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Dollar Down, Housing Up


US equities held on to opening gains despite weak employment data and a slight reduction in 1st quarter GDP, down from 2.5 to 2.4. The dollar lost ground against a basket of currencies and the euro but remained stable against the yen. Nervous investors have been on edge since Federal Reserve Chairman Ben Bernanke hinted that the Fed was considering tapering down the current easing levels.

Across the pond, euro zone optimism lifted on positive consumer confidence from the region’s five biggest economies; Germany, France, Italy, Spain and the Netherlands. The euro reached a two-week high against the dollar at $1.2974 as analysts are reconsidering the ECB’s potential rate cut.

In overnight trading, the Nikkei had fallen 5 percent to a five- week low. Rumors emerged that Japan’s pension funds were considering investing in equities. The Bank of Japan’s $1.4 trillion quantitative easing has not accomplished the anticipated goals.  Economists are grappling with new solutions. The dollar-yen remains over the 100 threshold.

Housing Surges

S&P/Case Shiller composite index gave more credence to a housing recovery. The index of 50 metropolitan areas showed an increase in average March selling prices of 10.9 percent year-over-year. This marks the largest increase since April 2006 when housing was booming. March house prices rose by 1.1 percent over February.

Confidence in the real estate market also climbed to its highest level in 5 years. Analysts see this as giving legs to the industry’s recovery.

Some of the cities hit hardest by the recession showed strong sales data.

  • Phoenix selling prices are up 22.5 percent this year.
  • San Francisco residential real estate is up 22.2 percent.
  • Las Vegas housing prices are up 20.6 8in 2013.
  • Los Angeles housing prices are up 16.6 percent.

Case Shiller’s national index was up 3.9 percent in the first quarter compared to a 2.4 percent gain in the last quarter 2012.

Barclay’s economist, Michael Gapen, told Reuters:

“Low inventories and gradually improving housing demand have combined to push housing starts higher and support home price appreciation.

“We see these factors as remaining in place and expect residential investment to add to GDP growth in the coming quarters. We also expect rising real estate wealth to support household balance sheets and underpin consumption, helping the broader economy to offset a substantial fiscal drag in 2013.”

Unemployment Claims Rise 10,000

Initial claims for state unemployment benefits jumped by 10,000 last week. This caught analysts by surprise but might help the markets as the trend will ensure the Fed stays in the game. Seasonally adjusted unemployment sits at 354,000 as the four-week moving average climbed up 6,750 to 347,250.

The Consumer Board had encouraging news, reporting that consumer attitudes moved up to 76.2 from 69 in April. This marks the Consumer Board’s highest rating since February, 2008.

Consumer spending accounts for two-thirds of the nation’s GDP. However, second quarter consumption has slowed to 2.5 percent from the encouraging 3.2 percent during the first quarter. Consumer perception of the job market also improved.

GDP

The Commerce Department reported that GDP grew by 2.4 percent during the first quarter, revised down from 2.5 percent. GDP concerns are fueled by the inability of Congress to attend to the people’s financial business. First quarter growth was influenced by reduced government spending, down 4.9 percent in the first quarter alone. The full impact of the sequestration has yet to be felt and many analysts believe growth in the second and third quarters will be low. A pickup in the fourth quarter is expected.

Regrettably, increased fuel prices have contributed to first quarter growth. Reduced energy prices in the second quarter will hurt growth unless consumers spend their savings.

Another factor weighing on GDP is the volatile inventory levels. If the inventory component of GDP is excluded, GDP rose at 1.8 percent.

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U.S. and European Equities Keep Climbing


Equity markets in the U.S. appeared ready to post solid gains for the fourth straight day.  Buoyed by stellar quarterly earnings from Dupont and other major U.S. companies, the DOW appeared ready to post another triple digit gain.  Historically, the DOW has never had four straight days of triple digit gains.

Dupont’s strong sales figures from every division surprised analysts.  The company immediately raised annual projections and raised expectations for several key divisions.  Overall, U.S. business has posted strong quarterly reports, but the Consumer Confidence report, issued Tuesday morning, turned down from June’s adjusted 54 percent to slightly over 50 percent in July.

The fear surrounding U.S. companies is how the profits are being generated.  What makes the Dupont performance encouraging is that profits came from strong sales rather than from cost cutting.

Europe Climbing

Meanwhile, European equities posted positive gains for the sixth consecutive day.  UBS AG and Germany’s largest bank Deutsche Bank AG handily surpassed expectations.

UBS rode the three month high measure of banking shares to a 10 percent gain. Deutsche Bank rose 5.8 percent, Tompkins Plc, who agreed to sell to the Canada Pension Plan Investment Board and Onex Corp, climbed 5.3 percent.

Philipp Musil of Semper Constantia Privatbank AG in Vienna explained, “I am happy about the figures, which beat really high expectations.  The market is near the top end of the trading range and there’s a new positive feeling about Europe.”  

UBS has seen an inordinate number of withdrawals from its wealth management division.  In the second quarter, withdrawals amounted to 8.1 billion francs compared to 15.4 billion in the first quarter.  The wealth management division posted a pre-tax profit of 1.13 billion francs.  

UBS silenced its critics and caught analysts by surprise by turning around its investment banking division.  The division generated 3.07 billion francs from trading equities, currencies, bonds and commodities in the second quarter. 

Switzerland’s biggest bank reported a net gain of 2.01 billion Swiss francs ($1.91 billion) year to date.  One year ago, the bank posted a loss of 1.4 billion francs.

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