Fed Members Show Urgency in Stimulus Measures, Home Sales Revive

Bikram Pandey
22 Aug, 2012
New York City

U.S. indexes hovered near the recent multi-year highs and investors digested the prospects of another round of Fed stimulus and improving existing home sales report. Many members of the rate setting committee prefer to act soon with additional stimulus unless the economy improves considerably.

[R]4:15 PM New York – U.S. indexes hovered near the recent multi-year highs and investors digested the prospects of another round of Fed stimulus and improving existing home sales report. Many members of the rate setting committee prefer to act soon with additional stimulus unless the economy improves considerably.[/R]

Stocks on Wall Street were little changed but held a general negative bias a day after broader indexes reached multi-year highs. Investors focused on the latest minutes of meetings released by the Fed and the existing home sales data from the industry association.

According to the minutes, several members of the rate setting committee at the Fed said a new round of stimulus may be needed soon unless the economic growth revives. Unemployment rate has hovered above 8% since February 2009.

Separately, the National Association of Realtors said existing home sales increased 2.3% in July to 4.47 million annual unit rate from June and surged 10.4% from a year ago rate of 4.05 million in the month.

Median home price increased 9.4% to $187,300 and the monthly price increase was the largest since 10.2% increase in January 2006. Distressed sales in the month decreased to 24% of all sales down from 25% in June and 29% in the month a year ago.

Of the distressed sales, 12% were foreclosures and 12% were short sales, according to the NAR.

U.S. indexes edged lower in the morning after Japan reported larger-than-expected trade deficit and dropped further by mid-afternoon after the latest Congressional Budget Office report indicated that the U.S. economy may slide into a recession if Congress enacts spending cuts and increase taxes as required by the political agreement between the two parties.

Stocks recovered in the late afternoon on the optimism that the housing market is in the slow but steady recovery and on the optimism that the European leaders are working to revive the sovereign bond market in the region.

In corporate news, Health Care REIT agreed to acquire Sunrise Senior Living for $1.9 billion. American Eagle gained after the teen retailer offer higher third quarter guidance and Analog Devices profit declined 23%. Chico’s net jumped 23%. Dell declined on weak sales and outlook. Express net jumped 25.4% and Toll Brothers net income soared 46.3% and lifted other home builder stocks in the industry.

The European indexes declined and Greek prime minister said he is looking for more time to repay debts but the nation is not seeking more money. Heineken first-half revenue rose 5% and Vestas plans to lay off 1,100 employees by September.

Stocks in Tokyo traded lower for the second day and trade gap in July was the twelfth in the last nineteen months as Japan imports natural gas to power electricity generating plants. Exports to Western Europe plunged 28% and slowed to the U.S.

Australian stocks closed lower after the mining giant reported earnings that met expectations. BHP earnings in the fiscal year ending in June declined 35% on nearly flat revenues as the fall in base metal prices and iron ore trimmed record profits from a year ago. Woodside Petroleum reported lower net.

Commodities, Bonds and Currencies

The yield on 10-year bond traded lower to 1.71% and on 30-year bond edged down to 2.82%.

The U.S. dollar inched lower to $1.251 to a euro and increased against the Japanese yen to 78.55 yen.

Immediate delivery futures of Texas crude oil increased 43 cents to $97.22 a barrel and Brent crude added 41 cents to $115.05, futures of natural gas rose 7 cents to $2.85 per mbtu and gasoline price edged up 4.63 cents to 311.12 cents a gallon.

In metals trading, copper increased 1.8 cents to $3.48 per pound, gold added $13.60 to $1,656.50 per ounce and silver increased 33 cent to $29.85.