Further indications that the US economy is bottoming out were apparent yesterday with a massive jump in new home sales leading the charge.

Sales smashed through the consensus estimate to post their largest increase in 8 years while a 4.1% decline in housing inventories is also a sign to be optimistic about. Given this new trend we believe that further US data today in the form of Case Shiller house prices and Conference Board Consumer Confidence will also be beneficial to this recent risk rally.

Commodity currencies will also stand to benefit from this as improved risk conditions make carry trades that much more attractive. We would expect a further strengthening therefore of the AUD, NZD and CAD in the coming days.

Equity markets were slightly depressed with most posting losses on the day as profit taking hurt bourses although the news that LIBOR rates had fallen below 0.50% from over 4.8% in the days following the collapse of Lehman Brothers. What this means to you and me is that banks are now charging less to lend to each other as the systemic risk has all but evaporated. This is the first step to opening up credit markets and shows that Quantitative easing ploys adopted by the world’s central banks are working.

Apart from the US data mentioned above it is a fairly quiet day and a close eye should be kept on equity and credit markets.

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