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Markets slip ahead of Bernanke announcement despite jump in US existing home sales

Markets are edging lower ahead of the much anticipated outcome of the US Federal Reserve meeting, but in the meantime there have been some relatively benign US figures.

Existing home sales rose by 7.7% month on month in August, the highest level in five months and much higher than the 1.4% increase expected by the market. Analysts said rising rents had contributed to the rise in buyers, with sales solid across the whole country. Annalisa Piazza at Newedge Strategy said:

At least a bright spot for the US housing market in the late summer months. However, we wouldn’t read too much out of the surge in existing home sales. Credit conditions are still very tight and the uncertain picture for the economy weighs on consumer confidence. At best, the US housing market will continue to move sideways in the remainder of the year.

Teunis Brosens at ING Bank said the consensus figure always seemed low, so warned not to read too much into the data:

The housing market is not suddenly embarking on a recovery. Sales dipped in July, and the sales volume has now merely bounced back to the average volume in the past nine months. Home sales are in effect flatlining. And improvement is not around the corner yet. Despite record low mortgage rates, the number of mortgage applications has fallen since early August, suggesting soft sales volumes in September and October.

The continuing housing troubles could serve as an argument in favour of more stimulus from the Fed. The Fed might announce an “operation Twist” today arguing that lower long-term yields will reduce borrowing costs for companies and households. However, the housing market also demonstrates the limited use of any such policy. Mortgage rates are already at historic lows and this has failed to lift sales in a meaningful way. Even lower rates on new mortgages would provide little comfort for existing homeowners with negative equity and difficulty to refinance.

So with all eyes on Bernanke, the Dow Jones Industrial Average is down around 11 points while the FTSE 100 is off 66.65 points at 5297.06.

Meanwhile the European Central Bank has eased the requirements for collateral to be used against ECB support, dropping the need for them to be traded on a regulated market. The move seems designed to offer yet more support to Europe’s beleaguered banking system, suffering under the weight of Greek and Italian debt. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds