Home sales dampen US rate cut hopes

Hopes of a cut in US interest rates at the Fed's meeting next week were knocked by figures showing unexpected strength in the economy. Dealers marked down Treasury bonds and the September T-bond future fell by well over a point.

The big surprise of the day was the number of new home sales in May in the US. These came in at a seasonally adjusted 722,000, the highest since March 1994 and well ahead of market expectations of about 595,000.

The monthly increase, the largest since January 1992, seemed to indicate that the dramatic plunge in US long-term rates this year was already reviving the economy.

Comments by John La Ware, the former Fed governor who left the Federal Reserve two months ago, did not help the mood in the markets. He said he expected "some pick-up in the second half" as lower market rates helped the housing market.

Further evidence that the slowdown in the US economy might be less serious than had been thought came with the latest indicator for unemployment. Initial jobless benefit claims in the past week were 368,000 - considerably lower than expected and the largest weekly decline for almost a year.

The new figures made the outcome of next week's meeting of the Federal Reserve open market committee even harder to predict.

Following recent remarks by Alan Greenspan, chairman of the Fed, in which he noted the possibility of "a moderate recession in the near term", markets had been anticipating a possible cut in rates. But yesterday's figures put a new gloss on what the Fed will decide to do.

John Shepperd, chief economist at Yamaichi International, said: "It will be a very close call." Nonetheless, he anticipates a possible cut of a quarter of a per cent to adjust monetary policy to the much weaker economic conditions that have emerged this year.

The jolt to market expectations in Wall Street had a knock- on effect on the London gilts market which had been bolstered in the morning by the successful auction by the Bank of England of pounds 2.5bn worth of stock. The September gilt future eventually closed a quarter of a point down on the day. The pound had a better day, with its value against a basket of currencies rising from a close of 83 on Wednesday to 83.4.

The Bank of England's auction of pounds 2.5bn worth of stock was far more successful than had seemed likely at the beginning of the week, when political uncertainty sent the gilts market into free fall.

But as John Shepperd, chief economist of Yamaichi International, pointed out, "the market had cheapened dramatically" in the past week, with September gilt futures down three points from their level last Thursday.

The issue of the 8.5 per cent 10-year benchmark stock was over-subscribed by a factor of two - a better cover than had been achieved in two earlier issues at the end of last year. The price achieved was 100.5, with an average accepted yield of 8.42. International investors stayed away, but domestic interest was high.

The auction brings the total volume of the stock to pounds 8.9bn.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future