FOREX TRADING

U.S. Review

Disappointing Economic Data Continue in January

• The economic data this week largely disappointed equity investors and missed analyst expectations.
• Homebuilder confidence has ebbed as new home sales remain sluggish and buyer traffic has dropped since September.
• A pull-back in the January Philly Fed index has raised concerns about the strength of the economic recovery in the first quarter.
• Expect slower economic activity in January following robust improvement in the fourth quarter.

Reality Bites

Political upheaval in Washington with the election of Republican Scott Brown to the Senate turned conventional wisdom on healthcare reform and financial sector reform on its head this week. Regulatory risk has risen against the banking industry as the Obama Administration tries to score political points off of popular anger over bank bailouts and executive compensation and bonuses. At the same time, the economic data released this week pointed to weaker expansion as the first quarter gets underway.

The NAHB/Wells Fargo builders’ sentiment index dropped another point in January to 15 from a post-bubble peak of 19 last September. The index is still seven points above where it was a year ago. Prospective buyer traffic has dropped five points since September’s first time homebuyer credit surge. Regionally, the biggest declines in the housing market index since September have come from the Midwest followed by the Northeast and South. The regional index in the West has been comparatively steady.

Housing starts took a step backward in December dropping 4.0 percent as rough weather seems to have hampered single-family starts, which dropped 6.9 percent. On a more encouraging note, multi-family starts jumped another 12.2 percent in December after a steep 70 percent increase in November. The permits data continue to point toward a sustainable recovery in housing activity. Housing permits have risen for two consecutive months, gaining another 10.9 percent in December. Total housing permits are now running 15.8 percent above year ago rates with single-family permits running a whopping 37.3 percent above last year’s rates.

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