🔍 The focus this week: House in order

Analysts and investors have the US housing market on their radars, with an update to the S&P/Case-Shiller Home Price Index due on Tuesday. See, despite mortgage rates sitting near two-decade highs and homes looking far from affordable, house prices have been on a steady climb in the US. That’s partly because there aren’t many on the market, leaving buyers to bid it out between them. And the "rate lock" effect is playing a part, too: homeowners who secured low rates in earlier years are reluctant to sell in the current high-rate environment. They're waiting for a potential interest rate cut before they make their next move – even though the Federal Reserve has hinted that might not come until at least September.

The S&P/Case-Shiller Home Price Index is one of the most widely referenced measures of US residential property prices. The index uses a “repeat sales methodology”, which tracks changes in home values while accounting for the quality and size of the properties. That means the results show a consistent comparison of sales of similar homes across different time periods. But it's not without its flaws: the index doesn’t count new builds, and because the data takes two months to come in, it won’t account for the freshest market trends. So for a full picture, it’s important to keep an eye on complementary indexes like those from the Federal Housing Finance Agency and National Association of Realtors, which fill in some of those blanks. Right now, they’re indicating that median sale prices of existing homes are near record highs and that they’re only going up.

The inventory of places for sale, meanwhile, seems to be getting fuller. The number of homes on the market rose 9% last month, to 1.21 million units, the most since October 2021. That’s still below pre-pandemic levels, but the more listings there are, the more likely it is that price rises will calm down. That said, achieving a more sustainable increase in supply would probably require significantly lower mortgage rates – enough to encourage people to sell and add houses to the supply.

📅 On the calendar

• Monday: US Memorial Day holiday, Germany Ifo business climate (May).
• Tuesday: US Case-Shiller Home Price Index (March), US consumer confidence (May).
• Wednesday: Germany consumer confidence (June). Earnings: HP, Salesforce, UiPath.
• Thursday: Switzerland economic growth (Q1). Earnings: Costco, MongoDB, Zscaler.
• Friday: US PCE inflation (April), eurozone flash inflation (May), Canada economic growth (Q1), India economic growth (Q1).

👀 What you might’ve missed last week

US

• Nvidia’s results showed that the rise of AI is still going strong.

Global

• Gold briefly hit a record high, likely off the back of investors’ financial fears.

UK

• Inflation slowed in Britain, but maybe not enough to convince the central bank to cut interest rates in June.

Europe

• Europe’s economy showed signs of improvement.

🤔 Why it matters

Investors expected big results from Nvidia on Wednesday, and the AI darling did not disappoint. The chipmaker tripled its takings from a year ago to bring in $26 billion in revenue last quarter, beating the predicted $24.7 billion. Even better, it predicted that next quarter’s sales will land at a better-than-expected $28 billion. Investors reacted by sending Nvidia’s stock up almost 10%, meaning it’s doubled this year after more than tripling in 2023. The AI boom is clearly still making noise, with Nvidia adding to the clamor as investors’ favorite pick-and-shovel play.

Gold briefly hit a new record high on Monday. And at first, it was a bit of a head-scratcher. See, none of the usual culprits seem to justify the scale and velocity of the rally: the economy wasn’t weaker, interest rates weren’t lower, and the US dollar wasn’t falling. So that suggests other factors were behind the rally: geopolitical tensions, the US debt burden, central bank buying, and, well, overall jitters. Gold is often seen as a safe harbor in stormy economic times, holding its value when currencies falter. This surge suggests that investors are worrying about what may be over the horizon.

A UK interest rate cut looked a bit less likely after April's inflation data, which came in higher than expected at 2.3%. Core inflation, which excludes volatile food and fuel prices, also dipped less than predicted, coming in at 3.9%. So while headline inflation was at its lowest since July 2021, and very close to the Bank of England’s target, core inflation is still well above target. Plus, high prices in the service sector and rising commodity costs are making policymakers worry that prices could climb again. It’s not a combination that would lead to an imminent rate cut, so investors might have to wait a bit longer for that and hope the economy can continue to hold strong.

Business activity picked up in the eurozone for the third month in a row in May, rising at its fastest pace in a year. The purchasing managers index – which tracks the services and manufacturing sectors – showed that the region is picking up steam again after an inflation and energy crisis, and the dampening effects of high interest rates. What’s more, after a long lull, much of the increase in both sectors was spurred on by Germany, whose recovery has helped push the bloc's manufacturing sector to a 15-month peak.