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Markets are calmer to start the week after last week’s blow-up.  Equity markets are rallying 1.5% as fears over a nuclear disaster in Japan are quelled.  The Japanese have power running in all four nuclear reactors and the potential for a major catastrophe now appears limited.

Oil is rallying 1% as the disruption in the Middle East continues and allied forces establish a no fly zone over Libya.  Interestingly, the oil:copper divergence is continuing today as copper prices continued to decline 1.3% on the day. I have to wonder if this isn’t a reflect of early economic weakness in China.  The VIX is cratering back to 20 after briefly reaching 30 last week.  It’s clear that markets are finding their footing after the uncertainty that characterized last week.

Existing home sales were awful this morning in yet another sign that housing is not rebounding.  This is just one more sign that inflation is not a broad problem as consumers reallocate funds from discretionary items to non-discretionary.  Econoday elaborated on the numbers:

“The housing sector may be suffering another setback, at least based on the February report for existing home sales which fell nearly 10 percent to a lower-than-expected annual rate of 4.88 million. Year-on-year, sales are down 2.8 percent. Declines are evenly split between single-family homes and condos and are also evenly split across regions.

The bad news continues: supply is up and prices are down. Supply rose 3.5 percent to 3.488 million homes in what is 8.6 months of supply at the current sales rate, up from 7.5 months in January and even above year-ago February supply of 8.4 months. The median price fell 1.1 percent February to $156,100 with the average price down 1.4 percent to $203,000. Year-on-year, the decline for the median price is deepening, at minus 5.2 percent, but is steady for the average price at minus 2.7 percent.

Distressed sales made up a very heavy 39 percent of all transactions with cash transactions at 33 percent, a very heavy proportion pointing to bottom fishing by investors but also reflecting still tough credit conditions for ordinary home buyers. The economy, unlike other cycles, has been able to recover nicely even without the housing sector. New home sales data will be posted on Wednesday.”

All in all it looks like a relief rally.  Q1 earnings will be starting in the next few weeks so we’ll begin to get a gauge of just how much the oil price spike, Japan, and a weakening consumer are hurting the economy.  If FedEx was any guide it’s unlikely that these problems will cause earnings to slide much if at all.

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