[ForexNews]

US existing home sales climbed in July to highest since August 2007

Existing home sales surged by 7.2% to 5.24 million saar, the highest since August 2007 and considerably above consensus expectations of 5.0 million. This is a significant gain, highlighting the improvement in housing conditions. Deep discounts and low mortgage rates, combined with the improving economic outlook, have clearly enticed homebuyers. Countering some of the good news from this report was a 7.3% jump in inventory to 4.09 million. This left supply unchanged at 9.4 months.

Fed Chairman Bernanke noted the global economy is beginning to emerge from recession, but warned that challenges remain and urged regulatory reform

In his keynote address today at the Kansas City's Annual Economic Symposium in Jackson Hole, WY, Chairman Bernanke stated that the global economy is starting to emerge from recession, but also emphasized that challenges lie ahead. The majority of his speech summarized the economic turmoil that occurred within the past year as well as the subsequent policy responses. Last fall was an example of a classic panic, where the providers of short-term funding withdrew funding supply from financial institutions and the Fed responded by providing the necessary short-term liquidity to restore stability. The impact of these liquidity facilities has been substantial and has alleviated stress in short-term markets. Since the beginning of this year, their usage has decreased immensely, a clear sign that liquidity pressures are easing and markets are returning to normal conditions. While the depression-like scenario has been averted and prospects for growth in the near term appear to be favorable, Chairman Bernanke stated the economic recovery should be relatively slow in the beginning with unemployment declining only gradually from high levels.

To prevent such a crisis from occurring ever again, he urged for change in the regulatory structure of the financial system. Although regulatory agencies have thus far issued guidelines for strengthening liquidity risk management so that firms do not become too reliant on support from the central bank, Chairman Bernanke pushed for further reform in capital adequacy and credit and market risk management to prevent another destabilization in the markets. He also advocated for more regulation in short-term funding markets and other counterparty relationships such as over-the-counter derivatives contracts. Overall, Bernanke's speech signaled confidence towards growth prospects but also served as an exhortation for regulatory reform.

[ForexNews]

Fed Chairman Bernanke will have good reason to sound pleased with himself when he addresses world central bankers Friday at the annual Jackson Hole meeting organised by the Kansas City Fed. The US has come a long way since the panic of last winter, when the financial system was imploding and the economy seemed to be falling off a cliff. Yet in truth, economic policy is in uncharted territory and, with quantitative easing (QE), central bankers are engaged in an experiment on a grand scale. With the immediate crisis averted, differing approaches to how long to maintain easy monetary policy and how and when to exit are coming to the fore. This will have a major impact on markets. Investors will look for any indication of Bernanke’s thoughts on how long the US QE programme will continue. The Fed has said it will buy up to USD 1.75trn of long-term securities by year-end, but so far it is only just over halfway. The FOMC Statement on 12 August confirmed that the full USD 300bn of Treasuries will be purchased between now and the end of October (with the purchases spread out over a slightly longer period than originally planned). But, if the economy bounces up over the next few months, some FOMC members will prefer to scale down total purchases of mortgage-backed securities in the final months of the year. Market expects Bernanke’s view on this to be closer to Bank of England (BoE) Governor King’s view that QE needs to be substantial and sustained, and that it is too early to turn off the taps.