March 22nd, 2011 9:40 AM by Mel Samick
Economic data last week was mixed, but the market focus continued to be on the global turmoil around the globe. The situation at the Japan's Fukushima nuclear complex is far from resolved as teams of workers are being rotated in and out of the site. Power was restored over the weekend where it will address the cooling systems used to stabilize the plant. This step should alleviate some fears and likely add strength to the beaten down yen and to equities (while giving comfort to those hoarding iodine pills). The G-7 jointly intervened in the currency markets to prevent any further appreciation in the yen after the dollar/yen exchange rate sharply fell 4.8%, potentially hampering Japan's recovery effort by making Japanese exports less competitive. The destroying of Libyan air defenses by Western forces has elevated the tension in Northern Africa and the Middle East. There was little in terms of economic data that directed market action last week. Inflation is elevated as seen by the February CPI and PPI reports, but the Fed remains unconcerned as core inflation is where they are comfortable.
The U.S. Treasury Department announced plans to wind down its $142 billion portfolio of agency-guaranteed mortgage-backed securities by selling about $10 billion in holdings per month. The sales will start this month and be subject to market conditions, the department said today in a statement. Selling MBS is consistent with the general pattern of Treasury divestment of financial assets acquired during 2008 and 2009 as part of the various financial stabilization programs. Everyone hopes that this portfolio can be sold with minimal impact on the market and a minimal impact on primary mortgage rates.
As expected, the Federal Reserve Open Market Committee met last week resulting in no policy changes. In the statement which accompanied the close of the meeting, the Fed did note at least some concern about price pressures or at least acknowledged them. "The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation" noted the Fed. The Fed did say that they expect these effects to be "transitory" but the trends in inflation all seem to be pointing upward at the moment, even if the actual levels are still fairly low.
The week ahead brings us more housing data but will garner little attention as the world's traumatic events play themselves out. Last week's housing data was weak. February starts fell 22.5% from January, the lowest level since April 2009. Building permits for February fell 8.8% from January. Housing data this week is expected to show declines with February existing homes sales slated to be down 4.0% from January. February new homes sales are expected to be down 3.2% from January. The housing sector remains seriously depressed. If housing data comes in better than expected it will be ignored for the most part as global issues will continue to take center stage. Market volatility is expected to be high with interest rates vulnerable to overreaction.
The week's economic calendar includes Monday's Existing Home Sales, Wednesday's New Home Sales, Thursday's Durable Goods Order and Jobless Claims, and Friday's GDP. Meanwhile, enjoy the March Madness along with warming weather ahead.