Tuesday, May 24, 2016

Markets advance on new homes data and interest rate bets

Dow jumped up 211, advancers over decliners 4-1 & NAZ gained a big 80.  The MLP index was fractionally higher on the 303s & the REIT index rose 3+ to the 337s.  Junk bond funds went up & Treasuries declined.  Oil climbed higher in the 48s & gold retreated.

AMJ (Alerian MLP Index tracking fund)

CLN16.NYM...Light Sweet Crude Oil Futures,J...48.41 Up ...0.33 (0.7%)

GC.CMX.........Gold Apr 16...............................1,249.50 Up ...0.30 (0.0%)

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Purchases of new homes in the US surged in Apr to the highest level since the start of 2008, pointing to a robust spring selling season for builders.  Sales jumped 16.6% to a 619K annualized pace, & purchases in the first 3 months of the year were revised higher, according to Commerce Data data.  The rate exceeded the most optimistic forecast.  The median sales price climbed to a record, reflecting a pickup in signed contracts for more expensive properties.  The rebound in purchases signals housing was returning to more stable footing, helped by healthy employment gains & cheap borrowing costs.  The number of homes sold & not yet under construction climbed to the highest level since May 2007, indicating homebuilding will help add to economic growth.  The Commerce Dept revised the Mar reading up to a 531K pace from a previously estimated 511K. The gain last month was paced by the South, where sales climbed 15.8% to a 352K annual rate.  The supply of homes fell to 4.7 months from 5.5 months in Mar.  There were 243K new houses on the market at the end of Apr, little changed from a month earlier.  The median sales price of a new house increased 9.7% from Apr 2015 to a record $321K & purchases climbed for dwellings priced at $300K or more.

New-Home Sales in U.S. Surge to Highest Level in Eight Years

5 years after handing Greece the biggest sovereign-debt write-off in history, European policy makers have come full circle to the point they had all hoped to avoid: a real discussion on debt relief.   Despite all the efforts to shrink Greece's debt since the start of the financial crisis, the country's economy has shrunk at a faster pace, so its obligations have become increasingly onerous.  With the country's debt-to-GDP almost 70% larger than it was in 2008, the IMF is insisting that more restructuring is required to make the nation's finances sustainable.  With almost all of Greece's debt now held by official lenders, it's taxpayers who will be footing the bill rather than investors.  Euro-area finance ministers are discussing the disbursement of a proposed €11B ($12.3B) in aid for Greece & for talks on how to ease its €321B of debt thru lengthening loan maturities, lowering interest rates & postponing payments.

The meeting may become a showdown between the IMF & euro-area nations led by Germany that are restrained by domestic electorates that have grown weary of helping the Greeks, with elections due next year in the Netherlands & the region's biggest economy.  European hard-liners are resisting the fund's demand that debt forgiveness be nailed down before Greece's bailout program ends in 2018, fearing that without that carrot, Greek authorities could take their foot off the gas.  The IMF argues that clarity is necessary to restore investor confidence.  The IMF & euro creditors are also at odds over the length of loan-maturity extensions, the postponement of payments & the future strength of the Greek economy.

Greek Debt Relief 2.0 Is Coming as IMF Rips Euro-Area Offer

A key survey of German economic sentiment pulled lower in May, with respondents pointing in part to the upcoming UK referendum on whether Britain should exit as a member of the EU.  The ZEW Institute indicator of economic sentiment came in at 6.4, decreasing by 4.8 points from Apr.  Analysts had expected a reading of 12.  "Uncertainties regarding developments such as a possible Brexit currently inhibit a more optimistic outlook," after strong German economic growth in Q1, said the ZEW.

German Economic Sentiment Unexpectedly Drops In May

The bulls have returned & they are buying stocks.  But there is really no special reason.  Hopes are riding high that the Fed will not have the courage to raise interest rats next month.  However, good housing data calls that thought into question.  The Greek debt mess muddles on, but it looks like nobody wants to make painful decisions.  18K remains an important ceiling for the Dow & could remain so for some time.

Dow Jones Industrials

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