US consumer confidence rose unexpectedly in July and existing homes sales fell less than forecast in June, reports showed on Tuesday, boosting market expectations for an August rate hike by the Federal Reserve.
US bond and stock prices fell after the release of the two reports on the increased rate expectations, while the dollar rose. Stock prices, however, regained ground to end higher on strong earnings reports from technology companies.
US interest rate futures moved toward a 60 per cent chance of an August rate hike, up from about 50 per cent prior to the release of the data.
The Federal Reserve has raised interest rates in 17 consecutive quarter-point moves since June 2004, putting its benchmark rate at 5.25 per cent. Markets have been divided on whether the Fed would raise rates again at its Aug. 8 meeting to quell remaining inflation pressures despite evidence of slowing growth.
"Both numbers are stronger than expected -- and confidence does matter, and it increases the odds of an increase by the Fed," said Robert Macintosh, chief economist at Eaton Vance Management in Boston.
Tuesday's data suggested the economy remained resilient, but there were other omens pointing to slackening economic growth and diminished corporate profits.
Top executives at bellwethers 3M Co and United Parcel Service Inc. said there were growing signs pointing to an uncertain outlook for the US economy through the latter part of the year.
The Conference Board said its index of consumer sentiment climbed to 106.5 in July, up from 105.4 in June. Sentiment indexes have traditionally been seen as a gauge of US consumer spending, which accounts for roughly two-thirds of economic activity.
Analysts had expected the index to fall to 104.0.
"Present day conditions remain favorable, though not as strong as earlier this year," said Lynn Franco, director of the Conference Board Consumer Research Center. "Expectations for the month ahead remain cautious and also below levels earlier this year."
The business research group's present situation index rose to 133.0 from 132.2 in June, while the expectations component improved to 88.8 from 87.5 in June.
Labor market conditions were little changed in July, according to the Conference Board.
The divergence between the Conference Board's consumer confidence number and the University of Michigan's consumer sentiment survey for July, which came in at 83.0, may be pointing to a recession in the near-future, one analyst said.
"The contrary behavior of (the Conference Board's) survey compared with the University of Michigan survey is a mystery," Brian Fabbri, managing director of economic research at BNP Paribas, wrote in a research note. "The last time the gap between the two indexes was this wide was in 2000 just before the last recession."
The pace of existing home sales in the United States fell 1.3 per cent in June, to the lowest rate since the beginning of the year, as sales of condominiums tumbled and price increases were the weakest in 11 years.
The National Association of Realtors said that sales of existing homes fell to a seasonally adjusted annual rate of 6.62 million units in June from an upwardly revised rate of 6.71 million units in May.
Analysts had expected home resales to slow even further to a 6.58 million unit rate.
Sales of existing homes, which account for more than 80 per cent of total home sales, have been falling from the record level set in 2005 as mortgage rates and home prices have risen.
"Over the last year, we've seen a slowdown in home sales," said Gary Thayer, chief economist at AG Edwards and Sons in St Louis. "Inventories of homes rose in June so we are still seeing a potential overhang of homes for sale which will probably keep the housing market soft."
There were a record 3.73 million homes for sale at the end of June, representing 6.8 months' supply, compared to 6.4 months at the end of May.
Also released on Tuesday, the Federal Reserve Bank of Richmond's monthly manufacturing index for July rose to 12 from a reading of 4 in June, beating economists' forecasts.
US chain store sales rose 2.1 per cent in the third week of July from a year earlier, boosted by some back-to-school buying, according to Redbook Research.
- REUTERS
US consumer confidence ahead of forecasts
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