Leading shares have continued their slide after yet another set of poor US housing figures, along with disappointing manufacturing numbers.
With Wall Street down around 90 points in early trading the FTSE 100's slide has accelerated, with the UK's leading index now down 87.66 points at 4829.21. Technical analysts reckon that if the FTSE 100 finishes below 4800, the next stop could be 4630. Don't bet against it in these febrile markets - especially since volumes are on the low side with forthcoming summer holidays, the World Cup and Wimbledon to distract attention.
Back with the economic figures, more worries about the US economy came as pending home sales dropped 30%. Analysts were expecting a fall after the homebuyer tax credit expired, but this is worse than most feared. Teunis Brosens at ING Bank said:
US May pending home sales tumbled as the homebuyer tax credit expired. Pending sales fell an eye-watering 30% month on month. Pending sales are now 15.9% below the May 2009 level, and have even dipped below the previous trough of January 2009. The drop itself is no surprise, given the expiry of the tax credit, but the size of the drop is (consensus was for -14.2% month on month).
The tax credit required deals to be signed by 30 April to qualify. Today's awful pending home sales (capturing contract signing) confirm that the tax credit has pulled forward demand. Mortgage applications for purchases, another early indicator for the housing market, have been exploring 13-year lows since the tax credit expired. Our early assessment based on these miserable data is that the homebuyer tax credit merely cannibalised sales in the coming months, and did not succeed in jump-starting a lasting recovery of the housing market. We expect sales and prices to remain weak over the summer, as it takes some time before new buyers start entering the market again.
On top of that, June's manufacturing survey for the US showed new orders were at their lowest level since October 2009. If tomorrow's US non-farm payroll numbers also prove to be worse than expected, markets could test fresh lows.
