What Wall Street economists and strategists had to say about key developments on Apr. 23
Businessweek.com compiles comments from Wall Street economists and strategists on the key economic and market topics of Apr. 23. Kim Whelan, Wells Fargo Securities Sales of new homes rose nearly 27% to an annual pace of 411,000 units in March. Relatively better weather helped move the pace of sales above the record low set in February. On a percentage basis, this is the largest gain since the 1960s, but on a level basis, sales remain extremely low. Sales gains in the South are supporting the headline, contributing 231,000 units sold at an annual pace. [The months' supply of unsold homes] improved. Median prices fell more than 3% in March, reflecting in part the influence of the first-time home-buyer tax credit—the timeline will boost contract signings through April. The Federal Reserve's program to purchase agency mortgage-backed securities ended on Mar. 31, and rates have already moved higher, which could dampen sales in the near term as financing becomes more challenging. David Wyss and Beth Ann Bovino, Standard & Poor's New orders for manufactured durable goods fell 1.3% in March, but shipments rose 1.2%. The consensus was for a 0.3% rise in durable orders. Most of the decline was caused by a 67.1% plunge in orders for new civilian aircraft, finally dropping back after two huge back-to-back increases in January and February (134.9% and 32.7%, respectively). Excluding transportation, orders were up 2.8%. We had expected aircraft orders to drop back to earth, but it is always hard to estimate timing; orders were still up 71.6% from a year earlier for the first quarter as a whole. Outside of airplanes and defense (down 4.0%), orders were strong, with nondefense capital goods excluding aircraft up 4.0%. Motor vehicles rose 2.5%. The 1.2% rise in shipments was spread throughout the sectors, with transportation up 1.9% and nondefense capital goods ex. aircraft up 2.2%. Orders are up 11.6% from a year ago for the first quarter, while shipments are up 3.1%, showing the continuation of the manufacturing recovery. The headline drop is misleading, since it was caused entirely by the volatile aircraft and defense segments. Win Thin, Brown Brothers Harriman There are reports German Finance Minister [Wolfgang] Schaeuble tried to attach the authorization for the Greek backstop facility in order to speed up implementation. However, this path reportedly was blocked and his fallback plan is for a parliamentary meeting on Monday [Apr. 26]. This would seem to lend support to ideas that the IMF's part of the facility may be exercised first. Developments do highlight the fact that EU aid is still progressing at a snail's pace. German Chancellor [Angela] Merkel's CDU Deputy Parliamentary Head [Michael] Meister said that it will wait for EU/IMF talks with Greece to end before pushing for a "transparent and quick procedure" to get the aid through parliament. Those talks were originally planned to go on for a couple of weeks, but this week's developments should see those talks end within days. Schaeuble reportedly said earlier this week that his government could get the necessary Greek aid legislation through parliament within about 10 days. Newswires report that a group of German academics are already preparing a legal challenge to the aid bill, and will mount it once the bill passes. Despite all the risks of delay, Greece theoretically does not need the funds until closer to mid-May. Dan Wantrobski, Janney Montgomery Scott With the positive technical developments of March propelling us into the second quarter, we still believe the S&P [500 index] is likely to achieve a 61.8% retracement of the entire 2007-2009 cyclical bear market this year. Of course, with the index already trading north of 1,200, a target of 1,220-1,250 may seem a bit conservative at this point. Nonetheless, it could prove a ceiling (at least temporarily) for the stock markets—which remain overbought on a short-term basis. Breaking through this 61.8% retracement barrier in the months ahead would be yet another bullish development, which could then trigger a 76.4% retracement of the 2007 bear [market].