According to Richard Franulovich, head of FX strategy at Westpac, the trade war’s impact on US housing construction costs and immigration could be hurting housing and the US financial conditions are very easy and signal a stronger data pulse.
Key Quotes
“US housing has struggled to find its gear even though mortgage rates have tumbled by nearly 100bp since late last year.”
“The impact of the 2018 Trump tax reforms – reducing the deductibility of mortgage interest and the deductibility of state and local property taxes at the federal level – could still be lingering too but the adjustment should have mostly played out by now.”
“Anecdotally trade tensions and tariffs could be an important and less well appreciated brake on US housing.”
“Trade and business investment have been key focal areas for assessing potential fallout for the US economy from trade tensions but housing could be another area to keep an eye on too. Substitution effects will moderate the impact but that plays out slowly over time.”
“Outside of housing, the US has produced an impressive run of data in recent weeks – payrolls, core CPI, core retail sales and the Philly Fed all comfortably beat estimates. Surely by now a very meaningful easing in US financial conditions and the trade war truce should begin to show up in yet more data points in coming weeks?”
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