A bit of relief
The pressure in the market is easing a bit this morning after a strong Durable Goods release and higher than expected New Home Sales. The 10 year Treasury is off almost ¾’s of a point to trade at 3.24%. The Dow is up about 100 points to trade at 10,147.
Durable Goods was expected to post a 1.3% increase but actually posted a 2.9% figure. New Home Sales were expected to come in at 425,000 but posted 504,000 instead.
A matter of perspective
Many times in life people can look upon the exact same set of data and come away with very different conclusions.
For example, yesterday my wife asked my 7 year old daughter “Is daddy’s hair more brownish or blondish?”
She replied “It’s more BALDISH.”
If I’d been there for the insult I’d have sent her to her room.
This difference in perspective reminds me of today’s Durable Goods data. While it is certainly good news to see that Durable Goods orders are rising, I find it difficult to use that number as a basis for concluding that a recovery is imminent. One person sees “recovery” in the number, another looks deeper and sees “baldish”.
One of many headwinds that Durable Goods must overcome is the decline in value of the Euro. The most recent Durable Goods figure covers the 3/31/10 to 4/30/10 time period…one month. Durable Goods orders were up 2.9% over that 30 days (the bulk of which was comprised of aircraft orders…a typically volatile sector). To get a better look at core activity we can use Durable Goods Ex-Transportation which posted a -1.00% figure vs. an expectation for a 0.5% gain.
So Durable Goods Ex-Transportation was -1.00%. Over that same time period the Euro was down only 1.6%.
Since the start of the new Durable Goods reporting period the Euro has dropped an additional 8% in value. That trend can only continue for so long before it begins to price our exports out of the picture…and a drop in exports will be reflected in Durable Goods orders.
It will be interesting to see how well Durable Goods orders can hold up when the value of the Euro is dropping like a rock and austerity measures kick in across the European continent. Time will tell but given the overall macro picture right now it seems that Durable Goods orders would have a difficult time gaining much momentum.
Looking forward
Tomorrow we get GDP, Personal Consumption, Initial and Continuing Claims, and Core PCE (the Feds favorite measure of inflation).
There are no new stories out of Europe or the Korean peninsula to spook the markets this morning. All in all it’s just a steady but quiet trading day.
If you have any questions or if there is anything I can be doing for you just let me know.
Steve Scaramastro, SVP
800-311-0707
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