The Cyprus news may nothing more than a distraction for this
market, as attention shifts to Fed's two-day meeting getting
underway today. Also significant is this morning's Housing Starts
numbers which should help offset the pullback in the homebuilder
sentiment index for the second straight month on Monday.
Importantly, Housing Permits came in better than expected this
morning, confirming the positive housing momentum.
Housing Starts for February matched expectations, while the
numbers for January were revised upwards. Starts came in at the
seasonally adjusted annual rate of 917K versus expectations of
915K and January's 910K (revised from the originally reported
890K level). Starts have struggled to match the December 2012
level of 973K in the last two months, which has coincided with a
loss of momentum in the homebuilder sentiment index as well.
Monday's March reading for the homebuilder index fell to 44 from
46 in February and 47 in January, which followed a steady rise
The volatility in Starts notwithstanding, the housing sector
remains the brightest spot on the economic landscape helping lift
the fortunes of a host of players - from builders like
) to housing related retailers like
) and appliance makers like
). The current Starts level represents a significant improvement
over the year-earlier level, but still remains below the roughly
1.3 million level considered 'normal' for the U.S. housing sector
(Starts were above 2 million during the bubble). February's 917K
starts level compares to 2012's 781K and 2011's 609K.
On the FOMC front, no one expects the Fed to announce any
changes to its monetary policy stance at this meeting, though we
may see some acknowledgement of the improving tone of recent
economic data. Today's weaker than expected Starts data
notwithstanding, the overall tone of recent economic data has
been positive. This has prompted many analysts to raise their GDP
growth estimates for the current and coming quarters.
As a result, the QE question has again taken center stage - if
the economy is getting better, then why have such massive amounts
of Fed stimulus? The QE supporters on the FOMC, led by Bernanke,
would be looking for a sustained period of economic growth before
changing their stance. Bernanke & Co are well aware of the by
now familiar pattern of the U.S. economy to lose momentum in the
Spring/Summer months after making encouraging starts in each of
the last three years. The issue is particularly significant this
year given the onset of fiscal austerity following the tax hikes
and budget sequester. My sense is that they would like to see one
to two quarters of positive economic data before adjusting their
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