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Wednesday, December 23, 2009

Morning Market Report

Stocks were relatively quiet yesterday with all indices up less than a half a percent. This morning they're digesting the latest economic report.

Sales of newly built U.S. single-family homes unexpectedly fell to their lowest level in seven months in November, data showed on Wednesday, dealing a blow to the housing market's recovery.

The Commerce Department said sales dropped 11.3 percent, the biggest decline since January, to a 355,000 unit annual rate, from a downwardly revised 400,000 units in October.

Analysts polled by Reuters had expected new home sales to increase to a 440,000 annual pace from October's previously reported 430,000 units.

Meanwhile, consumer sentiment was up in December so the news is mixed. Markets are about even across the board this morning but it's still early.

Meanwhile, treasury bonds have been testing very dangerously high levels but they're showing strength this morning. They've gained back five basis points but the ten year is still at 3.70%. That's over half a point gain in about a month. The yield spread between the two and ten year continues to test all time highs and is currently at 2.78%. The three month t bill is now at .06%. That's now solidly above zero. Bonds in Germany and London were both weaker this morning so this might be a response to the housing news.

Crude oil is above $75 a barrel this morning and that's currently trading at $75.74. That's been rising fairly steadily since falling below $70 a barrel almost two weeks ago. Gold is currently trading at $1089 an ounce. That continues a down trend since it reached all time highs over $1200 an ounce.

We have near across the board gains in both the Far East and in Europe. The Hang Seng in China was up 1.12%, the NIKKEI in Japan was up 1.91%, and the Straits Time Index in Singapore was up .63%, as all major indices in the Far East gained. The news was only slightly better in Europe. The FTSE in London is up .59%, the DAX in Germany is up .06%, and the Spanish index is up .25%. The Swedish index is the only European indice that's currently down.

Meanwhile, the dollar is showing weakness this morning. It's down .57% against the Euro, down .06% against the Pound, and down .5% against the Japanes Yen. It hasn't however shown nearly as clear of an opposite pattern against domestic equities over the last couple weeks as it had for the last few months.

Ford announced it would sell its Volvo division to a Chinese company, Geely.

Ford Motor Co. agreed with China’s Zhejiang Geely Holding Group Co. on most terms for a sale of the U.S. automaker’s Volvo Car Corp. unit in the second quarter.

A definitive agreement probably will be signed by March 31, with a sale completed by June 30, the companies said in statements today. No financial details were provided. Ford has made progress to resolve issues such as protecting intellectual property

Meanwhile, a very technical Fed test points to strength in the banking industry.

Federal Reserve tests of tri-party reverse repurchase agreements have “gone extremely well,” according to the head of the industry group working with the central bank on the transactions.

The Federal Reserve Bank of New York has drained $990 million in reserves from the banking system through five trials this month as part of its “tri-party reverse repo operational readiness program” announced Nov. 30. The central bank stressed at that time that the tests don’t represent a change in policy and were one tool at its disposal for the eventual withdrawal of the unprecedented monetary stimulus added
to the economy.

Don't ask me to explain this because I can't. It does signal that banks have enough capital to get by. At least, that's what these tests have concluded so far.

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