U.S. Federal Reserve adopts tight rules for foreign banks
Global finance is gradually becoming more expensive as many nations are now putting up domestic barriers to help meet downside risks in case of future crises. The Fed is requiring the largest foreign banks, with at least $50 billion in U.S. assets, to hold more capital and be subject to the same liquidity requirements and risk management standards as U.S. banks.
The Fed has projected that 15-20 foreign banks with subsidiaries in the U.S. would now have to put up more capital. The U.S. central bank has gone ahead with this reform in order to appease the concerns of U.S. taxpayers that they would need to pay for the failure of foreign banks.
Foreign banks like Barclays (BCS) and Deutsche Bank (DB) have criticized the plan as it means they now have to bring in costly capital from Europe. Across the pond, EU financial services commissioner Michel Barnier had warned back in October that the single-currency bloc would push for similar measures if the Fed went ahead with its new plan.
Homebuilder Confidence Down
According to data released by the National Association of Home Builders & Wells Fargo, February's builder confidence fell to its lowest level since March 2013, The Housing Market Index, which tracks builder confidence for the market for newly-built, single-family homes, plunged 10 points from last month, to a value of 46.
The decline was blamed on "significant weather conditions across most of the country" and concerns about meeting demand because of "shortage of lots and labor".
Market estimates were for a higher index score, but the unusually severe weather is projected to continue to keep builder confidence down throughout the month.
Consumer Debt Surges by a Great Deal
In the fourth quarter, U.S. consumer debt jumped by the most since '07. According to the New York Fed, the quarterly rise was $241 billion. Interestingly, this was the first increase in debt during the fourth quarter since '08.
Younger people are especially borrowing more. Total student debt outstanding surged in '13 to $1.08 trillion, rising $114 billion. Around 11.5% of student loan balances are more than 90-days past due and this number is at an all time high.
One good sign is that late payments on student debt are falling.
Nasdaq Rises for the Eight Straight Day: Time to Cash in?
The tech-heavy composite surged 0.7% in Tuesday's session. It was large-cap high-growth stocks that propelled the U.S. index higher along with the outperformance of health care equities. The market is in a confirmed uptrend. Despite the rather weak economic data, I do expect the Nasdaq to hold up relatively well.
Tesla Motors Inc. (NASDAQ:TSLA) is expected to report strong growth in the fourth quarter when its earnings come out after the market closes today. Tomorrow, Priceline.com (NASDAQ:PCLN) will post fourth quarter results and Wall Street expects a 22% jump in profit for the period. These earnings reports will have a positive effect on the Nasdaq.
As it is, I maintain a medium-term bullish outlook on the Nasdaq. I am looking to purchase two long-dated at-the-money options on the PowerShares QQQ (QQQ). Additionally, the QQQ ETF is a great way to invest in the long-term prospects of the technology industry.
Another investment idea is to go long on the Fidelity Nasdaq Composite Index Fund (FNCMX) which tracks the performance of the Nasdaq.
U.S. Data Releases Rule the Day
Also, be sure to watch macro data releases coming out today. The most significant market moving event should be the FOMC minutes for the January meeting scheduled to be released at 2pm ET. Currency traders need to watch whether Fed officials maintain a hawkish tone in the meeting reaffirming the tapering timeline in spite of the recent weak U.S. macro data. The U.S. dollar has come under heavy selling pressure in the past few weeks and the FOMC minutes could very well see some strengthening in the greenback.
If the data is encouraging for the U.S. economy, options traders can look to enter into a weekly call on the PowerShares DB US Dollar Index Bullish (UUP) and a put with a similar timeframe on the PowerShares DB US Dollar Index Bearish (UDN).
There is an absence of market moving data from other parts of the globe. The other two pieces of U.S. macro releases that investors need to watch closely is the Producer Price Index for January and the January housing starts. The housing starts report will likely show a decline to a 950,000 annual pace in January from a 999,000 rate the prior month.