The following is a daily market commentary by Scott J. Brown, chief economist and senior vice president of equity research at Raymond James & Associates Inc.
Tuesday: A disappointing consumer confidence figure sent share prices lower, but provided solid support for bonds.
The Consumer Confidence Index surprised to the downside in February, generating more concern about the strength and durability of the economic recovery. Monthly changes of one or two points are normal for the headline index. A 10-point plunge is hard to ignore. Still, it's only one month worth of data. From here, incoming economic reports will become more important, as investors look for indications of the recovery's strength. (
View figures here.)
Equities fell on the news and failed to recover. The dollar softened (as the confidence figure would make a Fed rate hike less likely). The bad (economic) news was helpful for bonds, particular in the face of Treasury supply. The $44 billion 2-year Treasury note auction was well received.
Minutes from the January 25 meeting of the Fed's Board of Governors showed that two district banks (St. Louis and Kansas City) requested a 25-bp hike in the discount rate, “in light of improving conditions in the financial markets,… in order to begin to restore a more normal discount rate structure” (the spread between the discount rate and the upper end of the federal funds target range was 25 basis points at the time, now 50 bps, and was 100 bps before the financial crisis).
The S&P/Case-Shiller Home Price Index for 20 metropolitan areas rose 0.3% in December (-0.2% before adjustment). There is still some confusion in how the figure is reported. Some financial news services reported “+0.3%,” while others reported it as “-0.2%.” Results varied considerably across metropolitan areas (San Diego +1.1%, San Francisco +1.0%, New York -0.5%, Chicago -0.6%). The 20-city index was down 28.2% over the last three years. The national home price index edged up 0.3% q/q, down 2.5% y/y (vs. -8.7% y/y in 3Q09 and -18.2% y/y in 4Q08).
Consumer confidence fell unexpectedly in February (
view chart here). The present situation component fell to a 27-month low, as labor market perceptions remained depressed and respondents lowered their assessments of current business conditions.
Today: It's the Ben Bernanke Show!!! The Fed Chairman should present a cautiously optimistic economic outlook and further expand on the Fed's exit strategies.
New home sales fell sharply in November and December, but are expected to have rebounded somewhat in January. Monthly changes in these data are volatile and large revisions are common. Market reaction to a large surprise should be contained as Bernanke's testimony hits the tape. (
View data here.)
This time around, there's less suspense than usual in Bernanke's testimony. The Fed's outlook on growth, unemployment, and inflation was included in the minutes of the January 26-27 FOMC meeting (released last week). Bernanke has also testified earlier on the Fed's exit strategies and the transition to more normal monetary policy.
For more commentaries by Dr. Brown, go to rjcapitalmarkets.com/eco_commentary_240_main.asp.
