SOUTH AFRICA: Goldman Sachs Forecast Another 25bp Cut in March Following SARB

House prices rose a little more strongly than expected in October, though overall gains remained fairly steady from a longer-term perspective.

• The S&P CoreLogic/Shiller 20-city home price index rose by 0.3% M/M (0.2% expected/prior), putting the Y/y measure at 4.22% (4.1% expected, 4.6% prior). The broader FHFA house price index rose by 0.4% M/M as expected, vs 0.7% prior.
• By most measures, housing valuations remain stretched (vs affordability/rates, rental yields), though this has not translated into softer prices. Recent momentum is mixed: on a 3M/3M annualized basis, FHFA prices were up 5.1% in October (highest since April), though S&P 20-city softened to a 17-month low 3.8%. Those are fairly typical figures for pre-pandemic house price trends.
• Prices have remained supported amid historically low turnover in the housing market, exacerbated by high mortgage rates.
• At some point the standoff between buyers and sellers will end, potentially when unemployment increases and/or mortgage rates drop. As it stands, expectations are for housing market activity to pick up in 2025 (existing home sales are seen at a 3-year high with new home sales at a 4-year high), with building permits/starts at the highest in 2 years. That's alongside a very modest softening in the labor market (4.3% unemployment), with long-end rates falling (10Y Treasury yields 4.1%).
• Economic solidity and solid household balance sheets (in part due to elevated house prices) should prevent too severe a deterioration in the housing market next year, though optimism over residential construction activity and home sales looks misplaced given higher rates.

Services Momentum To End Year On A Soft Note?

• The holiday season stretches the December Eurozone inflation round over two weeks this year. It also has limited the number of analyst expectations for the data to only a handful, which centre on a higher headline number underpinned by energy base effects, for a current MNI median Eurozone estimate of 2.4-2.5%.
• That would represent a pickup from 2.2% prior, though core inflation is seen steady at 2.7%. MNI will provide updates on any changes to consensus as we emerge from the holidays.
• There are expectations that service inflation could moderate slightly in December vs November, but that would still leave services HICP in the 3.8-3.9% Y/Y area (3.9% Nov).
• Methodological issues are a key theme, both in terms of assessing the apparent softening of seasonally-adjusted sequential services inflation in recent months, and looking ahead, to January's annual category repricings / reweightings.
• While markets fully expect a 25bp cut at the next ECB meeting in January, they currently price only a 10% implied chance of an outsized 50bp cut  – well off dovish extremes of around a one in three chance expected towards the end of November.

PDF Analysis Here:

December2024EZCPIPreview.pdf

• We have seen some constructive price action for the greenback to finish the year, with the USD index shrugging off the early session declines to now trade in the green. The DXY has spent late December consolidating the post-election advance, up ~6.8% on the year.
• In most recent trade, EURUSD has slipped to the worst level of the session at 1.0378, just ahead of yesterday’s 1.0372 low. The trend condition continues to highlight scope for a test of key support at 1.0335, the Nov 22 low and a bear trigger. However, it is worth noting that some option expiries around the 1.0400 mark might limit the chance of a meaningful breakout this week. For reference, we have 1.59bn rolling off at 1.0400 on Thursday.
• USDJPY has also recovered well, rallying over 100 pips from the overnight lows, with spot now consolidating at the 157.00 handle. Officials at the BOJ fear that the real neutral rate of interest could be even lower than the previously-estimated range, MNI understands.
• Aussie and Kiwi are the clear underperformers to end the year, with both AUDUSD and NZDUSD sitting at cycle lows and the lowest levels since October 2022, around 0.62 and 0.56 respectively. For AUDUSD, scope is seen for an extension towards 0.6158 next, a Fibonacci projection.