The Economy and Bond Market Radar (January 28, 2013)
Treasury bond yields rose this week with most of the move coming on Thursday and Friday. Economic news was modestly positive but the bigger news story of the week was the larger than expected LTRO repayment to the European Central Bank (ECB). The ECB said banks will pay back $184 billion next week versus expectations for $99 billion. This was viewed as a sign of strength and that banks didnāt need the extra funds. New home sales for December were weaker than expected at 369,000 units (annualized), but judging by the chart below the prospects appear very good. As can be seen in the chart, prospective home buyer activity has picked up considerably and historically new home sales track this trend fairly closely, but obviously have some catching up to do.
Strengths
ā¢ The HSBC Flash Manufacturing PMI for China continued to strengthen and reached the highest level in two years.
ā¢ Initial jobless claims fell to 330,000 which is a five year low.
ā¢ Mortgage applications rose 12.9 percent last week to their highest level in nearly years.
Weaknesses
ā¢ New home sales fell 7.3 percent in December in a somewhat surprising development.
ā¢ Existing home sales also fell 1 percent in December.
ā¢ Brazilian consumer confidence fell for the fourth month in a row. This is somewhat surprising as Brazil should be a good read on the global economic recovery.
Opportunity
ā¢ The debt ceiling debate appears to be pushed into May, allowing the market to focus on economic fundamentals.
ā¢ While some Fed members expressed concerns over continued quantitative easing, the Fed still remains committed to an extremely accommodative policy until the economy improves.
ā¢ Globally central banks are increasing their stimulative policies, as Japanās recently elected prime minister vowed to take on deflation and deflating the Yen.
Threat
ā¢ Earnings season will dominate the news flow again this week. Focus will be on the outlooks for 2013.
