New signs of weakness as US house sales fall

DIANE COYLE

Economics Correspondent

Evidence of a weak US housing market initially boosted hopes yesterday that the Federal Reserve will decide growth is weak enough to warrant a cut in interest rates.

But equities fell sharply in the last hour of trading, after a retreat in the bond market fuelled concerns that interest rates would not move down in the near future. The Dow Jones closed down 43 points at 5506.21.

A sharp fall in house sales last month - along with better than expected December trade figures - offset separate figures showing the biggest increase in consumer prices in more than two years to send the dollar and Wall Street initially higher.

The Dow Jones climbed to 5593 in morning trading, in the wake of three successive declines. That helped shares in London and the pound rise too, although the gilts market was little changed in view of the mixed success of a pounds 3bn gilts auction.

The FT-SE 100 index closed over 22 points higher at 3738.2, before Wall Street began falling.

In Japan, however, it was a different picture: the Nikkei index ended below 20,000 for the first time since 29 December. Fears that Japanese interest rates might have to rise from their historic low hit the stock market, which closed before the announcement that industrial output rose a modest 0.5 per cent in January.

Several batches of very mixed signals on the American economy during the past two weeks have sent world financial markets on a roller-coaster. Yesterday's statistics were no exception.

A rise of 0.4 per cent in consumer prices last month was driven by higher energy, food, clothing and transportation prices.

A 1.9 per cent jump in energy costs due to bitter weather was the biggest since October 1993. ''Core'' prices, excluding food and energy, climbed 0.3 per cent.

Analysts were, however, less concerned about the small rise in the annual rate of inflation to 2.7 per cent from 2.6 per cent, than by an unexpected drop in home sales.

The number of homes sold fell 4.1 per cent in the month to a 3.71m annual rate. This followed a 3.2 per cent decline in December, suggesting that lower mortgage rates have not stimulated the housing market as anticipated.

The dollar reacted to the good news in yesterday's trade figures. America's trade deficit widened slightly in December, taking the shortfall for the year to just over $111bn, the highest since 1988. US trade with China was a record $33.8bn in the red last year.

On the other hand, America's sensitive bilateral deficit with Japan fell to $3.5bn in December from $4.1bn, and for 1995 as a whole fell from $65.7bn to $59bn - the first decline in four years.

The dollar rose nearly a pfennig to climb above DM1.46.and was steady at around 104.5. The dollar's move helped the pound to rise more than half a pfennig to close at DM2.2425.

Gilts were ruffled by yesterday's pounds 3bn auction. The auction was a success judged by the amount demanded, amounting to 1.48 times the stock on offer.

However, the gap between the average and lowest prices offered was 5 basis points, which disappointed some analysts.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Arts and Entertainment
The Apprentice candidates Roisin Hogan, Solomon Akhtar, Mark Wright, Bianca Miller, Daniel Lassman
tvReview: But which contestants got the boot?
Arts and Entertainment
Jim Carrey and Jeff Daniels ride again in Dumb and Dumber To
filmReview: Dumb And Dumber To was a really stupid idea
News
people

Jo from Northern Ireland was less than impressed by Russell Brand's attempt to stage a publicity stunt

Sport
Scunthorpe goalkeeper Sam Slocombe (left) is congratulated by winning penalty taker Miguel Llera (right)
football
Life and Style
A woman walks by a pandal art installation entitled 'Mars Mission' with the figure of an astronaut during the Durga Puja festival in Calcutta, India
techHow we’ll investigate the existence of, and maybe move in with, our alien neighbours
Arts and Entertainment
Sir Ian McKellen tempts the Cookie Monster
tvSir Ian McKellen joins the Cookie Monster for a lesson on temptation
News
i100
News
ebooksNow available in paperback
Travel
Tourists bask in the sun beneath the skyscrapers of Dubai
travelBritish embassy uses social media campaign to issue travel advice for festive holiday-makers in UAE
Arts and Entertainment
Jennifer Saunders stars as Miss Windsor, Dennis's hysterical French teacher
filmJennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress
Life and Style
tech
Sport
Nabil Bentaleb (centre) celebrates putting Tottenham ahead
footballTottenham 4 Newcastle 0: Spurs fans dreaming of Wembley final after dominant win
Life and Style
Sebastian Siemiatkowski is the 33-year-old co-founder and CEO of Klarna, which provides a simple way for people to buy things online
tech
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Carlton Senior Appointments: Sr Wealth Manager - San Francisco - Inv AdvisoryFirm

$125 - $175 per annum: Carlton Senior Appointments: Senior Wealth Manager – In...

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Day In a Page

Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas
La Famille Bélier is being touted as this year's Amelie - so why are many in the deaf community outraged by it?

Deaf community outraged by La Famille Bélier

The new film tells the story of a deaf-mute farming family and is being touted as this year's Amelie
10 best high-end laptops

10 best high-end laptops

From lightweight and zippy devices to gaming beasts, we test the latest in top-spec portable computers
Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

The batsman has grown disillusioned after England’s Ashes debacle and allegations linking him to the Pietersen affair
Susie Wolff: A driving force in battle for equality behind the wheel

Susie Wolff: A driving force in battle for equality behind the wheel

The Williams driver has had plenty of doubters, but hopes she will be judged by her ability in the cockpit
Adam Gemili interview: 'No abs Adam' plans to muscle in on Usain Bolt's turf

'No abs Adam' plans to muscle in on Usain Bolt's turf

After a year touched by tragedy, Adam Gemili wants to become the sixth Briton to run a sub-10sec 100m
Calls for a military mental health 'quality mark'

Homeless Veterans campaign

Expert calls for military mental health 'quality mark'
Racton Man: Analysis shows famous skeleton was a 6ft Bronze Age superman

Meet Racton Man

Analysis shows famous skeleton was a 6ft Bronze Age superman
Garden Bridge: St Paul’s adds to £175m project’s troubled waters

Garden Bridge

St Paul’s adds to £175m project’s troubled waters
Stuff your own Christmas mouse ornament: An evening class in taxidermy with a festive feel

Stuff your own Christmas mouse ornament

An evening class in taxidermy with a festive feel
Joint Enterprise: The legal doctrine which critics say has caused hundreds of miscarriages of justice

Joint Enterprise

The legal doctrine which critics say has caused hundreds of miscarriages of justice
Freud and Eros: Love, Lust and Longing at the Freud Museum: Objects of Desire

Freud and Eros

Love, Lust and Longing at the Freud Museum