Global investors didn’t get much comfort from U.S. President Bush’s State of the Union speech last night says RBC Financial, but the growth in U.S. housing starts gives investors something to cheer about.

“If global investors were waiting for a reason not to be concerned about U.S. dollar denominated treasuries in President Bush’s State of the Union Address last night, they were surely disappointed,” it says.

Bush promised to present a plan that will reduce Washington’s massive deficit by half within five years.

There are reasons to be skeptical of that pledge, RBC says. One is the question of whether fiscal 2003’s massive deficit of US$374 billion is the starting point, or whether it will be much higher as the deficit continues to grow.

“A more fundamental cause for skepticism concerns the fact that much of the State of the Union address beseeched Congress to approve and/or extend a vast number of tax reductions and spending initiatives, tempered only by vague comments about the need for reducing waste in government in order to pay for them,” RBC says.

“Placed within the context of excessive monetary policy stimulus, evidence of shifting risk aversion towards equities, ongoing fiscal challenges at state level governments, and a large current account deficit, last night’s speech makes it clear that the fiscal position of the United States during an election year is likely to continue deteriorating to the disappointment of bond markets,” RBC adds.

In economic data this morning, the U.S. Commerce Department is reporting that home construction climbed in December to its highest level in nearly 20 years. Housing starts rose by 1.7% last month, the highest level since February 1984. The report beat economist expectations that housing starts would fall by 5.8% in December

“Multifamily building held up well despite rising vacancy rates. This testifies to the power of low borrowing costs, making projects profitable despite a currently weak rental market,” says BMO Nesbitt Burns.

Building permits were also stronger than expected last month, rising 3.3% to 1.92 million units, Nesbitt says. “Permits in 2003 totaled 1.86 million, the most since 1972. Despite the good gains in permits – an indicator of future construction – and January’s Homebuilders’ survey remaining quite high, the industry is likely to lose momentum in coming months, considering the nosebleed level now reached. But the momentum loss may be small as long as the Fed keeps the policy rate at 1% and Treasury yields stay low,” it says.