Interest Rate Roundup

Thursday, April 19, 2007

The latest on the yen, the yuan, the economy, housing, and more

Kids sure are resilient -- stomach problems one day ... nothing the next. I love it. Now, let's get down to business. Lots of developments to discuss on the interest rate, currency, and housing fronts this morning. In no particular order:

* The Japanese yen has finally gotten a bit jiggy. It's up for the third day in a row -- about six-tenths of a percent -- following the release of a services sector index. It rose more than expected, reigniting concern that the Bank of Japan will hike interest rates.

* The Chinese economy exploded in the first quarter -- up a greater-than-expected 11.1%. The forecast called for 10.4% growth, in line with what was reported in the previous quarter. That led to concern about more Chinese rate hikes and pushed the Chinese yuan to its highest level since the country began to let its currency climb in July 2005.

* But here in the U.S., the economic malaise continues. Initial and continuing jobless claims, for instance, are holding around multi-week highs.

* In the housing sector, D.R. Horton reported an 85% drop in fiscal second quarter profit, a 37% plunge in home orders, and an $81.2 million charge to write down land inventory and deposits. Pulte Homes said it will lose between 34 cents a share and 38 cents a share in its first quarter. Write downs and charges ranged from $130 million to $140 million, while new orders dropped 21%.

* Interest rates, on the other hand, have seen a sharp decline in the past few days. There's a bit of a flight-to-quality bid coming back in due to the yen rally and the hiccup in Chinese markets tied to the red-hot GDP report. The "tame" CPI also eased inflation fears. Longer-term, however, it's clear that both bond yields and bond prices remain rangebound. Let's call it 110-115 on the continuous long bond future and 4.50%-4.80% or so on the 10-year note yield.

My take on this whole situation? The U.S. is certainly not in recession. But the ongoing problems in housing are acting as a big drag on growth. Meanwhile, global economies are going on their merry way without us and inflation remains above the Fed's comfort level. I've heard the "Stagflation-lite" label bandied about to describe where we sit. I think that's right on target.


Post a Comment

<< Home

Site Meter