A lot going on this morning (via Trade the News):
- Equity indices in the US and Europe are headed for fresh session lows this morning as North Korean artillery fire joins the Irish debt bomb in demolishing investor confidence. The iShares South Korea ETF is down more than 5% in US trading after North Korea shelled a South Korean island, killing two and injuring many more. Leading global powers have condemned the attack, with the notable exception of China. The Irish government and opposition parties are heading for a parliamentary showdown, with the former insisting it can remain in place and the latter threatening no confidence votes. Contagion from Ireland is spreading in Europe: spreads between 10-year Spanish and German government debt widened out to all-time highs above 230 bps while spreads between 10-year Portuguese and German paper tested all-time highs over 430. The euro is weakening rapidly, with EUR/USD dropping below1.3400 for the first time in nearly 2 months. The second reading of the Q3 GDP data has been somewhat lost in the shuffle, with headline annualized q/q GDP figure at +2.5% versus the +2.0% q/q figure seen in the first reading back at the end of October. The October existing home sales fell over September levels, although the NAR explained that temporary foreclosure stoppages likely held back sales. Gold has pushed out to one-week highs, to trade above $1,364. Front-month WTI crude tested two-month lows just above $80 earlier this morning, before regaining some ground. January crudes is currently trading around $80.80. US Treasury yields continue to retreat, aided by safe haven flows. The benchmark US 10-year is below 2.75% heading towards the FOMC minutes release and the 5-year auction results scheduled for this afternoon.
- Comments from German officials continued to weigh on euro sentiment. German Chancellor Merkel echoed her finance minister by insisting that the euro was in an ‘exceptionally serious’ situation due to the peripheral debt crisis. She added that Germany must stay the course in regards to its budget austerity to ensure sustainable growth. Persistent rumors that Portugal’s sovereign rating would be cut were fueled by a Moody’s analyst, who said he was concerned about the country’s deficit. EUR/USD hit fresh seven-week lows below 1.3435 with EUR/JPY cross retesting its Nov low around 111.00.
- The Double dip is here (Via Econoday): Existing home sales fell 2.2 percent in October to a 4.43 million annual unit rate. Most of the indications in this report are weak including low to mid-single digit declines across regions and for both single-family homes and condos. Supply on the market is very heavy at 10.5 months. The median price fell for a fourth straight month, down six tenths to $170,500. The average price, likely reflecting firmness at the top-end of the market, edged two tenths higher to $218,700.The National Association of Realtors, which compiles the report, warns that qualified buyers are being rejected because of overly stringent credit standards. The NAR also says that mortgage documentation problems are not a significant factor for the market. The NAR’s 2011 outlook calls for flat results for both sales and price.
Housing is still trying to find its footing. Tomorrow’s new home sales report will offer further information on the sector.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.