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Strengthening Continues Precluding Stimulatory Props

Wednesday, 22 February 2012 | 00:00
Greece finally managed to secure the Eurogroup approval for the long pending second round of stimulus package, putting to end doubts and apprehensions concerning a disorderly default. The markets, which have been trading up in anticipation of the deal, seem to have taken it up with equanimity and poise rather than showing irrational exuberance. After all, they are very much aware of the face there could be more stumbling blocks before the Mediterranean nation can return back to fiscal health.
As has been witnessed in the recent past, the economic data of last week spoke volumes about the sustainable revival that has been getting entrenched in the U.S. economy. Most of the sectors that matters, namely housing, labor market, consumers and manufacturers are experiencing an improvement in the underlying trend. Based on the data points, BMO Capital Markets projects 2.5 percent GDP growth in the first quarter on top of the 2.8 percent growth in the fourth quarter.
With the economy basking under the glory of its recent strengthening, hopes for a third round of qualitative easing from the Federal Reserve are slowly fading. That said, as conveyed by the central bank through the minutes of its January meeting, the central bank could swing into action if there any signs of the growth applecart getting upset.
The results of the New York Federal Reserve's manufacturing survey released last week showed that manufacturing conditions in the region continued to improve in February. The headline business conditions index rose to 19.5 from 13.5 in January. However, the new orders index fell by 4 points compared to a 1.5-point drop by the order backlogs index. The employment index also dipped slightly. Meanwhile, the 6-month outlook index declined 4.5 points.
Meanwhile, the results of the Philadelphia's survey showed that its manufacturing index rose to 10.2 in February from 9 in January. The internal details were, however, mixed. The new orders index rose about points and the order backlogs index climbed 6 points. The employment indexes were mixed, with the number of employees index dropping 10.5 points to 1, while the average workweek index rose to 5.1 points to 10.1. The 6-month outlook index declined to a 4-month low of 33.3.
Housing readings continued to be positive. The results of a survey by the National Association of Home Builders' showed that its housing market index rose 4 points to 29, marking the highest level since May 2007. The present conditions and future expectations indexes both rose 5 points and the index measuring prospective buyer traffic rose 1 point.
Reflecting the impact of warmer weather, housing starts climbed 1.5 percent to a seasonally adjusted annual rate of 699,000 units. However, on a sore note, single-family starts slipped 1 percent, marking the first drop in September, while multi-family starts rose 8.5 percent in January. Building permits, considered an indicator of future housing activity rose a less than expected 0.7 percent, although permits are now at their highest level in 3-1/2 years.
At the same time, U.S. retail sales rose by a less than expected 0.4 percent month-over-month in January. Excluding autos, sales were up 0.7 percent. Auto sales fell 1.1 percent despite solid monthly sales reported by the automakers, with the drop apparently reflecting lower prices. Core retail sales measured as sales excluding autos, gasoline and building materials, which are used in GDP calculations, were up a solid 0.7 percent.
The Federal Reserve's industrial production report showed that industrial output remained unchanged in January. The softness of the headline number reflected a 2.5 percent decline in utilities output. Mining output also fell 1.8 percent. Manufacturing output was up 0.7 percent, helped by 6.8 percent jump in motor vehicle output. Capacity utilization remained almost flat at 78.5 percent.
The unfolding week's economic calendar is very light, with only a couple of housing readings and a consumer sentiment report possessing the potential to move markets. Traders are expected to focus on the National Association of Realtors' existing home sales for January, the Commerce Department's new home sales report for January, the weekly jobless claims data and the final reading of the Reuters and University of Michigan's consumer sentiment survey for February.
The Federal House Finance Agency's house price index for December, a regional manufacturing survey and the Treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.
The slow and steady upturn in the housing market from depressed levels is expected to continue due to the strengthening of the labor market and the still-benign lending terms. Despite pending home sales dipping in December, expectations are for a modest uptick in existing home sales.
Meanwhile, buoyed by an increase in mortgage origination and the improvement in homebuilders' confidence, new home sales are expected to see bigger growth. BMO Capital Markets expects residential investment to contribute to real GDP growth in 2012, for the first time in seven years.
The markets remained closed on Monday in observance of the President's Day holiday.
The Chicago Federal Reserve's National Activity Index used for measuring overall economic activity and inflationary pressure is set to be released at 8:30 am ET.
The National Association of Realtors is scheduled to release its report on existing home sales for January at 10 am ET. Economists estimate existing home sales of 4.69 million for the month.
In December, existing home sales rose 5 percent to a seasonally adjusted annual rate of 4.61 million units in December from a downwardly revised reading of 4.39 million in November. On a year-over-year basis, sales were 3.6 percent higher. Total existing home inventories at the end of December fell 9.2 percent to 2.38 million units in absolute terms, representing a 6.2 months of supply compared to 7.2 months in November. The national median price of an existing home fell 2.5 percent year-over-year to $164,500.
The Labor Department is due to release its customary jobless claims report for the week ended February 18th at 8:30 am ET. Economists expect claims to edge up to 355,000 in the recent reporting week.
New jobless claims at a seasonally adjusted level of 348,000 for the week ending February 11, a drop of 13,000 from the previous week's revised level of 361,000. And while the previous week's level was revised up from the 358,000 initially reported it still came in well below the increase to 365,000 expected by most economists. The level of new jobless claims for the week marks the lowest level since March 8 2008.
The Federal House Finance Agency, or FHFA, is set to release its house price index for November at 10 am ET. The index is a weighted, repeat-sales index, which measures average price changes of single-family houses in repeat sales or refinancings on the same properties. Economists expect a 0.2 percent month-over-month increase in the house price index.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended February 17th at 10:30 am ET.
Crude oil inventories edged down by 0.2 million barrels to 339.1 million barrels in the week ended February 10th. Inventories remained in the upper limit of the average range for this time of the year.
Distillate inventories fell by 2.9 million barrels and were in the middle of the average range. Meanwhile, Gasoline stockpiles rose by 0.4 million barrels, remaining in the upper limit of the average range. Refinery capacity utilization averaged 82.7 percent over the four-weeks ended February 10th compared to 82.6 percent over the previous four weeks.
The Kansas City Federal Reserve is scheduled to release the results of its manufacturing survey for February at 11 am ET. The manufacturing index based on the survey is expected to increase to 9 in February from 7 in January.
The Reuter and the University of Michigan's final report on the consumer sentiment index for February is scheduled to be released at 9:55 am ET. The consumer sentiment index is expected to be upwardly revised to 73 from the mid-month reading of 72.5.
The Commerce Department is due to release its new home sales report for January at 10 am ET. The consensus estimate calls for new homes sales of 315,000.
U.S. new home sales unexpectedly declined by 2.2 percent to a seasonally adjusted annual rate of 307,000 units in December. Thus, the metric reversed the previous month's 2.3 percent increase. Additionally, there were downward revisions to the previous three months. Inventories measured in terms of months of supply were almost unchanged at 6.1.
Source: RTT News
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