There was resoundingly negative news from the US Housing Market today as New Home Sales and Existing Home Sales both fell to multi-year lows.

Data from the National Association of Realtors showed that sales of Existing Homes dropped to 4.49 million units, an 11-year low. This fall represented a record 8.6% monthly decline from October’s revised 4.91M. Economists had been expecting a modest moderation to 4.90 million units.

This is the first time that the annualized rate has deviated significantly from the 5 million mark in more than a year. Sales have remained relatively consistent since the drop from 5.50M to 5.11M in August/ September 2007. This is despite the fact that the median sale price of Existing Homes has dropped by 13.2% over the past year. This is the largest year-over-year decline since records began in 1968 and “probably the largest price decline since the Great Depression.”

On a regional basis the Northeast led the decline in sales, down 12.0% on the month and 18.0% in the last year. The Northeast has now marginally overtaken the West as the worst performing region over the past 12 months. The South was down by 10.9% (-17.6% YoY), followed by the Midwest and West down 7.4% and 4.3% in November, 16.0% and 17.9% respectively on the year.

The median sales price of Existing Homes has fallen across all four regions in the last year. The West has been hardest hit, down a staggering 25.5%, while the Northeast is only down 0.1% at $257 700. The Midwest and South currently stand at -11.2 and -10.6 percent on the year.

Inventories were up a touch to 4 203 000 from the 4 198 000 seen in October. However, at the current sales pace this sees the monthly supply move up to 11.2 months, the highest since April of this year.

New Homes Sales were equally as disappointing in November. According to the Census Bureau the seasonally adjusted, annualized sales rate currently stands at 407K, the lowest rate since January 1991. This represents a 2.9% MoM fall from October’s revised estimate of 419K. Furthermore, sales of single-family new homes are now 35.3 percent lower than they were at the same time last year.

On a yearly basis, all four regions are in negative territory in terms of units sold. The largest decrease has been seen in the South with sales 38.1% lower over the past 12 months. The Mid-West (down 34.9%), West (-32.2%) and the Northeast (-27.3%) aren’t too far behind.

Between October and November sales in the Northeast and West actually increased by 14.3 and 11.0 percent respectively. However, In the Midwest and South declines of 16.4 and 7.1 percent were reported.

The median sale price of a single family new home increased to $220 400 in November from October’s 214 600. However, this is 11.1% lower than the 2007 year ending price.

Canadian CPI and Core CPI both exceeded analyst expectations for the month of November, Statistics Canada reported on Friday December 19th.

Core CPI increased by 0.7% MoM while the Consumer Price Index posted a drop of 0.3% over the same period. Expectations had been for a 0.2% drop in the Core number and a much sharper 0.7% fall in all-items consumer prices.

Despite the better than expected inflationary figures, the annual rate of inflation for the CPI all-items fell to 2.0% from 2.6% in October. A figure of 1.6% had been predicted. However, the closely watched Core CPI increased to 2.4% from 1.7% in the previous month. A slight decrease to 1.5% had been expected.

Core consumer prices is the BOC’s preferred indicator when considering interest rates and the sharp increase may complicate the Bank’s aggressive rate easing cycle. However, the need to stimulate the economy in the face of global recession is likely to take priority over inflationary worries. The BOC’s Overnight Rate currently stands at 1.50% after a cut of 75 basis points on December 9th.

The Bank of England’s Monetary Policy Committee considered a more aggressive interest rate cut in December, but settled unanimously on the 100 basis point reduction, the MPC Meeting Minutes revealed today.

MPC officials noted that “the significant probability of undershooting the inflation target in the medium term,” warranted a cut of at least 1.00%. Interestingly, the Committee also noted that “the scale of the downside risk to inflation,” might justify a “larger cut”.

The commentary from December 03-04 points towards the likelihood of more rate cuts to come from the BOE. This will take the Official Bank Rate below 2.00 percent for the first time since The Bank was founded more than 300 years ago.

Indeed, the risks to the economy were deemed substantial enough that a cut of less than 1.00% was not even considered. The Committee agreed, “that a significant margin of spare capacity would open up over the next couple of years”.

However, the unanimous 9-0 decision was taken on a 1.00 percent easing of monetary policy to ensure the stability of financial markets. At the time The Bank felt that a 100 basis point cut was “priced in” to the market and a more aggressive cut “could cause an excessive fall in the exchange rate… and undermine confidence in the economy more widely”.

The UK’s Official Bank Rate currently stands at 2.00% ahead of the Bank of England’s next Monetary Policy Committee meeting on Jan 7-8 2009.

The US CPI fell by 1.7% in November while Core CPI came in flat, the Bureau of Labor Statistics reported today. Expectations had been for a 1.2% drop in headline CPI and a 0.1% increase in the Core number.

The decline in headline CPI is the largest MoM decline since records began in 1947 and it drags the YoY figure to just 1.1%, the smallest rate of consumer inflation since June 2002. The biggest monthly price reductions were seen in transportation and energy, down 9.8 and 17.0 percent respectively. Incidentally, both of these sectors sit firmly in negative territory for the last year. Energy is down by 13.3% and transportation by 8.9% in the 12 months ending November.

Core CPI now stands at 2.0% YoY, lower than the 2.1% that had been expected and below October’s 2.2% reading. It remains to be seen whether the Fed has already priced this reduction in consumer prices into its upcoming Federal Funds Rate announcement. At present time the consensus estimate is for a 0.50 percent cut by the Fed which will take the Federal Funds Rate down to just half of one percent.

**In the last few minutes it has been announced that The Fed has cut the Federal Funds Rate by more than expected to 0.25%, a 0.75% cut.**

Next week will be the last of the calendar year without any holiday interruptions. We have a moderately busy economic calendar set out for us and it would not be unusual to see trading volume diminish significantly as the week wears on.

In particular traders will be watching CPI releases from major economies, Retail Sales and Interest Rate announcements from The Fed and BOJ.

Next Week
The first high volatility event is scheduled in the overnight session at 23:50 on Sunday. The Japanese Tankan Manufacturing Index is expected to deteriorate for the fourth quarter to -23. Third quarter data had seen the index slip into negative territory at -3.

Monday will be a fairly quiet day with just the one significant event scheduled. The US Treasury will release treasury International Capital, or TIC Long-Term Transactions for October. Expectations are for a fall in the net value of foreign investment in US securities to $40.0B from the $66.2B seen September.

In the early hours of Tuesday morning, at 00:30, the RBA will release its Monetary Policy Meeting Minutes from the December 2nd meeting. High volatility is expected as traders look for an insight into the 1.00 percent cut in the Cash Rate.

At 09:30 we have the first of the week’s Consumer Price Index releases. Yearly CPI from the UK is expected to continue its moderation, likely down to 3.9% in November from 4.5% in October.

The US will also be releasing CPI data for November. The Fed prefers the Core CPI rate and this number is expected to show a 0.1% rise following the surprise -0.1% in October.

At the same time (13:30) Building Permits will also be released. Expectations are for a fall in the annualized number of new residential permits issued during November to 700K. The number for October came in at 708K, a MoM drop of 12 percent.

Possibly the most highly anticipated event of the week will take place at roughly 19:15 on Tuesday. The FOMC Interest Rate Statement is expected to reveal a 0.50 percent cut in the Federal Funds Rate to 0.50%. Interest rate futures are currently pricing this move in at 100% with a 75% chance of a deeper 0.75% cut.

Wednesday will be dominated by news from the UK. At 09:30 we are due to see Claimant Count Change and the December 4th BOE MPC Meeting Minutes. The monthly change in people claiming unemployment benefit for November probably increased to 45K from 36.5K a month earlier.

The MPC Meeting Minutes are expected to reveal a unanimous decision to cut rates by 1.00% on December 4th. However, traders will be very keen to see whether a larger cut was considered.

Moving forward to 11:00 we will see the CBI Distributive Trades Survey, or Realised Sales. The Index is expected to have improved slightly, up to -41 from -46 over the since the last release on November 28th.

In typical fashion, Thursday will be a busy day. We begin at 02:00 with the NBNZ Business Outlook Survey. The Index came in at -43 for the month of November.

High volatility is expected from the Eurozone with the German Ifo Business Climate Survey at 09:00. Consensus estimates are for a number of 84.0 after the 85.8 seen in November.

UK Retail Sales for November will be released at 09:30. Coming into the busy festive period MoM sales are expected to have fallen by 0.6% after a 0.1% decline in October.

Canadian Core Retail Sales should produce high volatility at 13:30. After an increase by 0.8% in September, sales are expected to have fallen by 1.0% in October.

At the same time US Initial Jobless Claims will also be released. Last weeks number of 573K was a 26-year high but claims are expected to moderate this time around, down to 558K.

On Friday morning we will see the second central bank monetary policy announcement of the week. The BOJ will release its Overnight Call Rate and is expected to remain on hold at 0.30%. High volatility will likely be reserved for the BOJ Press Conference later in the day as traders look for an insight into the decision.

Rounding off the week we have the Canadian Core CPI. Core CPI in November is expected to show a monthly decline of 0.2%, equalling the 0.2% drop seen in October.

Wholesale inflation fell by 2.2% in November, the US Bureau of Labor Statistics reported today, completing a fourth straight monthly decline. The consensus estimate had been for a 2.0 percent drop following on from October’s record drop of 2.8%.

PPI MoM for the last 12 reporting periods

Leading the declines in November were energy prices. After a 12.8% drop in October, energy was down 11.2% for the month of November. Liquefied petroleum gas and home heating oil accelerated declines in November, down 25.7 and 23.3 percent respectively after 24.9 and 9.6% declines one month earlier. Declines slowed in residential natural gas and unleaded premium and mid-premium gasoline.

Prices for consumer foods came in unchanged after a fall of 0.2% in October. Within the index, eggs posted the sharpest monthly fall, down 18.2% with milled rice and pork both down 5.3%. Fresh fruit and vegetables were up by 2.1 and 3.8 percent respectively.

The Producer Price Index shows that wholesale prices are 0.4% higher than they were at the same time last year. However, this has fallen sharply from the peak of 9.9% in July and 5.2% just one month ago. Indeed, the current yearly figure is the lowest seen since January of 2007 and is further evidence that price pressures are falling away sharply in the US.

Elsewhere the Core PPI was up 0.1% MoM and inline with economists’ expectations. Traders had been expecting a moderation following the 0.4% seen in October. On a yearly basis the core number, which strips out the volatile food and energy components, is up by 4.2%.

Aside from the headline number for finished goods the index for intermediate goods fell by a record 4.3% while crude goods were down by 12.5%. Last month Intermediate goods dropped by 3.9% while crude goods fell by 18.6%.

The question on traders’ minds is whether the financial markets will continue to ignore poor economic data. Following the lack of decisive action on the back of Friday’s shockingly poor Non-Farm Employment report, it remains to be seen whether this week’s economic announcements will provide anything more than a knee-jerk price reaction seen at the time of release.

This Week
The first high volatility event of the week will be the UK’s PPI Input at 09:30 on Monday. Expectations are for a MoM decline in wholesale inflation by 2.9% in November after the -5.6% seen in October.

At 13:15 we are due to see Canadian Housing Starts for the month of November. Expectations are for an annualized number of 194K, down from the 212K reported for October.

At 14:00 (15:00 CET) ECB President Trichet is due to testify before the Committee on Economic and Monetary Affairs of the European Parliament. The Quarterly Hearing usually takes the form of an introductory statement followed by a Q&A session.

On Tuesday morning we will see further high volatility from RBA Governor Glenn Stevens' speech at the Australian Business Economists Annual Dinner in Sydney. The event is scheduled to begin at 09:00 UK time.

This will be closely followed by the UK’s Manufacturing Production at 09:30. Expectations are for a 0.6% contraction in output in October after a 0.8% contraction in September.

At 10:00 the German ZEW Economic Sentiment number will be released. The index improved slightly last month to -53.5. However, economists are expecting a reading of -56.5 this time around.

Tuesday will also host the first of this week’s central bank interest rate announcements. The BOC Interest Rate Statement is likely to see the Overnight Rate slashed by 0.50 percent to 1.75%.

At 15:00 the first high volatility event of the week from the US is due. Pending Home Sales for October likely fell by 3.2% after Septembers 4.6% drop.

There is only one high volatility event scheduled for Wednesday and it comes during the overnight session. Australian Home Loans data for October likely saw an increase of 1.0 percent in the number of loans granted after the 2.7% fall in September.

Thursday will be a very busy day with the high volatility beginning in the overnight session. Australian Employment Change and Unemployment Rate are due for release at 00:30. Employment Change for November likely saw a fall of 15K jobs after the Australian economy added 34.3K in October. The Unemployment Rate, as of November, is likely to have increased to 4.4% from 4.3% in the previous month.

At 08:30 the SNB will be in focus as it announces the Libor Rate, releases its quarterly Monetary Policy Assessment and the Governing Board Members hold a press conference. High volatility can be expected for each one of these events with Libor midpoint likely to be shifted to 0.50% from 1.00%.

Focus will shift to North America at 13:30 with three high volatility events scheduled. The US Trade Balance will be released with a slight moderation to $53.5B in the trade deficit expected. At the same time Initial Jobless Claims will also be released. Economists expect 530K individuals to have filed for unemployment insurance for the first time during the past week.

At the same time, slightly overshadowed by the release from the US, the Canadian Trade Balance will also be released. The Canadian trade surplus is expected to have narrowed to CAD 3.2B from 4.5B in September.

Thursday will be rounded off by Core Retail Sales and Retail Sales from New Zealand. Core Retail Sales for October are expected to have increased by 0.8% MoM after a 0.5% decrease in September. For the same period Retail Sales were likely flat at 0.0% following on from a slight 0.1% increase a month earlier.

Friday will play host to a busy US session with some key data releases. At 13:30 Core Retail Sales, Retail Sales and the Producer Price Index will be hitting news wires. Core Retail Sales are expected to have fallen by 1.7% in November, with the headline Retail Sales number thought to have dropped by 1.9% in the same period. US PPI is also expected to fallen in November. Expectations are for a 2.0% fall in prices at the wholesale level after a similar 2.8% drop in October.

To round off the week we will see important consumer confidence data in the shape of the University of Michigan Consumer Sentiment number. Traders are expecting a reading of 55, relatively unchanged from last month’s final reading of 55.3.