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The Dollar Rallied Versus the Euro Amid a Surge in Housing Data.

The dollar rallied versus the euro amid a surge in housing data and from ECB comments the bank is “pulling forward” asset purchases.

Commenting about the dollar, Bloomberg writes the dollar spot index is headed for its biggest two day surge since December 2013.  Last week the narrative was all about unexpected dollar weakness.  I will argue the volatility is a function of massive stimuli that is searching for a home, a home other than the real economy.

Speaking of the real economy, housing starts surged the most since November 2007.  Housing and autos are the two traditional drivers of growth following a slowdown.   Is the housing data an anomaly as the vast majority of other statistics has suggested continued weakness from the first quarter?

Regardless I do think this massive upside housing surprise is significant for one simple reason–most value their net worth by the price of their home rather than the value of their investment account.  If housing is recovering by this magnitude, will inflationary pressures become “unanchored” given the significance of OER is most pricing indices?

Treasuries sold off significantly on the housing data almost broaching the highest yields for the year but retraced about 60% of the losses by day’s end perhaps on an oversold rebound.  Equites were relatively quiet closing essentially unchanged.

Last night the foreign markets were mixed. London was up 0.18%, Paris down 0.25% and Frankfurt down 0.32%.  Japan was up 0.85% and Hang Sang down 0.39%.

The Dow should open flat ahead of the Minutes from last month’s FOMC meeting.  Will there be any reaction to the written comments or will all wait until FRB Chair Yellen’s remarks scheduled for tomorrow?  The 10-year is up 7/32 to yield 2.26%.

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Ken Engelke

Chief Economic Strategist Managing Director

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