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
Sport
Floyd Mayweather will relinquish his five world titles after beating Manny Pacquiao
boxing
Arts and Entertainment
tvGame of Thrones season 5 ep 4, review - WARNING: contains major spoiliers!
News
Tottenham legend Jimmy Greaves has defended fans use of the word 'Yid'
people
Life and Style
tech
Arts and Entertainment
The Ridiculous Six has been produced by Adam Sandler, who also stars in it
filmNew controversy after nine Native American actors walked off set
Life and Style
Google celebrates Bartolomeo Cristofori's 360th birthday
techGoogle Doodle to the rescue
ebooks
ebooksA celebration of British elections
  • Get to the point
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

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living