Weekly Drivers: China Housing, Beige Book, Chavez

Hugo Chávez, President since 1999.

Hugo Chávez. (Photo credit: Wikipedia)

Markets have broken out of last week’s tight trading range and surged to new all-time highs this week. Any hints of weakness in the equity markets have been met by bargain hunting investors ready to scoop up shares. Here are three drivers that have moved the market this week:

Home Prices in China

Kicking the week off, Chinese officials announced measures aimed at cooling rapidly rising home prices. The new rules included a 20 percent tax on gains from a sale, higher down payments and mortgage rates, and requirements that cities set annual price easing targets. A flurry of activity in home sale is expected, as these new measures will take some time to implement, creating a window of opportunity for home transactions to take place before the plan is put in place. “The actual impact of the new policy can be very severe or not severe at all, depending on implementation. But the wording is unexpectedly harsh,” said Yao Wei, China economist at Societe Generale CIB. “In three months’ time, the impact may not be big at all. But it has stirred very high negative expectations.” As a result of the regulatory changes, China's Shanghai Composite fell 3.7% and the Property Index plunged almost 10.0% on Monday.

Beige Book

On Wednesday, the Federal Reserve released its latest assessment of economic conditions, or Beige Book. For those unfamiliar with the report, it is a collection of anecdotal information about the economy from the Fed districts. While the market met the data with a relatively calm response, there were a few key takeaways from the report. The Fed’s economists said that activity continued to expand at a “modest to moderate” pace through January and February. On the encouraging side, manufacturing improved modestly, fueled by strong demand from automakers, food producers, and residential construction. However, several districts reported slowing retail sales, citing fiscal policy and higher gasoline prices as the reason. Homebuilders have also been benefitting from the Fed’s incredible support of the residential real estate market, with home prices rising amid falling inventories across much of the country. On the Commercial real estate side, activity was mixed or improved slightly in most Districts, with financing for commercial development widely available

Chavez Exits Stage Left

On Tuesday morning 14 year Venezuelan President Hugo Chavez died after a two year battle with cancer. News of the death swept through the oil and gas industry, as questions arose about the impact it would have on the global oil market. Currently there are more questions than answers, with the full impact of his death most likely not being felt until Venezuela, which sits on the world's second-largest oil reserves, picks a new leader — one who might choose a course different from Chavez. There is some concern that the potential for disruption in Venezuelan politics could see disruptions to development and supply, ultimately leading to some price volatility. Over the years, Venezuela has become increasingly reliant on imported goods. The country could face a balance of payments crisis under Mr. Chavez's successor should oil prices fall below $100 per barrel. A potential (although unlikely) solution is for Venezuela to make more of its huge oil reserves with the help of investment and expertise from large foreign oil majors. Although there has been little impact to oil markets thus far, as we draw closer to a decision about a permanent successor, that could change.

*Weekly Bonus Forbes released its list of The World’s Billionaires, with a record 1,426 billionaires totaling $5.4 trillion in net worth making it to the iconic list. This time, only 29 members of this elite list are under 40 years old. In total, this group of “youngsters” total $119 billion between them, with 4 coming from social networking giant Facebook. Topping the list are Carlos Slim Helu & family with a net worth of $73 billion, and Bill Gates with $67 billion.

Enhanced by Zemanta