ECB Hints For More Stimulus

Working off their highest closes since the first week of May, U.S. market indexes are ramping up yet again in today’s pre-market, giving hope they may finish this Friday up for the third week in a row. Housing data has hit the tape ahead of the opening bell, but the gains seen began with a surprise announcement from European Central Bank (ECB) Chair Mario Draghi:

This surprise announcement has to do with fresh stimulus proposals for the ECB, which may begin as soon as next month, when the body reconvenes. This announcement had the immediate affect of sending the euro down in value, but U.S. markets picked up on the promise of increased liquidity coming to the E.U.

Trade worries have affected Europe as well as the U.S., with some of the E.U.’s top economies, like Germany, struggling of late. Draghi said any policy changes forthcoming would be “commensurate to the severity of risk” in Eurozone markets. That is to say: while a rate cut is not now guaranteed (though the instantly became fully priced-in), signs are hopeful that relief — which had been put dormant late last year — may be returning sooner than expected.

Housing Starts & Building Permits

May Housing Starts fell more than expected in this morning’s latest report on U.S. housing construction. A headline of -0.9% more than doubled the -0.4% anticipated, though the upward revision for April — +6.8% from the +5.7% originally reported — soaks up a considerable amount of this miss. A total of 1.269 million annualized starts was only down slightly from the 1.28 million reported the previous month.

Building Permits — a forward indicator of future starts — performed even better: 1.294 million new permits was only slightly off expectations of 1.30 million for last month. In all, these numbers represent what may show up as stronger growth in Q2 GDP numbers; housing had been a drag on GDP growth through Q1 and was expected to continue through the first half of 2019.

Market futures a half-hour before the opening bell have come down a tad since the new housing data has come out. This looks to be connected somewhat with the dance market participants have been engaged in for a while now: those economic figures which depict a stronger economy are being treated as “bad news” in a market hopeful the Fed will cut interest rates this summer.

The Federal Open Market Committee (FOMC) meets today for its latest 2-day meeting. Signs are weak that a rate cut will be forthcoming tomorrow, but analysts in aggregate see a nearly 1 in 3 chance; otherwise, the market will look to the FOMC meeting in July for its first rate cut since the Great Recession.