As the economic calendar heats up, the market has once again revealed its taste for bearish data. On Tuesday, the bears seemed to be fully satiated with disappointing news from the PBoC Governor on reserve demand for the greenback as well as another slide in building permits that immediately knocked the wind out of a strong rebound in construction.
Extended its conservative trend channel, the deeply liquid EURUSD was trading its third session within a 60-point band. As of mid-day, the pair swung off of a low at 1.3270 and a falling ceiling at 1.3310. After yesterdays rally, USDCHF cooled its heels in a 55-point range above 1.2110. In the New York session, USDJPY finally shook off its constraints in a drop to 117.05 in a move that totaled some 65 points in under an hour. Finally, inflation news out of the United Kingdom leveraged a considerable rally in GBPUSD. Following a quick test of 1.9430 in the morning hours in London, the pair surged to 1.9555 and went on total a 175 point pick up before stalling around 1.96.
Once again, a few pieces of scheduled data on the docket was all that was needed to draw fundamentalists to their terminals. The second installment of this weeks housing break down included housing starts and building permits for February. A perfunctory glance at the numbers may have led traders to plow into dollars; but serious consideration easily sullied any bright outlook for an impending rebound in the battered housing market. In February, developers broke ground on homes at a 1.525 million pace, far better than expected and a 9 percent jump over the previous months nine-and-a-half year low. However, the good news stopped there. One reason to discount this move was because it may represent a natural rebound from Januarys massive 14.3 percent drop in starts not the improvement in the overall trend that Fed officials are looking for. Also, the numbers are likely distorted by unusual weather patterns. Starts in New England and the Midwest dropped 30 percent and 14 percent respectively as heavy snow storms delayed construction. Conversely, unusually dry conditions in the West and South encouraged a 26 percent and 18 percent acceleration in building activity respectively. Altogether though, the drop in building permits for the same period was likely the most influential argument against optimism. A leading indicator for construction activity, permits dropped 2.5 percent to a 1.532 million unit pace. Specifically disheartening in the component data was the lowest level of single-family residence filings in ten years.
Taking these numbers into account, the market has refined its outlook for housing sector activity. However, the general projection for further weakness has gone untouched. The read on the housing market will continue to evolve with tomorrows MBA mortgage Applications and Fridays existing home sales. Even Wednesdays FOMC rate decision will have its hand in housing health forecasts. As consumers and economists worry about the pervasiveness of rising default rates among distressed mortgages, they will look for some kind of reassurance from the monetary policy board. Perhaps an acknowledgement of the volatility in the sub-prime sector and a shift to more neutral rhetoric will satisfy worriers. On the other hand, considering the acceleration in the consumer inflation gauges last week, it may be asking for too much. Outside of the economic calendar, dollar traders found even more to concern themselves with. According to an article in Emerging Market Magazine, PBoC Governor Zhou Xiaochuan said the Chinese central bank will no longer build its reserves. This adds serious weight to concerns that foreign central banks are limiting their greenback intake.
The benchmark stock indices followed through with yesterdays rally. By 15:15 GMT, the NASDAQ Composite paced the advance with a 0.43 percent rise to 2,404.70. By the same time, the S&P 500 was quoted 0.3 percent higher at 1,406.24 and the Dow with a 0.23 percent pick up at 12,253.81. From the market movers list, the tech sector seemed to have more than its fair share of representatives. Memory chip maker Rambus Inc. saw its shares rally 7.9 percent to $21.40 after the FTC held up portions of a filing against the company. Elsewhere, shares of market leader Oracle were trading $0.30 or 1.7 percent higher at $17.48 as shareholders awaited the companys earnings numbers due after the sessions close.
Treasuries benefit from the overall disappointment in the housing data. Ten-year notes rose 6/32nds to 100-21 with yields 2 basis points off at 4.54 by 15:45 GMT. The longer-termed bond added 8/32nds to price to 100-27 as its yield shed 2 basis points to 4.697.