Markets Back in Action After MLK Holiday - Corporate Earnings Ahead

Jan. 18, 2011 - PRLog -- Markets get back at it today after the MLK holiday, with the meat of corporate earnings season upon us. The positive trend for equities continues, with the S&P 500 up 3% in two weeks and Treasuries modestly higher as well. This price action and the data lead many to believe that the U.S. is favorably positioned to rally further from here. The data for the week was good but not great. Inflation, as gauged by the PPI and CPI, came in higher than expectations on the headline prints as energy prices increased, while core readings were still rather benign. Retail sales growth was positive for the month but fatigued compared to the pre-holiday sales fever pitch from November. Industrial production remained strong on the back of utilities output due to cold weather, and business inventories rose but missed expectations. The Fed's Beige Book report from its 12 districts echoed the trend of prior reports, noting decent expansion in manufacturing and retail and continued softness in real estate and financial services. The hole left by a lack of new single family homes appears to be getting filled by a burst in multifamily projects, and employment is anecdotally firming. Price pressure is being exerted by input costs like agricultural products, metals, building materials, and petro-chemicals, the report noted. In the international trade report, the deficit narrowed to $38.3 billion for December as the energy import imbalance declined. Initial jobless claims were up to 445k, although holiday administrative backlog may have pushed some claims into the new year to account for the uptick. European credit markets remain choppy, with Spain, Portugal, and Belgium now looking to forego the typical reverse dutch bond auction, instead opting to have banks syndicate their sales, which may reduce pricing and transparency but also take the risk of auction failures off the table. In other troubling global events, food riots are becoming increasingly prevalent in developing nations with the huge run-ups in grain prices, including in Tunisia, where the president was ousted and fled the country.

A quiet week of data in the next four days will bring new readings on housing and manufacturing. Today we see the Empire State Manufacturing Survey and Friday the complement from Philadelphia. We also see the Leading Indicators report on Friday, which provides a broad gauge of economic activity and is expected to increase 0.6% MoM after jumping 1.1% in November. On the housing front, the Housing Market Index from NAHB and housing starts are reported and expected to remain flat on the month, while existing home sales are reported on Friday and are expected to increase to 4.9 million units sold on an annualized basis after a 6% rise in November. TIC data, which shows foreign demand for U.S. Treasuries and other domestic assets, were up a sizable $85 billion on the month, with the biggest jump coming from investors in the United Kingdom.

The 2011 Cardea Partners Interest Rate Forecast can be found at the firm's website here: http://www.cardeapartners.com/blog/2011-interest-rate-fo ...

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Cardea Partners is a derivatives and debt advisory firm serving the unique needs of corporate, real estate, Native American, not-for-profit, and municipal entities. Registered with the Securities and Exchange Commission (SEC) and Municipal Securities Rulemaking Board (MSRB) as municipal advisors, our firm is comprised of highly experienced derivatives professionals, sharing a combined 45 years in the industry and having executed over $1 trillion notional in derivative contracts. Our time spent on the trading floors of major financial institutions allows Cardea to stand beside our clients with comprehensive insight into their banking relationships and the market of products available to manage exposures and limit expenses.