A Slow Day Tiptoes By And We Are Reminded Why Economics Is Called The Dismal Science

The biggest news today came from the U.S. housing sector. Housing starts jumped sharply in September on surging demand for apartment rentals, the Commerce Department said in a report. Such a surge could be read as being hawkish vis a vis a Federal Reserve interest rate hike.

New starts increased 6.5% to a seasonally adjusted annual pace of 1.21 million units in September, the sixth straight month that starts were above a million units. In a Reuter’s poll economists had forecast groundbreaking on new homes rising to a 1.15 million-unit pace last month, so the extra number of units was viewed as somewhat of a surprise.

The housing news helped to push up yields on U.S. treasury bonds. The yield n the 10-year bond is slightly higher above the 2.00% mark.

In turn, the U.S. dollar is slightly down against the euro. The euro strengthened largely on quite positive intra-union news in which most regions showed good performance. This prompted European Central Bank spokespeople to say that additional QE will be sidelined briefly.

It should be note that the euro is up by 5% against the dollar over the last three months. The heavy lifting in Europe is being done by banks, large and small, which are loosening credit requirements.

Like the U.S., the EU has to contend with disinflation. That is keeping the world’s two largest economic blocs from initiating anything that might be perceived as a more austere monetary stance.

The soft dollar is underpinning gold’s and other precious metals’ upward trend. Palladium is acting on its own, however. It is hard to determine the reasons for its recent strength. World manufacturing that requires it is growing, but not surging madly. Perhaps more and more fuel cells are being manufactured; palladium is a key element in their making.

Crude oil continues to confound. After weeks of firmer prices, based mostly on a decline in U.S. oilrig counts, the cost of a barrel has swooned. U.S. production is off its highs in April of 9.6 million barrels per day. Middle Eastern producers are still pumping more than 2 million more barrels per day than needed.

It can be safely said that demand has slackened in consuming nations. But, when one considers all input streams – and potential streams like Iran and Libya – there is far too much supply.

Of course, for those of us who remember the early days of the oil cartel and the oil shocks of the mid-1970s, today’s situation is somewhat amusing.

We were told that at best the planet had 30 years’ worth of oil left. Well, here we are 40 years later and there is too much oil and prices of gasoline (disregarding taxes) are about the same, if not lower, than they were in 1975.

Just another reason why economics is called a Dismal Science.

Wishing you as always, good trading,