New signs of weakness as US house sales fall


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.

ebooksAn unforgettable anthology of contemporary reportage
Life and Style

Board creates magnetic field to achieve lift

There have been various incidents of social media users inadvertently flouting the law

Life and Style
Stack ‘em high?: quantity doesn’t always trump quality, as Friends of the Earth can testify
techThe proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
CSKA Moscow celebrate after equalising with a late penalty
footballCSKA Moscow 2 Manchester City 2: Premier League champions let two goal lead slip in Russia
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Senior Helpdesk Analyst / Service Desk Co-ordinator

£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

Senior Pensions Administrator

£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Corporate Actions Administrator / Operations Administrator

£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

Day In a Page

Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Ed Sheeran hits back after being labelled too boring to headline festivals

'You need me, I don’t need you'

Ed Sheeran hits back after being labelled too boring to headline festivals
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Anderlecht vs Arsenal: Gunners' ray of light Aaron Ramsey shines again

Arsenal’s ray of light ready to shine again

Aaron Ramsey’s injury record has prompted a club investigation. For now, the midfielder is just happy to be fit to face Anderlecht in the Champions League
Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

Moyes’ show of sensitivity thrown back in his face... by Ferguson

Manchester United legend tramples on successor who resisted criticising his inheritance
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Lonely Planet’s Best in Travel 2015

UK city beats Vienna, Paris and New York to be ranked seventh in world’s best tourist destinations - but it's not London