By: DailyForex.com
Recent gains seen on world markets have moved some indexes into new record levels and others to heights not seen since the onset of the global financial crisis. The gains in the market were not matched by strong increases in productivity; orders; new jobs or even stellar business confidence. These indices are showing progress, but at a much more modest level. Therefore, the recent market gains could be said to be “investor led”, indicating that investors have regained some of their hunger for risk and bargain hunting. The recent rally was derailed by poorer than expected Chinese economic figures and concerns that the Federal Reserve might be intending to withdraw stimulus measures from the US economy.
On Tuesday, markets rallied on the news that US house prices have seen their best increase for seven years. The Case-Shiller index recorded increasing year-on-year house prices in all 20 of the cities that it encompasses for the third straight month. In addition, the new house sales figure for April was at a five-year high and sales of existing housing stock was at a three-and-a-half year high. The increase in the house price showed strong regional variations from 2.6% in New York City to 22.5% in Phoenix.
The US housing sector saw a strong bubble between 1999 and 2006 which saw the average price of a home double. Data suggests that this bubble has completely deflated now with house prices hitting the long-term average increase slope. The price has now increased by about a third since 1999 (compared to the doubling seen within seven years during the bubble).
Central banks in Japan and Europe have stated that they will continue to take measures to support their economies. The Dow Jones Industrial average closed 0.7% higher on Tuesday and European markets were up by 1.2 to 1.6% and the Nikkei closed 1.2% higher on Tuesday.
In early Wednesday morning trading, European markets were lower by 1% or so, negating most of Tuesday’s gains.