Interest Rate Chatter: It Boosts Gold and Yen Prices, Too
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What is the main topic discussed in this episode?
Here's your money briefing. I'm J.R. Whelan at The Wall Street Journal in New York. You've seen your stocks rise as chatter about lower interest rates intensifies, but that chatter has been pushing assets and currencies higher as well. And that has surprised people on Wall Street and frustrated leaders of foreign governments. We'll hear from a journal reporter in a moment to explain.
What immediate market reaction followed talk of a possible Fed interest-rate cut?
First, some money and market news that you should know. High prices and low inventory were the main culprits as the sales of previously owned U.S. homes declined in June. Even low mortgage rates couldn't prop up sales. Existing home sales fell 1.7 percent in June from the previous month to about 5.3 million. Now, compared to a year earlier, sales in June declined 2.2 percent and sales have been declining year over year for 16 consecutive months. That has the chief economist of the National Association of Realtors puzzled because the current low mortgage rates have coincided with strong job creation and rising wages. But affordability is the root of the problem. The news is also a bit troubling since the spring season is crucial to the housing market.
Roughly 40% of the year's sales take place in March through June. And speaking of real estate, the Wall Street Journal mansion team reports that an estate in East Hampton, New York, once owned by the chairman of the Union Pacific Railroad, is on the market for $60 million. Talk about affordability. The 6.7-acre two-lot property sits on a private lane lined with cherry trees. in an ultra-exclusive Hamptons Enclave. The larger building on the site spans 5,500 square feet. It has five bedrooms, an updated kitchen with a fireplace, and a large vaulted living and dining room with doors that lead to an oceanfront terrace. The compound has a 50-foot heated swimming pool and a private path to the beach. The separate lot has a three-bedroom guest house, which also has its own swimming pool.
See the full story and photos on WSJ.com and the WSJ app.
It's clear that the talk of a possible interest rate reduction by the Federal Reserve has pumped up stock and government bond prices. But the price boosting doesn't stop there. Wall Street Journal reporter Ira Yosebashvili is here to explain.
Why did existing U.S. home sales decline in June despite low mortgage rates?
So, Ira, you know, we're seeing asset prices worldwide get a lift as a result of rate reduction talk and not just by the U.S. Federal Reserve.
That's right. It's not just the Fed. It's central banks all over the world. It's the Fed. It's the ECB. It's the Bank of Japan. Recently, I think the New Zealand Central Bank said it also plans to offer some kind of monetary stimulus. So what that's doing is it's creating waves in asset markets. Now, the most obvious consequences are it's boosting prices for stocks and boosting prices for bonds. The story that Sam and I did yesterday explains that it's basically affecting just about every asset out there in some way and talks about some of the more prominent ones that are seeing effects from that, like the Swiss franc, for example.
Yeah, exactly. You and Sam Goldfarb in the journal wrote about one of the assets seeing an unexpected boost is the Swiss franc. It's a currency that investors find safety in. But this price boosting is a little unsettling to the Swiss government.
It is a little unsettling. And what happens is if you're an investor holding euros... And you just heard that the ECB is intent on easing monetary policy further. Well, that tells you two things. That tells you that rates are probably going lower in the Eurozone, where already a lot of investors have to pay for the privilege of of holding Euro-denominated assets. So now rates are going even lower, and that's all happening. That's happening for a reason. It's happening because growth in the Eurozone is just not very strong. So if you still want to keep your money in Europe and own some sort of European assets, the Swiss franc is a popular target. So it's both a kind of an asset to own, just to own something, and also it is a haven asset.
But yeah, like you said, it's not great news to the Swiss National Bank because it drives the value of the Swiss franc higher, hurting the competitiveness of Switzerland's products abroad.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:05–0:26
2
What immediate market reaction followed talk of a possible Fed interest-rate cut?
0:26–2:25
3
Why did existing U.S. home sales decline in June despite low mortgage rates?
2:25–6:38
4
What high-end real-estate story illustrates affordability issues?
6:38–6:51
Speakers
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