Wednesday, September 19, 2012
The surprise monetary easing by the Bank of Japan and positive-looking housing data on the home front provide a favorable backdrop for today’s trading action. The Bank of Japan action is along the lines of what the Fed announced last week. But while the Fed’s action is directed at the housing market, the Japanese action seems to be aimed at that country’s exchange rate.
The August Housing Starts data came in a bit weaker than expected, down 1% to a seasonally adjusted annual rate of 750K vs. expectations of around 765K. The prior month’s Starts tally was modestly revised down 733K from 746K, down 2.8%. Permits came in better than expected, down 1% to 803K, reversing the strong 6.7% gain to 811K in July.
The modest Starts disappointment notwithstanding, the level is not materially different from where it has been in recent months and generally consistent with the positive momentum on the housing front. Tuesday’s strong gains in the homebuilder sentiment index pushed to its highest level since 2006, improving the odds that the sector’s recovery was on track.
We should keep in mind however that the improvement is from a low base as the long-term historical average for Starts is around double the current level, while Starts at the ‘bubbly’ peak were north of the 2.2 million mark. We will probably never go back to that level, but we do need to see a sustainable recovery in this key sector of the economy. Sales and inventories have stabilized, but the concern is that the pricing recovery could get derailed due to the shadow inventory of foreclosure pipeline and the anemic labor market strength.
In corporate news, Microsoft (MSFT - Analyst Report) announced a 15% increase in its quarterly dividend. On the earnings front, AutoZone (AZO - Analyst Report) and General Mills (GIS - Analyst Report) came out with better than expected bottom line, but both missed revenue expectations.
Director of Research