Sat, Oct 23, 2021 @ 18:37 GMT

Demand Tapped Out?

USD is finally gaining ground as indices pullback with markets drawing closer to the final week of the month and a long weekend in the US and UK. A surprise plunge in US new home sales in May isn’t all that it seems. NZD is the only currency gaining vs USD after a relatively hawkish RBNZ policy statement. New data showed that May US new home sales sank to a pace of 863K from 1021K the month before. That’s one of the sharpest drops in record and a sharp correction after a surge since the pandemic. Cardano is up 13% on the day, continuing to perform all major cryptos. Gold hit 1912, rising more than $70 right after we posted this Alert-Gold-Video. Despite the long weekend ahead, there will be a round of crucial US macro data, which could trigger a spike in yields.

Where the US housing market goes will be a critical input for US growth this year and beyond. Americans are famous for taking home equity loans and the construction sector can be an major tailwind.

So is demand tapped out? No.

Price is the ultimate measure of demand and the median new home sales price was up 20.1% y/y. More telling may be a long series of anecdotal reports from home builders who are struggling with supply bottlenecks and unexpected commodity price increases.

Typically, new homes are sold on spec at agreed-on prices 1-2 years before the final product is delivered. That leaves builders with all the exposure to commodity prices – namely lumber. Since prices have been flat for much of the past decade, that’s usually something that can be absorbed into margins. This year though prices of lumber have quadrupled and that’s left homebuilders in a bad spot.

Rather than doubling down, trying to hedge or guessing at prices, many are opting not to sell the homes until they’re nearly completed. So construction is continuing to boom but the ‘sales’ are being pushed further into the cycle.

This is an other example of how bottlenecks are making it tough to gauge just how strong the economy is.

Ashraf Laidi
Ashraf Laidi is an independent strategist and trader, founder of Intermarket Strategy Ltd and author of "Currency Trading & Intermarket Analysis". He is the former chief global strategist at City Index / FX Solutions, where he focused on foreign exchange and global macro developments pertaining to central bank policies, sovereign debt and intermarket dynamics. Ashraf had also served as Chief Strategist at CMC Markets, where he headed a global team of analysts and led seminars and trainings in four continents. His insights on currencies and commodities won him several #1 rankings with FXWeek and Reuters. Prior to CMC Markets, Laidi monitored the performance of a multi-FX portfolio at the United Nations, assessed sovereign and project investment risk with Hagler Bailly and the World Bank, and analyzed emerging market bonds at Reuters. Laidi also created the first 24-hour currency web site for traders and researchers alike on the eve of the creation of the euro. Laidi's analysis of currency markets stand out based on his distinct style in bridging the fundamental and technical aspects of the markets. Laidi regularly appears on CNBC TV (US, Europe, Arabia and Asia/Pacific), Bloomberg TV (US, Asia/Pacific, France and Spain), BNN, PBSs Nightly Business Report, and BBC. His insights also appear in the Financial Times, the Wall Street Journal and Barrons. He has given numerous interviews and lectures in Arabic, French, and to audiences spanning from Canada, Central America and Asia/Pacific.

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