Although today’s US economic data did not present an uplifting picture, riskier assets which in included the equity markets, and commodities continued to rally today. The dollar continues to climb against most major currencies, and the correlation between the equity markets and the movement in riskier currencies has seemed to have broken down. The S&P 500 Index closed up 8 points to 1174 making a new 52 week high.
In US economic news, Sales of existing homes fell a third time in a row during February, but the decline was less than expected, spurring hope for a turnaround in the spring. Home re-sales tumbled by 0.6%, to a 5.02 million annual rate from an unadjusted 5.05 million in January, according to the National Association of Realtors. Economists surveyed expected sales last month to decrease 2.0%, to a rate of 4.95 million. The median price for an existing home was $165,100 in February, down 1.8% from February 2009.
Germany on Tuesday set conditions for participating in a Greek aid package, including the “necessary” involvement of the International Monetary Fund, but again insisted an agreement wouldn’t come out of a meeting of European Union leaders this week. A German official, speaking anonymously to discuss the government’s position, said Greece could receive aid only as a “last resort” and under three tough conditions: a “substantial contribution” from the IMF; proof that Greece had exhausted its ability to borrow on the capital markets; and an EU commitment to pursue rigorous new preventive measures and sanctions to keep euro-zone countries from racking up excessive debts. The tough position by Germany could create issues for a Greek rescue package. The Euro is continuing to test support levels at the lower end of the current range. A break through support at 1.3435 would push the EUR/USD to the 1.29 level.
In the UK, inflation data made the headlines. The key take away is that inflation pressures were slightly less than expected and BOE Governor King does not have to write an explanatory letter to Darling as he did in December and January. The headline CPI rose 0.4%, slightly less than the market expected. The year-over-year rate slipped for the first time since last September (3.0% vs. 3.5% in January). Core inflation, which in the UK excludes energy, food, alcohol and tobacco, slowed to 2.9% from 3.1%. Core measures of inflation are generally soft throughout the major industrialized countries. The ease in inflation data allow the pound to slip against the dollar.
Tomorrow the markets will be watching the European Monetary Union PMI and the US Durable Goods Orders.