U.S. Stocks Buck Trend, Spike Higher on Strong U.S. Housing Data

Investors looking for a sideways trade this week leading up to Fed chair Janet Yellen’s speech on Friday were handed a surprise on Tuesday when U.S. stocks traded higher. The Dow Jones Industrial Average briefly reached a 100 point gain before low volume drove it back down before holding about 35 points higher. The S&P 500 Index was up approximately 0.3 percent. The NASDAQ Composite Index posted a gain of about 0.4 percent, touching a new all-time high in the process.

Traders attributed to strength in the market to thin trading conditions ahead of the start of the central bankers’ symposium later this week, the prospect of continued low interest rates and a stronger than expected U.S. housing market.

Investors don’t seem to be too concerned about an interest rate hike at this time. And even if there was one, it won’t come as a surprise. Currently, the Federal Funds Indicator is reflecting a 24 percent chance of a rate hike in September, a 50 percent chance in December and a 100 percent chance of a 25-basis point rate hike in September 2017.

Traders are likely to respond to the tone of Yellen’s speech on Friday, but no one expects it to cause an earth-shattering event. Friday’s second-read for second-quarter GDP, also due on Friday at 1230 GMT, shortly before Yellen talks could actually cause more volatility than the central bank chief.

The U.S. Dollar was under pressure most of the day, erasing all of yesterday’s gains that were caused by hawkish comments from a top-ranking Fed official. The dollar did, however, bounce higher after data showed that new home sales for July unexpectedly surged, reaching their highest level in almost nine years. The actual number was 654K units. Pre-report estimates called for a 575K increase.

Other U.S. data released on Tuesday included the Markit Manufacturing PMI for August, which came in at 52.1, slightly below the 53.1 estimate.

The Euro helped underpin the dollar somewhat after weakening following a report that showed private sector activity was stable in August, but at a muted level. Flash Manufacturing PMI data from France, Germany and the Euro Zone was mixed.

December Comex Gold posted a two-sided trade as the weakness in the U.S. Dollar failed to attract enough buyers to sustain an early rally. The price action suggests investors are awaiting further guidance on U.S. interest rates, pinning their hopes on Janet Yellen. Recent comments from Fed officials have been mixed, but the majority of the comments have been on the hawkish side, giving gold a sideways to lower tone this week.

After early session weakness, crude oil prices turned positive after Reuters reported Iran is sending positive signals that it may support joint action to prop up the oil market, citing sources in OPEC and the oil industry.