Monday, February 24, 2014

The Forex market is a coiled spring | Is a housing bubble bursting in China?

While the main equity markets seem to have recovered their poise, the same cannot be said for Foreign Exchange. The Japanese Yen, the Swiss franc, the Aussie dollar and gold, all of which can be expected to decline in favour of the US dollar when the US economy is seen to be on a clear path to recovery, are staying resolutely strong. The price of spot gold has gone above its 200 Day Simple Moving Average (SMA) for the first time since early 2013, and is reaching for a resistance level at 1361.00 that was set back in October last.

So Forex market participants wait, with bated breath, for the next piece of news out of the USA. This will most likely take the form of an economic report. The best candidates here are Durable Goods sales and Preliminary GDP figures, both of which are due later in the week, or it could be in a reaction to the words of Janet Yellen, Chair of the Federal Reserve, who is scheduled to make a speech to the Senate Banking Committee on Thursday.

The problem has been mixed messages since the start of the year. On the one hand the Federal Open Market Committee (FOMC) seems to have judged that the economy is improving to such as extent that Quantitative Easing (QE) can confidently be eliminated this year, but this view is not supported by employment reports, manufacturing indices or economic growth figures. Many blame the very sever weather conditions in the US for this, and label it a temporary phenomenon. But how long can a temporary phenomenon last before it does lasting damage, or at least postpones the long awaited economic recovery?

Is this a bubble bursting in China?

From Dow Jones Newswires, Feb 25th 2014. A residential property collapse in China would be very bad for the Aussie dollar, in particular.

DJ Protesting Homeowners Damage Hangzhou Showroom -Report

Protesting homeowners demanding refunds damaged a showroom at an eastern Chinese city, the state-run China Securities Journal reported on Tuesday. 

Zhejiang Tianhong Property Development last week cut prices of homes for sale at its Xiangxieli development in Hangzhou by 6,000 yuan (about $1,000) a square meter bringing starting prices to 11,800 yuan a square meter, according to the report.

Owners who bought at higher prices are angry.

One homeowner who bought at 19,300 yuan a square meter asserted her unit has fallen 500,000 yuan in value following the reduction, the report said.

Police cordoned off parts of the Tianhong showroom where unhappy owners caused damage, the report said. Some wore T-shirts with messages accusing the developer of deception and demanding refunds.

Another developer DoThink Group last week said it cut prices by 12.2% at its North Sea Park project in Hangzhou to 15,800 yuan ($2,592) per square meter from 18,000 yuan. Apartments at the 12-tower high-rise development have been on sale since April 2012

Banks are treating the property sector with increasing caution because of worries about bad loans, developers have said recently. On Monday Industrial Bank Co. confirmed it had stopped some lending to property developers.

Average new home prices in 70 Chinese cities rose about 9% on year in January--down from 9.2% in December and 9.1% in November, according to calculations by The Wall Street Journal based on official data released on Monday.

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(END) Dow Jones Newswires

February 25, 2014 00:47 ET (05:47 GMT) 

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