates to about 3% from the prevailing 2.7% rate. Existing-home sales are anticipated to rise about 10% and fresh home sales by 20% in 2021.

Yun said “Economic growth is guaranteed from the stimulus package and from vaccine distribution, but high government borrowing will put modest upward pressure on interest rates.”

According to the US Energy Information Administration, crude oil inventories declined 6.10 million barrels in the week ended 26 December 2020, following a drop of 0.60 million barrels in the prior week. Analysts had anticipated crude inventories to decline 3 million barrels in the reported period.

The weak US economic data is expected to keep the greenback weak in the days ahead.