FOMC Status Quo Not Good Enough for Stocks
And architects warn commerical real estate will continue to weaken.
Fed Statement Is Status Quo as expected
The FOMC suggests that economic activity is picking up as the deterioration of the labor market abates. The Fed says that the housing sector shows some signs of improvement, and household spending is expanding. But the Fed admits that this is in the context of a weak labor market, modest income growth, lower housing wealth, and tight credit.
This muted upbeat commentary is more than offset by the fact that businesses are still cutting back on fixed investments and are reluctant to add to payrolls. The Fed says that financial market conditions have become more supportive of economic growth.
The Fed also says that economic activity is likely to remain weak for a time, and they predict that inflation will remain subdued. Thus the Fed reiterated that the zero to .25% federal funds rate will be needed for an extended period. I guess economic activity is improving but it, at the same time, is weak. Hmm!
Quantitative easing will sunset at the end of the first quarter of 2010 as expected and several of the Federal Reserve Credit Facilities will expire on February 1, 2010.
The American Institute of Architects Billings Index declined to 42.8 in November from 46.1, which is the worse reading in three months. A reading of 50 means steady commercial real estate activity. This index is said to be a leading indicator in terms of demand for commercial buildings, and thus commercial real estate activities will be a drag on the economy, and that uncertainties are leading to project cancellations.
Commercial loans declined $163.5 billion since the end of 2007, down 11.4%. This loan category is deteriorating at an accelerating pace down $89.1 billion in the third quarter to $1.276 trillion. This was a sequential decline of 6.5% and 15.1% year over year versus 8.4% in the second quarter year over year.
The FDIC to Give Banks a Break in Implementing New Accounting Standards
Those FASB rules that began on December 15 will be allowed to slide until mid-2011. This means that banks can phase in the mark-to-market rules where toxic assets in off-balance-sheet trusts must return to bank balance sheets. This process will require many banks to raise fresh regulatory capital.
The Daily Charts for Gold, Crude Oil, the Dollar Index, and the Euro
Gold is oversold with the 50-day simple moving average at $1111 and the 21-day at 1159 around that quarterly pivot at $1135. (Charts courtesy of Thomson / Reuters.)
Crude oil has rising MOJO after holding my annual pivot at $68.81, as my weekly resistance at $72.13 becomes a pivot. The 200-day is $66.03 with the 21-day at $74.67.
The Dollar Index is overbought with the 50-day simple moving average at 75.77 with my quarterly resistance now in sight at $78.64.
The euro is extremely oversold and is below today's pivot at 1.444. The 200-day simple moving average is 1.417 with weekly resistance at 1.475. The dollar bottomed on Thanksgiving.
The weekly chart for the Dow shows an overbought condition since mid-August. The five-week modified moving average is support at 10,277 with the down trend resistance at 10,520. The bulls tried to press the upside following the Fed Statement on Wednesday, but the breakout didn't follow.
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