The U.S. market followed international bourses lower after China began to engage in policy steps to restrict loan growth – which has reportedly been torrid, more than doubling over the past year. The Asian markets led the declines as the Shanghai Composite fell 2.4% and has backed off by a bit more than 9% since December. The Hang Seng Index (Hong Kong) fell a similar amount and is off by 10% over the past two weeks.
Financials led the declines, with telecom and basic material shares close behind. The utilities and consumer discretionary sectors were the only of the 10 major groups to close on the plus side.
Remember we talked about that 1090 level the S&P 500 has bounced off of several times over the past three month…check out the chart below. Let’s see how long it remains a level of support.
Market Activity for January 26, 2010
S&P CaseShiller Home Price Index
The S&P CaseShiller HPI rose 0.24% for November, marking the sixth month of increase -- that’s on a seasonally-adjusted basis. Unadjusted, the home price index fell for a second-straight month. From a year-over-year perspective, CaseShiller has prices down 5.32%, which missed expectations just a bit but is the smallest y/o/y decline since September 2007. The y/o/y single-digit price decline has been in play for three months now; it follows 20 months of double-digit percentage declines.
This measure tracks 20 major metro areas and for November six cities registered a month-over-month decline, which is an improvement from October’s nine cities that posted a negative reading. Miami, Tampa, Chicago and New York were the cities that posted recurring price drops. Washington DC and Detroit registered price declines in November after posting positive reading in October.
Of the 14 cities that registered an increase in November (four of which were cities that showed a price decline in the previous month), Phoenix led the way with a monthly increase of 1.56%. That was followed by San Francisco (up 1.47%), San Diego (up 1.02%) and L.A. (up 0.97%). These are some of what were the hardest hit metros.
Four cities registered y/o/y price increases: Dallas (up 1.4%), San Francisco (up 1.0%), Denver (up 0.49%) and San Diego (up 0.38%).
Since hitting the cycle low in April (and this is on a not seasonally-adjusted basis as this is the primary way the index has been presented, it just started providing seasonally-adjusted readings a few months back), the index has rebounded by 5%. This puts the index down 29.2% from the peak hit in July 2006. The current level was first touched in September 2003.
S&P CaseShiller Home Price IndexThe S&P CaseShiller HPI rose 0.24% for November, marking the sixth month of increase -- that’s on a seasonally-adjusted basis. Unadjusted, the home price index fell for a second-straight month. From a year-over-year perspective, CaseShiller has prices down 5.32%, which missed expectations just a bit but is the smallest y/o/y decline since September 2007. The y/o/y single-digit price decline has been in play for three months now; it follows 20 months of double-digit percentage declines.
This measure tracks 20 major metro areas and for November six cities registered a month-over-month decline, which is an improvement from October’s nine cities that posted a negative reading. Miami, Tampa, Chicago and New York were the cities that posted recurring price drops. Washington DC and Detroit registered price declines in November after posting positive reading in October.Of the 14 cities that registered an increase in November (four of which were cities that showed a price decline in the previous month), Phoenix led the way with a monthly increase of 1.56%. That was followed by San Francisco (up 1.47%), San Diego (up 1.02%) and L.A. (up 0.97%). These are some of what were the hardest hit metros.
Four cities registered y/o/y price increases: Dallas (up 1.4%), San Francisco (up 1.0%), Denver (up 0.49%) and San Diego (up 0.38%).
Since hitting the cycle low in April (and this is on a not seasonally-adjusted basis as this is the primary way the index has been presented, it just started providing seasonally-adjusted readings a few months back), the index has rebounded by 5%. This puts the index down 29.2% from the peak hit in July 2006. The current level was first touched in September 2003.
Consumer Confidence
The Conference Board’s reading on consumer confidence for January came in at a better-than-expected 55.9 (53.5 was expected) after 53.6 in December (a number that was revised up from the initial print of 52.9). The January reading is the highest since September 2008, yet barely above past recession lows. The 40-year average is 95.6.
The January increase was driven by the present conditions segment, which pulled itself off of the mat by rising to 25.0 from the cycle low of 20.2 in December. This is the first real increase in the present conditions reading since August so maybe there’s a little something happening here – likely due to some stabilization within the job market. Still, the measure remains pretty much floored, as the chart below shows. The long-term average is 99.5.
The expectations index provided little help to the overall reading, rising just a bit to 76.5 from 75.9 in December. The long-term average is 92.98.
The key reading for gauging future consumer activity remains the jobs “plentiful” less jobs “hard to get” index. That reading improved for a second straight month but only gets us back to the level of September. Those respondents seeing jobs as “plentiful” rose to 4.3 from 3.1, while those that see jobs as “hard to get” fell to 47.4 from 48.1. This number has to get back to around the -20 level before we even begin to get excited about the consumer. At that point, there is probably enough job growth occurring so that households can begin to meaningfully reduce debt burdens. This is the first order of things to eventually get consumer-activity growth to levels we’ve become accustomed – this will probably take a couple of years to accomplish though as activity will be meaningfully lower as the process works its course.
Richmond Fed Survey
The Richmond Federal Reserve Bank’s measure of factory activity for January (within the fourth Fed district) was pretty much a dog, remaining in contraction mode for a second-straight month. Its rebound from prior contraction lasted seven months. The index came in at -2, which was an improvement from December’s -4.
The new orders and vendor lead times were the only sub-indices to print positive readings – up to 1 from -4 for new orders and a nice bounce to 5 from -2 for vendor lead times. (Vendor lead times is simply delivery times. You want this number to post positive readings, which means lead time have slowed; thus, deliveries are having a difficult time keeping up with factory production.)
However, orders backlogs fell to -13 from -12; capacity utilization remained unchanged at -3; the average workweek fell to -6 from 2,
So we now have two regional manufacturing reports for the month, one good and one not so good. The Empire Manufacturing survey (factory activity within the Fed’s second district – New York) provided us with a well-balanced report a week ago. Now we wait for the number out of Chicago, which will be released on Friday.
The Fed
The Federal Open Market Committee (FOMC – the policymaking arm of the Federal Reserve) began their two-day meeting yesterday. We’ll get the statement that follows the close of the meeting at 1pm CST. Don’t expect anything different from the prior meeting’s statement – not yet at least; changes should begin to make things interesting a few months down the road.
I see the UK economy has halted a six-quarter contraction, but just barely as fourth-quarter GDP came in at +0.1%. Such a paltry gain hardly illustrates that that their recession has ended and increases the likelihood that the Bank of England will extend and expand their QE program (bond purchase program).
What will our Fed do? They currently plan on ending QE on March 31. (The Fed’s QE program has involved buying $1.25 trillion of mortgage-backed securities (MBS) and has driven both mortgage and Treasury rates lower – the buying of MBS has directly pushed mortgage rates lower and indirectly kept Treasury yields lower than they otherwise would be as private investors sell the Fed MBS and buys Treasury securities with the proceeds, as firms like PIMCO have explained.) Bernanke & Co. have signaled on more than one occasion that this program will indeed close on that date, so don’t expect them to extend it…not yet. But if we get to mid-2010 and the housing market runs into trouble, they’ll probably be back in the game of buying bonds to push rates lower in an attempt to induce sales.
Home sales should show some life again in March and April as home borrowers rush in before the tax credit expires April 30 (contract has to be signed by that date), which means May, June and July may be ugly – especially on a seasonally-adjusted basis as this is normally the key buying season.
Have a great day!
Brent Vondera, Senior Analyst
The Conference Board’s reading on consumer confidence for January came in at a better-than-expected 55.9 (53.5 was expected) after 53.6 in December (a number that was revised up from the initial print of 52.9). The January reading is the highest since September 2008, yet barely above past recession lows. The 40-year average is 95.6.
The January increase was driven by the present conditions segment, which pulled itself off of the mat by rising to 25.0 from the cycle low of 20.2 in December. This is the first real increase in the present conditions reading since August so maybe there’s a little something happening here – likely due to some stabilization within the job market. Still, the measure remains pretty much floored, as the chart below shows. The long-term average is 99.5.The expectations index provided little help to the overall reading, rising just a bit to 76.5 from 75.9 in December. The long-term average is 92.98.The key reading for gauging future consumer activity remains the jobs “plentiful” less jobs “hard to get” index. That reading improved for a second straight month but only gets us back to the level of September. Those respondents seeing jobs as “plentiful” rose to 4.3 from 3.1, while those that see jobs as “hard to get” fell to 47.4 from 48.1. This number has to get back to around the -20 level before we even begin to get excited about the consumer. At that point, there is probably enough job growth occurring so that households can begin to meaningfully reduce debt burdens. This is the first order of things to eventually get consumer-activity growth to levels we’ve become accustomed – this will probably take a couple of years to accomplish though as activity will be meaningfully lower as the process works its course.
Richmond Fed Survey
The Richmond Federal Reserve Bank’s measure of factory activity for January (within the fourth Fed district) was pretty much a dog, remaining in contraction mode for a second-straight month. Its rebound from prior contraction lasted seven months. The index came in at -2, which was an improvement from December’s -4.
The new orders and vendor lead times were the only sub-indices to print positive readings – up to 1 from -4 for new orders and a nice bounce to 5 from -2 for vendor lead times. (Vendor lead times is simply delivery times. You want this number to post positive readings, which means lead time have slowed; thus, deliveries are having a difficult time keeping up with factory production.)
However, orders backlogs fell to -13 from -12; capacity utilization remained unchanged at -3; the average workweek fell to -6 from 2,
So we now have two regional manufacturing reports for the month, one good and one not so good. The Empire Manufacturing survey (factory activity within the Fed’s second district – New York) provided us with a well-balanced report a week ago. Now we wait for the number out of Chicago, which will be released on Friday.
The Fed
The Federal Open Market Committee (FOMC – the policymaking arm of the Federal Reserve) began their two-day meeting yesterday. We’ll get the statement that follows the close of the meeting at 1pm CST. Don’t expect anything different from the prior meeting’s statement – not yet at least; changes should begin to make things interesting a few months down the road.
I see the UK economy has halted a six-quarter contraction, but just barely as fourth-quarter GDP came in at +0.1%. Such a paltry gain hardly illustrates that that their recession has ended and increases the likelihood that the Bank of England will extend and expand their QE program (bond purchase program).
What will our Fed do? They currently plan on ending QE on March 31. (The Fed’s QE program has involved buying $1.25 trillion of mortgage-backed securities (MBS) and has driven both mortgage and Treasury rates lower – the buying of MBS has directly pushed mortgage rates lower and indirectly kept Treasury yields lower than they otherwise would be as private investors sell the Fed MBS and buys Treasury securities with the proceeds, as firms like PIMCO have explained.) Bernanke & Co. have signaled on more than one occasion that this program will indeed close on that date, so don’t expect them to extend it…not yet. But if we get to mid-2010 and the housing market runs into trouble, they’ll probably be back in the game of buying bonds to push rates lower in an attempt to induce sales.
Home sales should show some life again in March and April as home borrowers rush in before the tax credit expires April 30 (contract has to be signed by that date), which means May, June and July may be ugly – especially on a seasonally-adjusted basis as this is normally the key buying season.
Have a great day!
Brent Vondera, Senior Analyst
No comments:
Post a Comment