Investors look hopefully to housing data

Investors will be looking to see if improving housing data can energize stock markets this week.

Investors will be looking to see if improving housing data can energize stock markets this week.

In an otherwise quiet week for economic data, traders will take in the latest reports on U.S. housing starts and sales figures for new and existing homes.

Economists expect housing starts rose by 0.3 per cent last month, while existing home sales gained 0.7 per cent and new home sales climbed by 1.4 per cent.

Monthly American housing data was generally discounted for years as a market negative amid sliding sales and plunging prices. But data has markedly improved since the end of 2011.

“If we do get confirmation that the U.S. housing market is truly turning, then I think it would actually help support the equity markets simply because that’s been the missing ingredient all along in this recovery,” said Doug Porter, deputy chief economist at BMO Capital Markets.

“And if housing really does begin to turn, then it could give some added oomph to this U.S. recovery.”

A revival of the U.S. housing sector has been a long time coming.

The sector has subtracted from U.S. gross domestic product for the past six years in a row.

“And of course, for a couple of those years, subtracting is just putting it lightly,” said Porter.

“It’s been a consistent downward pull on the economy for years now.”

But he said it looks like the housing sector will actually add to U.S. economic growth this year.

One reason a turnaround in housing is eagerly anticipated is that it would also send a positive signal about the American employment situation.

“The two go hand in hand,” added Porter, “and it’s one of the reasons why job growth has been so mediocre is that because construction has been flat on its back and, of course, the reason why construction has been flat on its back is because the housing sector has been struggling to turn around.”

The Toronto market could certainly use a catalyst to restart a rally that seemed to run out of steam after almost five months over the past three weeks. The TSX closed a handful of points lower last week, adding up to a third consecutive weekly decline, leaving the TSX still up 4.5 per cent for this year to date.

That is in sharp contrast to the U.S. market, where the Dow industrials are up more than eight per cent year to date.

“Given the run that we have had, there is the potential for what I’ll call sober second thought at this stage of the game because things look pretty good, much as expected,” said Bob Gorman, chief portfolio strategist at TD Waterhouse.

“But the sentiment — maybe just a little too positive.”

Investors will also keep a close eye on rising government bond yields.

Yields have risen as a reflection of the more positive economic outlook and a feeling that the European debt crisis has calmed down now that Greece has received its second bailout.

Just in the past week, the yield on the Canadian 10-year government bond is up 0.24 of a point to over 2.24 per cent. U.S. yields have also bounded ahead, with the 10-year treasury up 0.6 of a point from the lows of last September to 2.3 per cent at the end of last week.

“People are less fearful, hence prepared to take on more risk and so you have a switch from lower risk assets to higher risk,” said Gorman, who added the higher yields have had a very positive effect on Canadian insurers.

Insurers have been hit hard by low interest rates and stock market losses since the 2008 financial crisis.

But recently, “these stocks that have done nothing for ages started moving,” said Gorman.

“This is the first time we have seen any meaningful backup in bond yields that would provide them with some relief. The yield goes higher and this is important for insurance companies because it effects their earnings in a material way.”

For example, Great-West Lifeco (TSX:GWO) gained 4.2 per cent last week while Manulife Financial (TSX:MFC) ran up 12.2 per cent.

Meanwhile, the major Canadian economic report this week is the January read on retail sales.

The consensus calls for a 1.7 per cent rise, reflecting a 15 per cent jump in vehicle sales in January.

“Our consumers did not get hit as hard during the recession….there’s just no pent-up demand in Canada,” said Porter.

“The Canadian consumer is still pretty sluggish, but for January at least, we had one banner month (in auto sales) and that will show up in the retail sales result.”

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Red Deer Rebels forward Jayden Grubbe is one of three Rebels on the NHL Central Scouting players to watch list for the 2021 NHL Draft. (Photo by BYRON HACKETT/Advocate Staff)
Rebels seek consistency ahead of matchup with Hitmen

The Red Deer Rebels had to deal with a pang of regret… Continue reading

Quinn Mason died from an opioid overdose at the age of 23 in June 2020. (Contributed photo)
Central Alberta mother whose son died from overdose advocates for ‘change’

It’s been about nine months since her son died from an overdose,… Continue reading

Health Minister Tyler Shandro said Thursday that the province was ready to move forward with Phase 2A and B in the coming weeks. (Photo by Paul Taillon/Office of the Premier)
Majority of Albertans to receive first shot before June 30: Shandro

Shandro says all Albertans should be offered the COVID-19 vaccine by June 30

Alberta’s chief medical officer of health Dr. Deena Hinshaw acknowledged that Friday would be one year since the first case of COVID-19 was identified in the province. (photography by Chris Schwarz/Government of Alberta)
Three more Red Deer COVID-19 deaths, 331 active cases in Alberta

Red Deer is down to 362 active cases of the virus

Alberta’s Jobs, Economy and Innovation Minister Doug Schweitzer spoke on Thursday by webinar to Red Deer Chamber of Commerce members. (Screenshot by Advocate staff).
Alberta’s economic diversification is already underway, says Jobs Minister

From the geothermal to the TV industry, new jobs will be created, said Doug Schweitzer

Bryson, six, and Mara, eight, play with puppies from Dogs With Wings Saturday. (Photo by Sean McIntosh/Advocate staff)
WATCH: Dogs With Wings introduces Red Deer program

A program that trains puppies to be certified service, autism, facility and… Continue reading

Quebec Premier François Legault chairs a virtual news conference Thursday, March 4, 2021 in Montreal. The premiers from the left are: John Horgan, B.C.; Jason Kenney, Alberta; Scott Moe, Saskatchewan; Legault, Quebec; Brian Pallister, Manitoba; Doug Ford, Ontario; and Blaine Higgs, New Brunswick. THE CANADIAN PRESS/Ryan Remiorz
Premiers reiterate demand for $28-billion increase in health transfers from Ottawa

Premiers reiterate demand for $28-billion increase in health transfers from Ottawa

The Edmonton Law Courts building is shown on Wednesday, July 8, 2020. An Alberta pastor accused of holding Sunday services that violated COVID-19 rules is appealing his bail conditions. THE CANADIAN PRESS/Jason Franson
Jailed Alberta pastor should be able to lead services until his trial: lawyer

Jailed Alberta pastor should be able to lead services until his trial: lawyer

Seniors arrive for their COVID-19 vaccination at a clinic in Olympic Stadium in Montreal on March 3, 2021. THE CANADIAN PRESS/Paul Chiasson
Premiers blame Ottawa for delayed COVID-19 shots; Ontario pharmacies to offer jabs

Premiers blame Ottawa for delayed COVID-19 shots; Ontario pharmacies to offer jabs

Actors, clockwise from left, Luke Bilyk, Aislinn Paul, Alex Steeler, Melinda Shankar, Annie Clark, Jordan Todosey, Jahmil French and Munro Chambers from "Degrassi: The Next Generation," are shown at a screening event, Saturday, Feb. 18, 2012, at the Wellmont Theater in Montclair, N.J. Friends of French say he was a gifted 'true artist' who 'wanted to be great'THE CANADIAN PRESS/AP Photo/StarPix, Dave Allocca
Friends of Jahmil French say he was a gifted ‘true artist’ who ‘wanted to be great’

Friends of Jahmil French say he was a gifted ‘true artist’ who ‘wanted to be great’

FILE - In this Wednesday, Jan. 6, 2021, file photo, rioters storm the Capitol, in Washington. At least 10 Ohioans have been charged in connection with the deadly insurrection at the U.S Capitol after being identified through social media and surveillance footage to the FBI. The group includes people linked to the Oath Keepers militia group who have been indicted on charges that they planned and coordinated with one another in the attack. (AP Photo/John Minchillo, File)
Capitol Police chief appeals for National Guard to stay

Capitol Police chief appeals for National Guard to stay

People gather on high ground and check for any sign of a tsunami near Whangarei, New Zealand, Friday, March 5, 2021. A powerful magnitude 8.1 earthquake struck in the ocean off the coast of New Zealand prompting thousands of people to evacuate and triggering tsunami warnings across the South Pacific. (Karena Cooper/New Zealand Herald via AP)
Powerful quake hits off New Zealand, prompting evacuations

Powerful quake hits off New Zealand, prompting evacuations

FILE - In this Wednesday, Jan. 15, 2020 file photo, students discard food at the end of their lunch period as part of a lunch waste composting program at an elementary school in Connecticut. A United Nations report released on Thursday, March 4, 2021 estimates 17% of the food produced globally each year is wasted. That amounts to 931 million tons of food, or about double what researchers believed was being wasted a decade ago. And most of the waste — or 61% — happens in households, while food service accounts for 26% and retailers account for 13%. (Dave Zajac/Record-Journal via AP)
7% of food production globally wasted, UN report estimates

7% of food production globally wasted, UN report estimates

A vial of some of the first 500,000 of the two million AstraZeneca COVID-19 vaccine doses that Canada has secured through a deal with the Serum Institute of India in partnership with Verity Pharma at a facility in Milton, Ont., on Wedneday, March 3, 2021. THE CANADIAN PRESS/Carlos Osorio - POOL
Efficacy figures of COVID-19 vaccines don’t tell the whole story: experts

Efficacy figures of COVID-19 vaccines don’t tell the whole story: experts

Most Read