There wasn’t too much to get excited about, for the bulls, except for the idea that the downside was getting a little too overdone. The Euro-zone and the Euro were still the main issue plaguing the market, but I’ll get back to that in bit. There wasn’t much in the way of economic data, but what there was was good. The Mortgage Bankers’ Association reported weekly mortgage applications up 11.3% after falling 1.5% the prior week. Durable Goods rose 2.9% in April, topping expectations for a gain of 1.3%. That’s only part of the positive story, March was revised to an unchanged reading from -1.3%. That means the 2.9% gain was on top of a better number. Take out those pesky transports and orders were -1.0%, well below the 0.5% uptick anticipated. Again, it was all about the revision to the prior month. March rose a much stronger 4.8% versus the original report of up 2.8%. Therefore, the dip only put the index at expectations, and was not a disappointment.
New Home Sales jumped to a 2-year high! Okay, don’t get too excited. New Home Sales are based on “contract signings”. Escrow must close by June 30th. Therefore, facing the April deadline, signings soared 14.8% to an annual pace of 504,000. However, the homebuilders cut prices by 9.5% to get those sales by the deadline. Still, the expectations were for a much smaller increase to 425,000. March was revised to 439,000 from 411,000, so a not-so-insignificant upward revision. The good news is that these numbers are taking inventory off the shelf. The bad news is that contract signings are most likely to fall, and fall hard, in the next month or two. The $8,000 first time home buyer tax credit is gone. Remember, the “Existing” Home Sales data reflect closings, and that needs to happen by June 30th. Therefore, if you enter escrow by the end of April you will likely close by the end of June. Look for the Existing number to rise in the next two monthly reports. The market wasn’t fooled, and is still disappointed by the rising “shadow inventory”. This is all part of the process. The stimulus program is doing what it was designed to do, motivate qualified home buyers to take some of the excess inventory off of the market. As a taxpayer, you may not like it, but it is succeeding at what it was intended to accomplish. How many times can you say that about a government program?
Financials are still struggling, as the House and Senate prepare to iron out their differences. The Banks were the worst performing sector, with other Financials also in the red. Tuesday’s reversal from just under 14 on the Financial Sector SPDR, but holding above the February low of 13.51, was a critical technical bounce. Yesterday started out with the XLF back up to 14.72, but that gain was completely lost, sending the index back to a small loss on the day. That 13.51 suddenly didn’t look that secure, adding to the market weakness. Crude led the Energy sector stocks on a little rollercoaster ride. Crude surged 4% after the good economic data were released and the refined inventories were below estimates. Crude inventories gained 2.46 million barrels, which was well above the estimate of 250,000. However, gasoline inventories fell 203,000 versus an expected gain of 300,000 and distillate inventories fell 267,000 versus an estimate for an increase of 500,000 barrels. Capacity Utilization ticked down a little. The stronger anticipated demand off of solid domestic numbers and a backup of production gave the crude cause to bounce off of its sub-$70 price level. The bigger gains in Energy stocks didn’t hold, as the dollar rallied, but crude was still up 3% at the end of the day.
At the end of the day, it’s still all about the Euro. Sorry to say, but the US market followed blindly behind the action in the Euro as it fell precipitously after a Financial Times report that China is reviewing its European bond holdings. Occasionally concerns mount as to what might happen if China were to stop supporting our bond offerings. China had announced years ago that it wanted to move away from its dollar peg and focus more on the Euro. When they buy bonds in a country, they first convert to that country’s currency. That’s what they started doing with the Euro-bonds. If they were to move away from those investments, they would sell the bonds and then sell the currency. It was this worry that sent the Euro lower. Technically, the Euro is already busted. Over the past month, the Euro has taken out support point after support point. Since breaking below the 1.32 level, the Euro failed to hold the March 2009 low at 1.2457, and then the October 2008 low at 1.2330. The Euro was trading at a new 4-year low and grappling for a bounce. We got that after plummeting on Tuesday to a low of 1.2178. Yesterday, the Euro started the day at its best level at 1.2389, topping the prior day’s high. However, on the China news, the Euro started to fade, and so did our markets. After it held 1.2183, just above the prior day’s low, our market tried to rally back up out of the red, but the Euro faded in the final minutes of trading, slipping just under the prior day’s low to 1.2167. It’s more about it being a new low and what that might mean to the Asian and European markets overnight that caused our markets to slip-slide into the close.
Despite our market weakness late in the day, I would say that it is not out of the range of “reasonable expectation” to expect the Chinese to review their investment in European bonds, just as it true for their review of US Dollar and Treasury asset purchases. I think too much was built into it, but be sure to look at how the Euro is trading first thing in the morning.
There wasn’t too much to get excited about, for the bulls, except for the idea that the downside was getting a little too overdone. The Euro-zone and the Euro were still the main issue plaguing the market, but I’ll get back to that in bit. There wasn’t much in the way of economic data, but what there was was good. The Mortgage Bankers’ Association reported weekly mortgage applications up 11.3% after falling 1.5% the prior week. Durable Goods rose 2.9% in April, topping expectations for a gain of 1.3%. That’s only part of the positive story, March was revised to an unchanged reading from -1.3%. That means the 2.9% gain was on top of a better number. Take out those pesky transports and orders were -1.0%, well below the 0.5% uptick anticipated. Again, it was all about the revision to the prior month. March rose a much stronger 4.8% versus the original report of up 2.8%. Therefore, the dip only put the index at expectations, and was not a disappointment.
New Home Sales jumped to a 2-year high! Okay, don’t get too excited. New Home Sales are based on “contract signings”. Escrow must close by June 30th. Therefore, facing the April deadline, signings soared 14.8% to an annual pace of 504,000. However, the homebuilders cut prices by 9.5% to get those sales by the deadline. Still, the expectations were for a much smaller increase to 425,000. March was revised to 439,000 from 411,000, so a not-so-insignificant upward revision. The good news is that these numbers are taking inventory off the shelf. The bad news is that contract signings are most likely to fall, and fall hard, in the next month or two. The $8,000 first time home buyer tax credit is gone. Remember, the “Existing” Home Sales data reflect closings, and that needs to happen by June 30th. Therefore, if you enter escrow by the end of April you will likely close by the end of June. Look for the Existing number to rise in the next two monthly reports. The market wasn’t fooled, and is still disappointed by the rising “shadow inventory”. This is all part of the process. The stimulus program is doing what it was designed to do, motivate qualified home buyers to take some of the excess inventory off of the market. As a taxpayer, you may not like it, but it is succeeding at what it was intended to accomplish. How many times can you say that about a government program?
Financials are still struggling, as the House and Senate prepare to iron out their differences. The Banks were the worst performing sector, with other Financials also in the red. Tuesday’s reversal from just under 14 on the Financial Sector SPDR, but holding above the February low of 13.51, was a critical technical bounce. Yesterday started out with the XLF back up to 14.72, but that gain was completely lost, sending the index back to a small loss on the day. That 13.51 suddenly didn’t look that secure, adding to the market weakness. Crude led the Energy sector stocks on a little rollercoaster ride. Crude surged 4% after the good economic data were released and the refined inventories were below estimates. Crude inventories gained 2.46 million barrels, which was well above the estimate of 250,000. However, gasoline inventories fell 203,000 versus an expected gain of 300,000 and distillate inventories fell 267,000 versus an estimate for an increase of 500,000 barrels. Capacity Utilization ticked down a little. The stronger anticipated demand off of solid domestic numbers and a backup of production gave the crude cause to bounce off of its sub-$70 price level. The bigger gains in Energy stocks didn’t hold, as the dollar rallied, but crude was still up 3% at the end of the day.
At the end of the day, it’s still all about the Euro. Sorry to say, but the US market followed blindly behind the action in the Euro as it fell precipitously after a Financial Times report that China is reviewing its European bond holdings. Occasionally concerns mount as to what might happen if China were to stop supporting our bond offerings. China had announced years ago that it wanted to move away from its dollar peg and focus more on the Euro. When they buy bonds in a country, they first convert to that country’s currency. That’s what they started doing with the Euro-bonds. If they were to move away from those investments, they would sell the bonds and then sell the currency. It was this worry that sent the Euro lower. Technically, the Euro is already busted. Over the past month, the Euro has taken out support point after support point. Since breaking below the 1.32 level, the Euro failed to hold the March 2009 low at 1.2457, and then the October 2008 low at 1.2330. The Euro was trading at a new 4-year low and grappling for a bounce. We got that after plummeting on Tuesday to a low of 1.2178. Yesterday, the Euro started the day at its best level at 1.2389, topping the prior day’s high. However, on the China news, the Euro started to fade, and so did our markets. After it held 1.2183, just above the prior day’s low, our market tried to rally back up out of the red, but the Euro faded in the final minutes of trading, slipping just under the prior day’s low to 1.2167. It’s more about it being a new low and what that might mean to the Asian and European markets overnight that caused our markets to slip-slide into the close.
Despite our market weakness late in the day, I would say that it is not out of the range of “reasonable expectation” to expect the Chinese to review their investment in European bonds, just as it true for their review of US Dollar and Treasury asset purchases. I think too much was built into it, but be sure to look at how the Euro is trading first thing in the morning.