The Day Ahead: New Home Sales, $42bn 5 Year Treasury Notes, FOMC Statement
News from Asia has pushed the global stock market down after Toyota said it would stop production and sales on eight of its recalled vehicles.
Japan’s Nikkei index hit a 5-week low after the Toyota news, despite a positive trader report that showed exports were 12.1% higher than one year ago. The new trade destination is longer longer the US though. As Jennifer Lee from BMO notes, China has become Japan’s #1 export destination.
In the US, however, equity futures are looking for a higher open. Dow Futures are up 6 points to 10,144 and S&P 500 Futures are trading 2.00 points higher at 1,089.
Meantime, commodities are mixed: WTI Crude oil is trading 27 cents higher to $74.98 per barrel, but Spot Gold is down $1.08 to $1,096.47.
Key Events Today:
10:00 ― Unlike existing home sales, New Home Sales are expected to rise in December, in some respect because they already nosedived 11% the month before. The current pace of sales is 355k; in December economists believe the figure will jump to 370k. The slump in November can largely be attributed to the government incentive for first-time homebuyers, which was initially set to expire in November ― its extension may also explain why sales are anticipated to resume in December.
“New home sales took their lumps during November, the payback for the previous boost from the tax credit for new homeowners—and possibly also because of measurement error,” said analysts at IHS Global Insight. “For December, we are expecting a solid rebound based on the 8.3% increase in single-family housing permits, which are a good predictor of new home sales.”
2:15 ― The first FOMC Meeting of the new decade shouldn’t carry any surprises in terms of the Fed Funds rate, which has been in the zero to 0.25% rate for 13 months now.
“It is widely expected to retain a pledge to keep rates exceptionally low for an extended period,” said analysts at BMO. “There is some debate about whether it will extend the $1.25 trillion MBS purchase program beyond March in light of recent shaky housing market stats; however, continued low mortgage rates suggest no pressing need to do so, at least for now.”
But, the meeting will draw other speculation related to whether the Senate will give Bernanke another term as chairman.
“While some Senators have announced their opposition, or at least withheld their endorsement, on Friday the White House reaffirmed its support of the Fed Chairman (as did the Chairman of the Senate Banking Committee),” noted Joseph LaVorgna from Deutsche Bank. “While the probability has diminished somewhat as of late, we expect the necessary votes will ultimately turn up. In the event the vote is forestalled, Mr. Bernanke’s term as Fed Chairman concludes at the end of the month.”
The statement accompanying the decision should note recent economic improvement and reiterate that underlying inflation pressures are benign.
Treasury Auctions:
- 1:00 ― $42 billion 5-Year Notes