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  • DOW SLIPS By WSS Research Team 0 comments
    Apr 15, 2013 1:34 PM

    By Carlos Guillen

    While the trading action last week was simply incredible, stocks are selling off so far during this start to the trading week, as gross domestic product (GDP) growth in China was less than expected and as economic data points here at home also landed worse than Street expectations.

    Quite surprising today was that China announced that its GDP growth in the March quarter unexpectedly slowed, reigniting concerns that full year growth will also be slower than expected. Chinese GDP in the January-March quarter grew 7.7 percent from the level achieved a year earlier, landing well below economists' forecasts calling for growth of 8.0 percent and declining from the 7.9 percent posted in the December quarter. Moreover industrial production in April slowed to 8.9 percent, the weakest in more than a year and below economists' estimates of 10 percent. While recent data on Chinese imports were able to give investors hope that the nation was growing from within, today's GDP growth snapshot is a strong indication that China's recovery very likely will not be stronger than expected this year.

    On another negative note, manufacturing in the New York region accelerated to the downside this month. According to the Federal Reserve Bank of New York, its general business conditions index April result landed at 3.1, lower than the Street's consensus estimate of 5.0, decreasing from the 9.2 reached in March. The good news was that given that readings greater than zero signal expansion, this month's result makes the third month of expansion in the region that covers New York, northern New Jersey, and southern Connecticut. Certainly encouraging was that the indexes for expected number of employees and average workweek climbed, conveying an expectation that employment would expand.

    (click to enlarge)

    Also adding to the pressure being witnessed today was a report that showed the National Association of Home Builders' housing-market index dropped to 42 in April from 44 in March, short and in the opposite direction of economists' forecast calling for a rise to 46 (more on this below).

    At the moment the market is down over 160 points, or down 1.1 percent from Friday's closing price, wiping more than half of the gains made last week. With a number of companies reporting earning this week, we expect to see lots of market gyrations, so sit tight ladies and gents; it is going to be a rough ride.

    Homebuilder Confidence Pullback
    By David Urani

    The NAHB/Wells Fargo Housing Market Index (HMI), a measure of homebuilder confidence, took a hit in April which adds to a somewhat growing sense that housing has hit a bit of a rough patch recently. The index fell to 42 from 44, to its lowest level since October. While they didn't exactly wave red flags the latest data from the likes of new and pending home sales had also stuttered which has some of the investment community buzzing about the recovery stalling. This latest Housing Market Index won't alleviate that feeling.

    Some of the reason for the slide in the index over the past three months has been a lack of available credit holding back construction, and that continued this month. However, this month there was a notable focus on building costs. It seems homebuilders' margins may be being squeezed due to both the price of materials as well as land prices that are appreciating.

    That said, there are a couple of silver linings to note that indicate the latest drop in builder confidence isn't necessarily a huge worry. For one, the sub-index for expected sales over the next six months pushed to the highest level since February 2007, with much of that optimism being driven by a continued lack of inventory out on the market that yields a need for new construction. Secondly, despite the recent slide in the HMI it remains relatively high from a historical standpoint; confidence remains near levels last seen in 2006 whereas actual home sales could still nearly triple before hitting 2006 levels again.

    Essentially what I'm saying is an HMI at this level may still be supportive of further sales gains, using historical trends as a reference. Nevertheless we'll continue to keep a close eye on any additional data, as we also haven't seen much data to disprove the aforementioned rough patch, either. We should be able to get a better idea of where the housing market stands as we get some sales data from the spring selling season.


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