September data shows housing market in a deep freeze
The latest housing data reveals a concerning trend, with pending home sales plunging 7.3% from August and dropping 11.3% year-over-year, alongside a 4.56% decline in housing starts. This chilling data not only underscores a stagnating housing market but also reflects broader economic weakness that could nudge the Federal Reserve towards a policy pivot sooner than markets currently anticipate. Such a shift would likely place pressure on USD real rates, making it critical for traders to watch this space as it unfolds.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). CNBC's findings, indicating a slowdown in housing, align with a cautious stance taken by several firms, suggesting broader economic implications.
How firms align
JPMorgan, aligned with the headline’s sentiment, projects a target of 1.10, reflecting concern over economic health. In contrast, BofA’s more bearish target of 1.04 contrasts sharply, indicating divergence in expectations related to economic growth influenced by housing data.
What the data shows
Investor sentiment is notably shifting, with recent forecasts indicating potential downward revisions in growth estimates influenced by the housing market's struggles. For further insights, refer to our research at /research/housingimpact.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01September's housing data suggests mounting economic weakness, possibly pushing the Fed towards easing sooner.
- 02Traders should monitor USD real rates' response to housing market shifts as they could indicate a Fed pivot.
- 03JPMorgan's alignment at 1.10 shows a consensus shift, implying the market is pricing a weaker USD ahead.
- 04BofA’s more pessimistic target suggests differing views on economic resilience.
Market implications
Next week, with the next Fed meeting on the calendar, traders should watch for any hints of policy changes or rate adjustment signals. The consensus at 1.075 provides a benchmark, but market reactions to economic indicators could drive volatility.
Risks to this view
Should housing data improve unexpectedly, or if broader economic indicators reflect resilience, this could force a significant reevaluation of existing bearish sentiment towards the USD, compelling a retraction from prevailing forecasts.
Sentiment by currency
USD EUR~JPY~GBP~Composite USD score: -0.35
Sources & References
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