Hawkish Fed Minutes Cause a Vicious Stock Sell-Off

By Minyanville Staff  FEB 20, 2013 5:40 PM

Today's financial recap and tomorrow's financial outlook.

 


Morning economic data in the form of housing starts showed a sharp increase, but this was mainly attributed to an erratic month-to-month decline in multi-family housing starts. Housing starts declined 8.5% MoM to a seasonally adjusted annual rate of 890,000 in January from a revised higher 973,000 in December. Building permits, on the other hand, showed a nominal 1.8% MoM increase to a seasonally adjusted annual rate of 925,000 from 909,000 last month.

Early in the day, precious metals and commodities as a whole sold off sharply with palladium reaching a low of -4.2%. The drop was attributed to negative comments from BHP Billiton (BHP) regarding moderating commodity demand from China following the Chinese New Year. Trading volume in precious metals on the COMEX exchange was more than double its daily average.

The minutes from the January FOMC meeting were the highlight of the day. The minutes showed dissension amongst the committee members and unease over the costs and results of further asset purchases. Committee members also explored the potential for tapering monthly purchases as economic conditions improved. The takeaway from the minutes was a more hawkish Fed, and the stock market reacted accordingly. Precious metals and stocks sold off sharply in response to the minutes while Treasuries and corporate bonds remained relatively unchanged.

In the morning, Office Depot (ODP) finalized its purchase of OfficeMax (OMX) at $13.50 per share. OfficeMax shareholders will receive 2.69 shares of Office Depot in the acquisition.

Tomorrow's Financial Outlook

Tomorrow we expect more economic data. The weekly jobless claims data will be released in the morning with economists expecting a rise to 356,000 from last week's 341,000. For the YoY change in the Consumer Price Index (read: consumer inflation), economists are expecting a slight decline to 1.6% in January from 1.7% in December. The regional Philadelphia Fed manufacturing survey is expected to show an expansion reading of 1.0 in February, up from January's decline of -5.8. Lastly, existing home sales should continue the string of disappointing home sales data, declining to an annual rate of 4.90 million in January from 4.94 million in December.

Globally, the eurozone is set to release the first estimate of its February services PMI in the morning as well as public sector net borrowing in the UK. The eurozone index is expected to show a small increase to 49.0 from last month's 48.6.

It will be a very busy day in earnings tomorrow. The notable reports include Carlyle Group (CG), Chesapeake Energy (CHK), Wal-Mart (WMT), Linn Energy (LINE), Hewlett-Packard (HPQ), AIG (AIG), Newmont Mining (NEM), and Aruba Networks (ARUN).

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No positions in stocks mentioned.

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