NEWS / Foreign Exchange

US: Existing Home sales crash

Existing Home sales for September were awful and suggest the downtrend is accelerating. Sales dropped by 8% M/M to an annual rate of 5.04 million, following a 4.7% M/M decline in August, the lowest since January 1999. The already shaky housing market got an additional uppercut by the credit crunch. There was no silver lining in the details. The more important (and less volatile) single family home sales dropped the most and both the median and the average price dropped by respectively 4.2% Y/Y and 3.2% Y/Y. The sales declined in all four regions. The inventory of unsold homes rose to 4.399 million, which amounted to 10.5 months??™ supply, the highest since 1999. This points to further drops in home prices.

EMU: Overall business sentiment eases slightly, but the cyclical manufacturing sentiment hard hit

In the euro zone, business sentiment declined to its lowest level in more than two years based on the flash composite PMI of the month of October, which fell to 54.5 compared to 54.7 in September. The decline was mainly due to the manufacturing PMI, which continued its downtrend and fell from 53.2 in September to 51.5 in October, the lowest level since August 2005. The services PMI on the contrary rebounded slightly from 54.2 to 55.6, but are still way below the 58.0 in August. This confirms that growth in the euro zone is slowing and may fall below trend in 2008. Regarding the inflation outlook, the decline in the output prices should be rather reassuring for the ECB that the recent rise in energy prices isn??™t filtering through. This should keep the ECB on hold in the months to come, even while they may continue to talk hawkish due to the current elevated inflation levels. And if growth slows below trend, rate cuts may come on the table in the course of 2008.

The picture of slowing economic growth was also confirmed in the Belgian business confidence survey, which fell for the fourth consecutive month to -0.1 in October from 1.5 in September. Also here the decline was mainly due to the manufacturing sector, while trade rebounded. Export orders and order books slowed a slowing, which might be a sign that the strong euro is starting to bite, even if the Belgian exports is mainly to its neighbours, especially Germany. In Italy, business confidence stabilized in October, but left the downtrend intact.