Housing Data Snaps the Streak

Good day… And a Wonderful Wednesday to you. Yesterday was a beautiful day here in St. Louis and gave us an early taste of spring. There will no doubt be some bumps in the road as winter still wants to stay in control, maybe even throwing us a stray snow shower at some point, but spring will eventually win out. We had some pleasant surprises resulting from the economic data yesterday so that has given some a reason to begin looking ahead, saying that the worst is behind us. Just as it might be too early to move those fragile house plants outside for risk of frost, it might be too early to assume everything has worked itself out in the financial markets.

I’ll start the morning off with our economic releases from yesterday… It’s always nice to have something positive to report, instead of just doom and gloom. Housing starts in February snapped its longest streak in 18 years as work began at an annual rate of 583K, which was considerably higher than the estimate of 450K. January’s figure was revised up to 477K from the original print of 466K. That was a jump of just over 22% in February, which had a major contribution from starts on condos, apartments, and townhouses.

Building permits, which is a sign of future construction, rose as well, but not to the same extent as starts. While both figures are certainly good news and show signs that we might be nearing a bottom, analysts are saying these types of gains are unlikely to be sustained. Foreclosure filings climbed 30% in February year-over-year, and remains a hurdle that developers need to deal with as they bring down average prices and, in turn, squeeze profits. With all of that being said, these were definitely welcomed results and if we can find a bottom in housing, that would be one of the load bearing walls needed to keep the economy in tact.

The rise in wholesale prices, as indicated by the producer price index, was less than expected in February, with U.S. producer prices up 0.1% compared to January… But down 1.3% compared to a year earlier. The core figures, which exclude food and energy, rose 0.2% from January and 4% year-over-year. PPI is one of the three monthly inflation reports released, with CPI (Consumer Price Index) due out tomorrow.

CPI is expected to be a non-event, as the figures are estimated to mirror those of last month. Keeping inflation contained and prices stable is like walking a tight rope, where too much and the beginnings of a recovery get squashed, and too little and the risk of deflation emerges. The key right now is price stability and inflation containment.

Moving on to some currency news, most of them finished the day very close to where they started, with only the Mexican peso (MXN), Norwegian krone (NOK), and Swedish krona (SEK) rising above the 1% figure. It looks as though many want to see what the Fed has in store today before the next leg of the journey begins. Although rates are expected to remain the same, investors want to get some idea of where they stand on the overall economy. Like I said yesterday, any comments or statements from any of the Fed heads will most likely be the market movers.

We have more good new to report, as March German investor confidence unexpectedly rose to the highest level since July 2007. The figure came in at -3.5 while most economists were looking for a drop to -8. It appears the recent rallies in the equity markets had a profound impact on the report and investors have responded positively to the rate cuts and stimulus measures. Economists are providing caution as many key economic indicators are still falling, which suggests the bottom has yet to be seen.

The euro (EUR) has been digging in the 1.29 to 1.30 range over the past several days as investors continue to dip their toes in the risk pool to get an idea of the temperature. The general consensus is for the ECB to cut rates during their April 2 meeting, but we have a couple ECB board members hinting they might be nearing an end. Juergan Stark said, “We have a little more room to lower rates. For me personally, the threshold isn’t far away from the current level.” Other members are re-iterating that whatever is necessary to restore financial and economic stability will be used.

The Norwegian krone was a big winner on the day, rising over 1.5% to 6.7371, as oil rose to the highest levels since the beginning of December. The Norwegian krone remains the best performing currency so far this year and continues to be a favorite among many investors, including us. With Norway being the world’s fifth largest oil producer, the higher oil prices have certainly helped the currency, but its strong overall economic fundamentals are what continue to dominate the spotlight. Its 3% gain so far this year would appear to have legs at this point in time.

As I’m writing this morning, most of the currencies have slight gains against the dollar – or have at least held their ground in overnight trading. The exception so far has been the pound sterling (GBP), which is trading below 1.39, and is down about 1% at this point. U.K. unemployment rose at the fastest pace since 1971 in February, adding fuel to the downward spiral in their economy. Other than that, not much else until later today so I’ll go ahead and put the bow on this one.

Currencies today 3/18/2009: A$ .6612, kiwi .5281, C$ .7883, euro 1.3050, sterling 1.3881, Swiss .8508, rand 9.9225, krone 6.7279, SEK 8.3912, forint 230.29, zloty 3.4784, koruna 20.5480, yen 98.60, sing 1.53, HKD 7.7524, INR 51.2950, China 6.8348, pesos 14.1039, BRL 2.2825, dollar index 86.836, Oil $48.70, Silver $12.63, and Gold… 910.80

That’s it for today…I hope you were able to enjoy you’re St. Pat’s Day…I had to work for the better part of the day but I was able to enjoy the drive home from the office yesterday with the windows down and the radio on. Well, we have the early birds already making their way in this morning, so that means that I need to get a move on. Happy hump day and a Wonderful Wednesday to all!

The Daily Reckoning