Monday, June 24, 2013

Market/Economic Analysis US

Let's review last week's economic news and market action, starting with the numbers:

The Good

The  NAHB index hit a milestone: Builder confidence in the market for newly-built single-family homes hit a significant milestone in June, surging eight points to a reading of 52 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. Any reading over 50 indicates that more builders view sales conditions as good than poor.  This number indicates the housing market is definitely improving.

Inflation is contained: The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in May on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.4 percent before seasonal adjustment.  While I'm sure there will still be the clarion calls for a massive bought of inflation from the typical idiots, the data indicates that inflation is well contained and under control.

Housing continues to be a strong component of the recovery:  Housing starts increased 6.8%.  While permits declined 3.1%, remember there was a big bump (12.9%) in the previous month's number, meaning we're simply seeing a natural drop after a period of heightened activity.  Existing home sales increased 4.2%.  Perhaps more importantly, inventory increased for the fourth straight months.
The Philly Fed manufacturing index increased from -2 to 12.5.  Unlike the NY Fed number, the internals of this number also increased.  "The demand for manufactured goods as measured by the current new orders index increased, from ‑7.9 to 16.6. The shipments index also moved back into positive territory, rising 13 points to 4.1." 

The LEIs increased .1%.  However, the increases were all attributable to financial market developments: a positive credit spread, a positive credit indicator and a strong stock market.   The non-financial numbers (ISM, average workweek, initial claims) were neutral in the index.

The Markit "flash" index for US manufacturing came in at 52.3%.  The internals for this report were also positive.  I do not know why this number is stronger than the ISM number.

The Bad:

Although the headline number was positive, the internals were very weak.  "New orders, at minus 6.69, are down for a second straight month with contraction in backlog orders very deep, at minus 14.52. Shipments are at minus 11.77 with inventories at minus 11.29 in what are also deep rates of monthly contraction." 

Let's turn to the markets:

Despite all the panic and concern exhibited last week, prices were actually pretty disciplined.  There's a large red candle on Thursday, but a far smaller on on Friday, but of which find support at the early April level around 159.  This level also has support in the form of the top Fib fan.  There is noticeably higher volume, indicating the depth of the sell-off is strong.  Finally, the MACD and CMF readings are very weak.

The is where the real action occurred last week.  The belly of the treasury curve finally broke key through support in a meaningful way.  The IEIs moved through the 122 level and the IEFs moved through the 105 level.

The dollar rallied at the end of last week, largely because of higher US interest rates and the potential for stronger growth.

Market outlook: slightly negative.  Stocks are still dealing with the Fed pulling back QE.