P>By Carlos
Guillen
Today's trading session continues to display slight moves to the upside accompanied with very attenuated volatility, an
environment that seems rare given the crazy trading scenario that we experienced back in 2011. Equity investors continue to see rather encouraging
developments coming from Europe, China and, even more encouragingly, the U.S.
For starters, France and Spain both conducted successful
auctions today amid strong demand for longer-term instruments. While there were fears that these would not sell well, the strong demand was certainly
well received. France sold €9.5 billion ($12.2 billion) in bonds despite the recent loss of its cherished AAA credit rating, another indication that
investors aren't overly concerned over the country's ability to pay down its debts. France's 10-year bonds are now returning to the 3 percent mark, an
indication that debt investors do not see the nation having increasing risk. Spain also demonstrated a similar success with its bond auction today,
raising as much as €6.6 billion ($8.5 billion), much more than its initial target of €3.5-€4.5 billion in debt. Despite the fact that Spanish debt was
also downgraded last week, the interest rate on its 10-year bonds declined to 5.40 percent, down from 5.54 percent in the last such auction in
December. While all is not well in the euro-zone, decreasing country risk is most palpable in its currently declining cost of debt. Even on the Greek
front, there are reports that Greece is close to striking an agreement with private creditors on a debt write-down, although nothing is solid
yet.
In China, it is reported that officials are allowing the nation's five biggest banks to increase first-quarter lending and weighing a plan
to relax capital requirements as economic growth cools. The central bank will let the larger lenders increase new loans by a maximum of about 5
percent from a year earlier. This may be the beginnings of some intense quantitative easing in China.
Initial claims data here at home was also
reassuring. According to the Labor Department, initial claims during the week ended January 14 totaled 352,000, which decreased from the 399,000
revised figure reported for the prior week, and landed below the Street's estimate of 385,000. The 4-week moving average was 379,000, decreasing by
3,500 in a week. The downtrend in the 4-week moving average is certainly encouraging as this is indicating that the balance between firing and hiring
is now much more favorable, which may lead to further improvement in the unemployment rate this month.
Prices in December remain constant as demonstrated by a CPI
reading that was left unchanged, leaving price increases during the last 12 months at 3.0 percent versus 3.4 percent in November. A decline in the
energy index of 1.3 percent offset increases in other indexes like food and medical care services, which increased by 0.2 percent and 0.4 percent,
respectively. Core CPI (excluding food and energy) was up 0.1 percent in December. Over the last 12 months, core CPI has risen 2.2 percent, not really
impeding the Fed from enacting monetary policy.
On housing data, while not really moving the market today, at least the
situation is not getting worse, more on this below.
All in all, we continue to be encouraged with the market's direction lately, but even more
encouraging is the serenity markets have been exhibiting so far this year. The Dow Jones Industrial Average is on the verge of taking a peek above
resistance. At this point the question that comes to mind is ... can this be the calm before the storm?
Sideline Cash Dips a Toe
In
David Urani
As far as news and overall stock movement, the market is a little soft today but looking at the mechanics there is a
little bit of a positive trend developing in terms of investors' participation. Despite the fact that the market has been going steadily higher
throughout January people have continued to buy treasuries, presumably because of ongoing global concerns. Normally during a stock market rally it
would make sense to see investors swap treasuries for stocks as they chase risk. In the past couple of days, treasury yields have finally begun to
rise again as confidence recovers.
Secondly, the volume has been paltry year to date, once gain
despite the firmly positive direction of the market. As of now, volume has failed to make a full comeback from the holiday lulls. Yet, the last couple
of days have also seen a modest recovery in volumes.
Obviously as you c0an see above, there is still a way to go for
both of these metrics, but I like the way it's acting for these last two sessions. For me, it's been unfortunate to see the past few months pass with
a 2,000 point increase in the Dow, but with a lack of actual conviction from the market. It seems that actual trading activity has been desolate but
for the headline reading algo-bots. Hopefully we can continue to see the return of the thinking man, particularly the average Joe, to the game because
there is still substantial cash on the sidelines.
Housing Starts
December housing starts came in soft on the headline
reading this morning with 657k annual units, down from 680k in November and below the 678k consensus. However, the always-volatile multifamily unit
reading was down 28% month to month, skewing the headline downward. What is most important is that single family units were up 4.4% for the month to
470k from 450k. That puts single family units at their highest level since April 2010. Permits for single family starts were up 1.8%.
Following up on yesterday's strong homebuilder confidence index, it was always going to be hard for the starts data to make a splash. After
initially trading down on the soft headline number, housing stocks have been able to lift higher as investors become aware of the good result on the
single family side. Going back to the Housing Market Index from yesterday, we remind you that it has a good correlation with housing starts,
particularly single family. Considering the Housing Market Index is a month ahead, the outlook continues to look good for home construction going
through January.
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