New Home Sales Sink, Will Taper Be Delayed?

The dreaded taper of the Federal Reserve’s bond-buying program was back in the spotlight on Friday after some really bad economic news from the Commerce Department’s Census Bureau raised hopes that the Fed would not initiate the taper in September.

The Census Bureau reported that new home sales sank in July to a seasonally-adjusted annual rate (SAAR) of 394,000 from 455,000 in June. Beyond that, the June figure was revised downward by 8.4 percent from the previously-reported 497,000. Economists were expecting July new home sales to dip to only 487,000 from the initial June figure of 497,000. Worse yet, the May figure was revised down to a SAAR of 439,000 from the previous report of 459,000. Not to be ignored, April also earned a downward revision to 446,000 from 453,000.

Because new home sales are so important to the American economy, investors became hopeful that the bad news would discourage the Fed from initiating the taper of its bond-buying in September. With nearly all of the Federal Reserve Board members (except Ben Bernanke) in attendance at the Jackson Hole Economic Policy Symposium, three regional Federal Reserve Bank presidents were pressed for their opinions about the September taper. James Bullard of St. Louis (an FOMC voting member) explained that he is in no hurry to begin tapering. John Williams of the San Francisco Fed (successor to Janet Yellen) expressed his opinion that the taper should begin “later this year”. Atlanta’s Dennis Lockhart appeared more enthusiastic about initiating the cutbacks in September.

The Dow Jones Industrial Average (DIA) picked up 46 points to finish Friday’s trading session at 15,010 for a 0.31 percent advance. The S&P 500 (SPY) rose 0.39 percent to close at 1,663.

The Nasdaq 100 (QQQ) surged 0.72 percent to finish at 3,124. The Russell 2000 (IWM) advanced 0.20 percent to end the day at 1,038.

In other major markets, oil (USO) jumped 1.09 percent to close at $37.95.

On London’s ICE Futures Europe Exchange, October futures for Brent crude oil advanced by $1.15 (1.05 percent) to $111.05/bbl. (BNO).

December gold futures advanced by $26.90 (1.96 percent) to $1,397.70 per ounce (GLD).

Transports were stuck in first gear during Friday’s session, with the Dow Jones Transportation Average (IYT) advancing 0.05 percent.

In Japan, stocks soared as the yen weakened to 99.09 per dollar during Friday’s trading session in Tokyo. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (FXY). Toyota’s share price jumped 2.8 percent as the automotive and electronics sectors led the day’s advance. The Nikkei 225 Stock Average skyrocketed 2.21 percent to 13,660 (EWJ).

In China, stocks retreated from an early advance, due to worries that another credit crunch could be on the way as banks fulfill their own obligations which arise at month’s end. The seven-day repurchase rate rose, enhancing concerns about liquidity. The Shanghai Composite Index declined 0.47 percent to 2,057 (FXI). Hong Kong’s Hang Seng Index dipped 0.15 percent to end the session at 21,863 (EWH).

European stocks finished the week in positive territory following a trio of upbeat economic reports (VGK). The European Commission reported that the August flash reading on its Eurozone consumer confidence indicator rose to a “less bad” negative 15.6 from July’s 17.4. For the greater, 27-nation European Union, consumer confidence rose to negative 12.8 from July’s negative 14.8.

In Germany, Destatis reported that the nation’s GDP expanded by 0.7 percent during the second quarter. The reading was consistent with economists’ expectations (EWG).

Britain’s Office for National Statistics reported that its second estimate for the nation’s second-quarter GDP was revised upward by 0.1 percent from the initial reading to 0.7 percent quarterly expansion (EWU).

The Euro STOXX 50 Index finished Friday’s session with a 0.49 percent advance to 2,826 – climbing further above its 50-day moving average of 2,715. Its Relative Strength Index is 58.62 (FEZ).

Technical indicators revealed that the S&P 500 closed above its 50-day moving average of 1,659 after finishing Friday’s session with a 0.39 percent advance to 1,663. At this point, bears are watching the formation of a head-and-shoulders pattern on the S&P chart, from the period beginning in early May. (There already is a pinhead-and-shoulders pattern running from the period beginning on July 10 through August 16.) Its Relative Strength Index rose from 43.49 to 46.72. The MACD is below the zero line as well as the signal line, suggesting a decline.

For Friday, all sectors were in positive territory. The utilities sector took the lead, with a gain of 0.83 percent.

Consumer Discretionary (XLY): +0.02%

Technology: (XLK): +0.72%

Industrials (XLI): +0.02%

Materials: (XLB): +0.81%

Energy (XLE): +0.71%

Financials: (XLF): +0.10%

Utilities (XLU): +0.83%

Health Care: (XLV): +0.26%

Consumer Staples (XLP): +0.58%

Bottom line: Bad economic news was again good news for investors on Friday as the downbeat report on July New Home Sales from the Census Bureau raised hopes that the Fed would delay the taper of its bond-buying until after September.

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