\n\tBy Greg Peel<\/p>\n
\n\tThe Dow fell 108 points, or 0.8%, while the S&P fell 1.2% to 1512 as the Nasdaq<\/span> dropped 1.5%.<\/p>\n \n\tUS housing starts fell by 8.5% in January which on face value looks like a weak result. But if one digs down one finds that the numbers are all pretty healthy for what is one of the most important drivers of US economic growth.<\/p>\n \n\tThe number of new housing starts in January was 890,000, which was lower than prior estimates of 914,000 suggested after a December result of 954,000. Yet last night the December result was revised up 973,000, so there’s a bit of yin and yang in these rather volatile stats. The vast bulk of volatility comes from the very lumpy apartment block component vis<\/span> a vis<\/span> the much smoother single home component. Apartment block starts fell 25% in January, while single home starts rose 1.8%.<\/p>\n \n\tEconomists are more inclined to ignore the apartment number (it could bounce back 25% this month) and concentrate on the more indicative single home number, and the bottom line is single home starts are up 24% year on year. That one figure alone arguably represents not only the US housing recovery, but also a good deal of the US economic recovery and thus the stock market rally as a risk-on incentive. Extra sugar was added in the form of the January building permits number (permits precede starts), which at 925,000 are at the highest level since June 2008.<\/p>\n \n\tThe peak in the housing starts number came in 2006, at 2.3 million. But as was proven shortly afterwards, that way madness lies. A more subdued but steady increase is now more welcomed.<\/p>\n \n\tWall Street absorbed the housing numbers without much reaction in the morning session as all were waiting to read the Fed minutes, due for afternoon release, to hopefully learn more about the potential timing of a QE exit. What Wall Street learned is that there is very little agreement within the FOMC<\/span>. Cue the floodgates.<\/p>\n \n\tAt present the Fed is committed to buying US$85bn<\/span> of bonds per month (QE3<\/span>). The funds rate is to be held at near zero until the unemployment rate drops to 6.5%. There are those in the market, and as the minutes showed also in the Fed, who are worried about inflation. If the US economy is improving, then it makes sense to back off the juice. To that end, the FOMC<\/span> is set to “review” its QE program at the next meeting in March.<\/p>\n \n\tThe review will not result in that US$85bn<\/span> figure rising. It may remain the same, but there’s every chance it might fall in the months ahead. Given some in the FOMC<\/span> suggested at the February meeting that the central bank “promises” not to sell its assets too quickly when the time comes, and that buying should be tapered off gradually rather than suddenly, Wall Street only saw the potential for a rollback of QE3<\/span>. An easing in the easing.<\/p>\n \n\tHaving said that, there was a warning within the FOMC<\/span> not to roll back too quickly and thus risk killing the recovery, and finally a suggestion that maybe each month’s purchase figure should be individually considered each month. The members have been asked to prepare their submissions for the March meeting.<\/p>\n \n\tLast year Ben Bernanke publicly admitted he was nervous because what he was doing had never been done before. It is de rigeur<\/span> to have the odd dissenter in the FOMC<\/span> ranks at meeting time, but these most recent minutes paint a picture of a committee lost in unchartered seas. But there is no precedent, and everyone in the market has a strong view one way or the other. The whole world is unsure.<\/p>\n \n\tAt the very least, it was a good excuse to sell. Did anyone say pullback? Clearly the Dow broke back down through 14k<\/span> last night, but the price to watch will be the 1500 break-up level on the S&P 500 (closed at 1512). If that fails to hold, then it’s on for real.<\/p>\n \n\tThe US dollar index jumped on the housing data and jumped again on the thought of a QE3<\/span> rollback, to be up a substantial 0.8% to 81.08. It was the last straw for an already wobbly gold market, which has been trading on weak technicals<\/span> in recent sessions. Those technicals<\/span> became even weaker last night when gold experienced a “death cross” (50-day moving average breaches the 200-day moving average to the downside) and gold fell US$33.40 to US$1571.40\/oz.<\/p>\n \n\tNor was the Aussie spared, falling a full cent to US$1.0246.<\/p>\n \n\tSteady growth in US housing starts should be positive for base metals, but a stronger greenback is not. On balance, base metals fell another 1-2% in London to continue their weaker trend. The oils have been holding up fairly defiantly but progress now seems to have been made in talks with Iran, and it appeared last night a commodity fund dumped out of a large WTI<\/span> futures position ahead of the March contract expiry. Throw in the strong dollar and West Texas fell US$1.86 to US$94.80\/bbl<\/span> and Brent fell US$1.73 to US$115.60\/bbl<\/span>.<\/p>\n \n\tIron ore plays its own game, and it was up another US90c<\/span> to US$158.90\/t.<\/p>\n \n\tThe ASX<\/span> 200 has rattled through 5000 like a steam train on the strength of positive earnings results and yesterday briefly traded over 5100 before settling back slightly.<\/p>\n \n\tIt’s another big day of earnings results today, but with the SPI<\/span> Overnight falling 25 points or 0.5%, it might just be a session in which any more positive earnings news gets lost in the wash. Or maybe we can hold up in defiance of Wall Street. I’m not prepared to bet, but the air has become a little thin.<\/p>\n \n\tWe also have the HSBC flash estimate of China’s February manufacturing PMI out today, followed by similar numbers from the eurozone<\/span> and US tonight. The US CPI is also out tonight, which might be interesting given all the inflation talk.<\/p>\n \n\tBefore then we’ll see earnings reports from AMP ((AMP)), Brambles ((BXB<\/span>)), Fairfax ((FXJ<\/span>)), IAG<\/span> ((IAG<\/span>)) and Origin Energy ((ORG)), just to name a few.<\/p>\n \n\tRudi will appear on Sky Business at noon today. \n\tAll overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX<\/span> and more available in the FNArena<\/span> Cockpit. Click here<\/a>. (Subscribers can access prices in the Cockpit.)<\/em><\/p>\n \n\tAll paying members at FNArena<\/span> are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.<\/em><\/p>\n
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