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US stock market daily report (January 25, 2012, Wednesday)

Contributed by Millennium Traders

By Millennium Traders

Federal Open Market Committee text released today: “Information received since the Federal Open Market Committee met in December suggests that the economy has been expanding moderately, notwithstanding some slowing in global growth. While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed. Inflation has been subdued in recent months, and longer-term inflation expectations have remained stable. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth over coming quarters to be modest and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that over coming quarters, inflation will run at levels at or below those consistent with the Committee’s dual mandate. To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 0.25% and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability. Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who preferred to omit the description of the time period over which economic conditions are likely to warrant exceptionally low levels of the federal funds rate.”

National Association of Realtors reported December pending home sales fell 3.5% after hitting a 19-month high in November. Pending-home-sales index declined to 96.6, which was 5.6% above December 2010 levels. "Even with a modest decline, the preceding two months of contract activity are the highest in the past four years outside of the homebuyer tax credit period," said Lawrence Yun, NAR's chief economist, in a statement.

Federal Housing Finance Agency reported U.S. home prices rose a seasonally adjusted 1% in November. During 2011, prices are down 1.8%, and are 18.8% below a peak set in April 2007, according to the regulator. For October the index was downwardly revised to a 0.7% decrease from a prior estimate of a 0.2% decline. The FHFA monthly index is calculated using the prices of houses bought with mortgages backed by Fannie Mae or Freddie Mac.

For January, U.S. light vehicle sales are expected to show year-to-year growth. "Retail light-vehicle sales in January are showing stability coming off the 2011 high note in December," said John Humphrey of J.D. Power and Associates. On average, vehicles are remaining on dealer lots for fewer than 50 days, the lowest level for January over several years, a sign that pent-up demand is returning. Market-research company J.D. Power & Associates projects new-vehicle retail sales will increase on a seasonally adjusted annualized basis to 10.9 million units from 10.3 million units a year earlier, but down from 11.3 million units in December. McGraw-Hill unit forecast total light-vehicle sales growth of 6% to 681,000 units for the month which represents a decline of 35% from December. Retail sales for January are projected to rise 7.3% from last year, but decline 30% from December.

In an interview with Spanish daily El Pais on Wednesday German Chancellor Angela Merkel said that as much as the country supports the Europe aid and rescue umbrella, it doesn't have 'unlimited' resources. Merkel said it makes no sense to "promise more and more money, but not fight the causes of the crisis," in response to continued calls for Germany to put up more money to fight the crisis. Merkel also said Germany needs to be careful it doesn't run out of strength, which would not help Europe as a whole. Merkel additionally said that she does not foresee a split in Europe, but recognizes markets are clearly testing the euro zone's will to remain together.

On Wednesday, billionaire investor George Soros warned that the austerity Germany wants to impose on other euro-zone nations 'will push Europe into a deflationary debt spiral'. Germans “have been traumatized by inflation and they don’t understand the threat that deflation can cause,” Soros told reporters at the annual meeting of the World Economic Forum in Davos, “There’s a shift in German thinking recognizing this isn’t working, but we’re quite far yet from abandoning this emphasis on inflation as the only threat to stability.” “The big issue is how does the euro cope with the danger of a Greek default,” Soros said. “Because that is something that is looming — it may or may not be avoided.” High risk premiums on Italian and Spanish bonds threaten the capital adequacy of banks and leave weaker euro-area nations “relegated to the status of third-world countries that became highly indebted in a foreign currency,” Soros said. Instead of the International Monetary Fund, “Germany is acting as the taskmaster imposing tough fiscal discipline,” Soros said. “This will generate both economic and political tensions that could destroy the European Union.”

U.S. Energy Information Administration reported 3.6 million barrel climb in U.S. crude supplies for the week ended January 20. EIA reported motor gasoline supplies fell 400,000 barrels, while distillate stocks dropped by 2.5 million barrels in the latest week. EIA forecast a rise of 2.2 million barrels in gasoline supplies and a decline of 300,000 barrels in distillate inventories.