By Carlos Guillen
Investors appear to have become desensitized to positive economic data, as better than expected sentiment results and much better than expected empire manufacturing data failed to lift markets above psychological resistance levels.
Quite encouraging today was that consumer sentiment not only landed higher than expected but also increased for a second consecutive month. The University of Michigan's Consumer Sentiment February preliminary result landed at 76.3, which was higher than the Street's expectation of 73.5, increasing from the 73.8 reached in January. Consumers as a whole are becoming increasingly positive about the economy as equity markets and housing prices are increasing, giving them a comforting feeling of increasing wealth. Contrary to common reasoning, neither the increase in the payroll tax nor the rise in the price of gasoline has been able to knock overall consumer sentiment. Of course, for those making less than $75,000, the story is a bit different, as the these individuals have been hurt by the increase in payroll taxes and are being affected by the increase in the cost of gasoline. Consumers in the lower income brackets are reporting declines in incomes, while those in the higher brackets are reporting increases.
Putting the icing on the cake, the index of expectations six-months from now, which more closely projects the direction of consumer spending, rose to 68.7 in February from 66.6 the month before. What this certainly implies is that consumer spending will continue to grow in the near term, but perhaps at a slower rate as spending by higher income house-holds, especially on interest sensitive purchases of homes, vehicles, and household durables, will keep consumer spending growth alive. On the negative side, it is becoming apparent that overall income gains will be overshadowed by greater inflation rates this year. Consumers expect an inflation rate of 3.3 percent over the next 12 months. Over the next five years, Americans expected a 3 percent rate of inflation, compared with 2.9 percent in the previous month.
On another positive note, manufacturing in the New York region took a rather sharp jump this month. According to the Federal Reserve Bank of New York, its general business conditions index February result landed at 10.0, higher than the Street's consensus estimate of 0.0, increasing from the -7.8 reached in January. Given that readings greater than zero signal expansion, this month's result marks the first month of expansion after in six months of contraction in the region that covers New York, northern New Jersey, and southern Connecticut. Certainly encouraging was that while half of manufactures expect to increase capital spending, the median amount budgeted for 2013 was up 11 percent from what had reportedly been spent in 2012.
Quite surprising, despite the positive economic data points presented today, stocks are still finding difficulty breaking above the infamous 14,000 Dow level, and at the moment the Dow is actually slightly in losing territory.
G20 Downplays Currency War
By David Urani
G20 finance leaders met in Russia today to discuss world currencies, including the prospects of a world "currency war" as central banks around the globe hustle to cheapen their currencies. The interesting thing though is that, much as you hear about currency wars around financial news media, the G20 seems to be downplaying the situation. Several finance ministers apparently feel that central banking actions, particularly in the US and Japan, are in reaction to the economy rather than an effort to devalue currencies and get a leg up on foreign trade.
It seems that perhaps the market is inclined to believe the G20 as gold, silver and platinum are taking hits of almost 2% each. In fact, gold looks keen to test the psychological $1,600 mark although so far today it's failed to break below. Since the beginning of October, gold is down approximately 10%. Perhaps traders are continuing to sense that world banks do in fact intend to slow down quantitative easing efforts in the event that their respective economies improve. And on that note, having used up almost all of their ammo and with the world economy starting to look a little bit better, there is a sense that central banks can really only get more hawkish from here because at the moment they are pretty much pedal to the metal, with an (modestly) improving outlook ahead.