Wednesday, February 27, 2013
A weaker looking Durable Goods reading this morning and another day
of Bernanke testimony provide the backdrop for today's trading
session. Italy related concerns will also be at play, partly offset
by positive earnings reports from
) this morning and
) after the close on Tuesday.
Weakness in this morning's Durable Goods orders for January came in
weaker than expected, but the 'headline' softness was primarily in
the transportation sector. After all,
) took only two aircraft orders in January after orders for more
than 180 planes the month before. But 'core' capital good goods
orders officially known as nondefense capital goods orders
excluding aircraft came in surprisingly very strong.
The 'core' serves as a proxy for private sector capital
expenditures in the economy and is typically weaker in the first
month of the quarter. The inherent volatility of the Durable Goods
report limits its utility on a month-to-month basis, but the 'core'
strength is nevertheless positive and likely indicative of
improvement in business confidence in January following the Fiscal
Cliff headwind in at year's end.
We also have another day of testimony from the Fed Chief today, but
the market likely got enough reassurance from his Tuesday comments.
The bottom line on the Fed front is that there is no imminent
change in the central bank's bond purchase program, which has
served as a key driver of the market's recent momentum. Bernanke
was categorical in claiming that they are well aware of the
program's costs and benefits and that it made sense for the Fed to
continue with the open-ended QE program at this end. He cautiously
cited improvement in the underlying economy, but also pointed
towards policy risks, particularly from the budget sequester.
Barring a material improvement in the labor market, meaning monthly
job gains in excess of 200K for at least 3 months, I don't expect
any changes to the Fed's current monetary policy stance,
particularly given the strong likelihood of fiscal austerity
getting underway as a result of the sequester.
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