The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Sweden's Riksbank left its negative interest rate steady at -0.35 percent on Wednesday and increased its bond purchase programme by another 65 billion crowns (just under 7 billion euros). It also said it could cut rates again if needed.
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A dip in 30-year mortgage rates to their lowest level in more than a year and stronger U.S. housing data on Friday appeared to be the green shoots of the next phase of U.S. economic recovery, that being the housing market.
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The American housing market is looking better. That’s not entirely surprising, given that there was nowhere to go but up after the big bust of 2008. Some indicators — the number of housing starts, for instance — look quite healthy. But a team of researchers from the New York Fed, looking over a treasure trove of new data on the benefits and drawbacks of homeownership, have concluded that the divide between owners and renters is still one of the biggest fault lines in America.
U.S. housing prices fell 0.2% in June from May, the latest data from the Case Shiller index shows. Compared to June last year, prices were up 8.1%, but the pace of the increase is still slowing down. May’s numbers showed a year-over-year change of positive 9.4%.
The jobs report takes a bit of heat off of Thursday’s selloff, which was predicated in part on some nonsense out of Europe and more importantly some kind of growing consensus that the economy is getting hot enough that it might force the Federal Reserve to start raising rates a bit earlier than expected, given a sharp and unexpected rise in the employment cost index on Thursday. And while it’s fair to suggest the stock market has gotten a bit ahead of itself when the Fed is rapidly moving toward the end of its stimulus policies, it’s also possible that stocks have gotten ahead of themselves for a far more prosaic reason – the economy isn’t strong enough to support the kind of valuations we’re seeing in equities right now.