March 20, 2013
Tuesday market price action was a continuation of Monday’s defensive trading, as news about a rejection of the Cyprus tax on depositors hit the wire. Not including Russia in the negotiations was a mistake in hindsight and their involvement now will likely lead to a resolution. Housing data released in the US on Tuesday was better than expected, while UK unemployment data failed to impress.
The global capital markets have reacted calmly to the Cyprus rejection of the terms of the 10 billion aid package. The immediate issue is that without an agreement, is should the ECB continue to allow Emergency Lending Credit be extended to Cyprus banks. Banks are expected to open on Thursday after remaining closed throughout the week in an effort to avoid a run on banks.
In the US better than expected housing starts and building permits helped lift the home builders but failed to generate enough momentum to keep the broader markets above water. Housing starts climbed .8% in February lead by single family starts. Building permits, which are an indicator of future housing starts climbed 4.6% and are at their highest level since June of 2008.
In the UK, the BOE minutes showed that King and his two allies but failed to carry a majority for the second consecutive month to resume gilt purchases. The majority was concerned about the credibility of the BOE on new gilt purchases. The UK economy continues to stagnate and needs additional stimulus. The jobless claims fell by 1.5k instead of the 5k the consensus expected by economists. The unemployment rate was unchanged. The average weekly earnings slowed to 1.2% compared with 1.5% expectation, which is well below levels that the BOE has indicated are consistent with price stability.
The S&P Homebuilders index pushed to a new 3-year high reflecting strength within the housing sector. The strong housing starts will be followed by data on existing home and new home sales. Momentum continues to gain strength as the MACD is printing in positive territory. The RSI (relative strength index) is printing near 64 which is on the upper end of the neutral range.
Check out this video for more information