European Closing Thoughts: Will US Housing market be the driver?

Let's start reviewing the Macro data:

Housing starts increased 15 percent last month to a seasonally adjusted annual rate of 872,000 units, the Commerce Department said on Wednesday. That was the quickest pace since July 2008, though data on starts is volatile and subject to substantial revisions.  Expectations were for 770,000 units previous reading was 758,000.

As we said in the MidSession Review traders were looking for confirmation: the data showed that housing market is one of the brighter spots in the economy. The question is: Will the housing market alone be able to sparkle a sustainable growth path?

By the way for the housing market turnover investors should prize the Fed's efforts to lower borrowing costs, which have pushed interest rates on 30-year mortgages to all time lows. The Mortgage Bankers Association said last week that fixed 30-year mortgage rates averaged 3.57%

Theorists estimate that for every new house built at least three jobs are added, it means that home building can compensate part of the weakness in factory output, which is mainly due to sluggish export demand and cooling investment in capital good.

The data supported the long side of the market: the S&P500 rose 0.34% to 1,459.86, the Nasdaq traded 0.24% higher while the DJIA was unable to make the flat line trading 0.07% lower to 13,542.60 as disappointing results from IBM and Intel weighted on the benchmark.

Intel fell 2 percent after forecasting a fourth-quarter gross margin that missed analysts' estimates. International Business Machines slid 3.8 percent after reporting third-quarter revenue that trailed analysts' projections.

European markets powered to three.week highs today towed by the banking sector and by the Spanish markets.The Ibex index rose 2.37% to 8,128.20, the Italian Ftsemib followed the same path rising 1.56% to 16,233.84. The broader Stoxx50 gained 0.86% to 2,569.83 while the German Dax was unable to rise more than 0.25% to 7,394.55.

Money that were set aside for better times in Europe have been put to work in the past few days just ahead of the European leaders' meeting. The meeting gave the boost to the common currency which in the past few days has been on fire. The euro jumped as high as $1.3137 today, its highest level since Sept. 17. It changed hands in recent action at $1.3121, still up solidly from $1.3051 in North American trade late Tuesday.

It looks like someone is expecting a major breakthrough at tomorrow meeting, are this expectations well placed?

In the mean time Spain's 10-year bond yield fell to a six-month low around 5.46%. The cost of insuring Spanish government debt against default using instruments known as credit default swaps dropped Wednesday to its lowest level since July 2011, according to Markit. Therefore once the Moody's overhang has been put away investors jumped into the Spanish Bond Market.

Now there is something unclear: few weeks ago we were rising whenever the news was bringing Spain near the bailout request, and as per Rajoy words Spain will request a bailout when it will lose access to Capital Markets, now with the Moody's overhang cleared out and Spanish yields to a six month low the bailout is further away, and the market prized the move. Conclusion we are in a situation where nothing really changed from a fundamental point of view, the Spanish Dilemma is still unresolved, and we are assisting to a change in the investment hypothesis.

Gold future for December delivery rose 0.4% to $1,752.80 an ounce as the dollar lost ground versus the common currency, the dollar behaviour was unable to support Oil futures which fell below $92 a barrel pressured by a bigger than expected rise in last week's US crude inventories. Crude for November delivery fell 0.20% to $91.92 a barrel on Nymex. Prices were trading around $92.64 shortly before the U.S. Energy Information Administration reported that crude supplies rose by 2.9 million barrels. Analysts polled by Platts expected a 1.5 million-barrel increase in crude supplies. The American Petroleum Institute late Tuesday had posted a 3.7 million-barrel rise in last week's inventories.

We got a short night ahead, Chinese GDP and Chinese Industrial Production will keep world wide traders awake, will the Chinese Time Bomb explode? or will it offer support to those thinking that the worst is now behind us?

Let's close the post with Fed's Williams words just released:

I'm actually quite worried about Europe over the next few years…Whenever I hear the expression ‘kicking the can down the road,' I think of a snowball rolling downhill.

Originally posted at www.77sigmatrading.com