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Archive for February, 2010

Chilean Earthquake Map & Impact on Copper Production

February 28th, 2010 Michael McDonough Comments off

The main port which has been shut down by the earthquake is in Valparaíso just west of Santiago.  The Codelco copper mine impacted is 50kms north of Santiago in Andina, and produces an estimated 600K tons per year.  Codelco’s other mines in northern Chile are reported to be operating normally.  Anglo American Plc reported yesterday its Los Bronces and El Soldado mines were closed; together these mines produce about 280K tons a year.  Bloomberg is reporting that the mines effected account for approximately 16% of Chile’s copper production. Refineries have also been impacted by the earthquake.  It has been reported that Chile will begin importing diesel to support the domestic supply. 


View Chile Earthquake helpful information in a larger map


Copper Futures:

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Existing Home Sales Moving Back To Pre-Tax Credit Levels?

February 27th, 2010 Michael McDonough 1 comment

The chart below illustrates how existing home sales appear to be pulling back to levels that would have been expected without a surge in demand stemming from the first time home buyer tax credit, despite the programs extension/expansion.  This could be an indication that housing demand was mostly sopped up by the original tax credit, leaving few buyers in the market to take advantage of the new program.  The sector could face additional strife over the months ahead as mortgage rates are generally expected to rise once the Fed stops purchasing MBS at the end of March.  Whether or not the government’s new tax credit will drive a new set of buyers into the market is yet to be seen, but January’s pending home sales (Thursday 10:00AM EST) could provide some clues toward the strength or weakness in home sales over the next couple months.

Existing Home Sales

Source: Bloomberg

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‘23,000 now expected to lose jobs after shuttle retirement’

February 26th, 2010 Michael McDonough Comments off

Here is an interesting read regarding job losses due to the space shuttle’s retirement:

http://www.floridatoday.com/article/20100226/NEWS0204/2260321/23-000-now-expected-to-lose-jobs-after-shuttle-retirement

The unemployment rate in Florida is already running well above the national average:

Source: Bloomberg

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Bumpy Road Ahead For Housing

February 26th, 2010 Michael McDonough Comments off

This morning’s disappointing new home sales release for January reiterates the trend I outlined in my piece published on Real Money this morning titled ‘Housing Recovery Starts to Buckle’. I continue to believe housing will face a number of hurdles this year, and is unlikely to enjoy anything more than a modest, though bumpy, recovery.

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Jobless Claims Hit a Roadblock

February 25th, 2010 Michael McDonough Comments off

What had been an improving trend in initial jobless claims has hit a roadblock with claims rising this morning to by 22K to 496K .  Recent volatility can be attributed to everything from weather to a backlog of claims in California, but in the end still points to further deterioration for the monthly employment report.  Typically, initial claims would need to fall to a level below the 400K to in order to support gains in non-farm payrolls.  Prior to December most believed this would be a reality in the near-future, but with claims now struggling to move below 450K the market will have to wait.

Unfortunately, the same bad weather that impacted claims in February will likely have a similar impact on the month’s payroll data.  In January payrolls declined by -20K, and I expect this decline will be even greater in February.  I expect the market will need to wait yet another month before receiving data supporting a nascent recovery for the labor sector.

Initial Claims vs. Unemployment Rate

Source: Bloomberg

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A Bad Day for New Home Sales

February 24th, 2010 Michael McDonough Comments off

January’s record low new home sales data has made it fairly obvious the government’s extended/expanded home buyer tax credit has yet to have a significant impact on the sector.  The pace of new home sales plummeted by 11.2% to a level of 309K in January.  The months supply of new homes rose sharply reaching 9.1 months, versus 8.0 months in December. The median new home price in January fell to $203,500 from $215,600 .  (See Charts)

New Home Sales vs. Months Supply

Source: Bloomberg

Median New Home Price vs. Unsold Homes

Source: Bloomberg

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Housing Market Faces Headwinds

February 23rd, 2010 Michael McDonough Comments off

This morning the Case-Shiller HPI dropped by -1.1% in Q4 on a non-seasonally adjusted basis. The index was down -2.51% on an annual basis. This compares to a 3.31% quarterly rise in the third quarter.  I continue to believe that housing prices will come under continued pressure throughout 2010 after the expiration of the government’s new extended/expanded home buyer tax credit and upward pressure on mortgage rates as the Fed cease buying agency MBS.

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What To Look For This Week

February 22nd, 2010 Michael McDonough Comments off

This week I am going to keep a close eye on several housing reports, which include January’s new (Wed) and existing (Fri) home sales along with December’s Case Shiller HPI (Tue)–December is the first month after what would have been the expiration of the first time home buyer tax credit.  December’s home prices likely came under continued pressure, while January’s home sales data should show at least a modest bounce after their sharp declines in December stemming from the would-be expiration of the tax credit.

I will also be watching a slew of manufacturing releases including three regional Fed surveys–together these surveys can provide some insight on the month’s ISM–and the durable goods orders report (Thu).  I anticipate that all should be positive excluding the Richmond Fed survey.

This week’s biggest news will likely culminate in a flurry of Fed speeches culminating with Chairman Bernanke’s semi-annual monetary policy report to Congress (Wed).  But, given his recent House testimony, coupled with the FOMC minutes he may not have many surprises left to deliver in this week’s testimony.  Nevertheless, markets will be keeping a very close eye on what he has to say, and any comments related to the timing of tightening will likely impact the market.  There are also several other key important Fed speeches this week that could drive some headlines.

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No Surprise, Fed Raises Discount Rate

February 18th, 2010 Michael McDonough Comments off

Chairman Bernanke recently indicated that the Fed was considering an increase in the discount rate, which tends to mean it is going to happen and soon.  It happened, the Fed this evening announced an increase in the discount rate to 0.75% from 0.50%, moving it closer to its pre-crisis spread to the Fed Funds Rate of 100bps.  Undoubtedly, this is a prelude to additional less accommodative monetary policies, which will likely begin with the end of quantitative easing at the end of this quarter, followed the by eventual sale of assets from the Fed balance sheet, and eventual rate hikes for both the target rate and interest on excess reserves.  I do not anticipate we will see a hike in the benchmark rate until at least November of this year, given what I anticipate will be tepid growth and high unemployment.

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Categories: Fed News, US Tags: ,

Limited Updates This Week

February 16th, 2010 Michael McDonough Comments off

I am on vacation in Seattle this week, and will have a limited number of updates on Fiat and Twitter.  Please contact me with any questions or recommendations on restaurants or bars (with good beer selections) in the Seattle/Redmond area.

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Categories: US Tags: