EmailThe US equity market relented to profit-taking efforts yesterday after EU officials stirred up a hornet's nest with a decision to make an aid package to Cyprus conditional on the country applying a levy on bank deposits to help fund the aid program.
It didn't make any sense yesterday and it still doesn't make sense today. Reports indicate the proposal will not pass a vote in the Cyprus parliament. If so, the island nation will be facing bankruptcy.
Neither situation is a good situation for the eurozone in general or for Cyprus in particular.
Still, global markets have calmed down a bit today. Japan managed to rally 2.0%, mindful it seemed only of a weakening yen. European bourses remain on the defensive, yet losses have been contained with most indices down less than 0.5%.
The US market, frankly, fared reasonably well on Monday, battling back from larger losses to end the session down 0.6%. A good portion of that loss is expected to be recouped at the open today since the S&P futures are trading 0.3% above fair value.
The recognition that participants didn't panic over the Cyprus headlines, and the realization that it should keep the Fed on its current policy course, helped keep profit-taking efforts in check and has provided some underlying support this morning.
Other supportive influences include Meredith Whitney's bullish view on Bank of America's (BAC) stock, news that Boeing (BA) landed a $15.6 bln order from Ryanair, word of a distribution agreement between Amerisourcebergen (ABC) and Walgreens (WAG), and a solid housing starts report for February.
The latter is the only economic release today and it showed that housing starts increased 0.8% from January to a seasonally adjusted annual rate of 917,000 (Briefing.com consensus 911,000). Single-family starts rose 0.5% to 618,000 while multi-family starts jumped 0.1% to 299,000.
Building permits, which are a leading indicator, increased 4.6% to a seasonally adjusted annual rate of 946,000 (Briefing.com consensus 925,000).
Importantly, the number of homes currently under construction rose 2.3% to 575,000 in February. That is the 18th consecutive monthly increase and the largest number of homes currently under construction since September 2009. Since residential investment in the GDP report is counted on a value-added basis, the increase in homes currently under construction should provide a positive contribution to first quarter GDP estimates.
The improvement in the housing market is something the Fed's policy directive tomorrow is likely to call attention to as an encouraging indication that the economy is recovering. At the same time, developments like what we are seeing with Cyprus will be the basis for the Fed's thinking that risks remain tilted to the downside.
The cash market at this juncture, though, remains titled for a higher start.
