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While you were sleeping: US housing, Spanish auction

Wednesday 21st December 2011

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Stocks in Europe and on Wall Street rallied, along with the euro, on signs of better-than-expected confidence in Germany and strength in the world's largest economy.

A healthy appetite for Spanish bills also underpinned the mood.

In the US, last month's 9.3 percent jump in housing starts to a seasonally adjusted annual rate of 685,000 units, the highest level since April last year, beat expectations. 

So did the number of new permits for future construction, which rose 5.7 percent to a 681,000-unit pace in November, the best since March 2010.

Investors responded with enthusiasm. In afternoon trading in New York, the Dow Jones Industrial Average climbed 2.44 percent, the Standard & Poor's 500 Index advanced 2.54 percent and the Nasdaq Composite Index jumped 2.83 percent. In Europe, the Stoxx 600 Index ended the day with a 2 percent gain.

"We have been expecting a rally for a couple of days now and finally we got it today," King Lip, chief investment officer at Baker Avenue Asset Management in San Francisco, told Reuters. "I think it will continue into the end of the year, the reason being that the economic data is clearly much better than everyone's expecting."

The euro gained, rising 0.6 percent to US$1.3075 and gaining 0.3 percent to 101.70 yen, amid signs German business confidence is high and another successful debt auction by Spain.

The nation sold 5.64 billion euros of three-month and six-month bills, exceeding a maximum target of 4.5 billion euros, according to Bloomberg News. The average yield on the three-month debt fell to 1.735 percent, compared with 5.110 percent when the securities were last issued on November 22.

“The focus of the market’s attention this morning was clearly the strong Spanish auction results,” Andrew Cox, a currency strategist at Citigroup in New York, told Bloomberg News. “Absent a massive disappointment, the US housing numbers were not going to make a significant directional impact on the market in a week like this.”

German business sentiment soared in December. The Munich-based Ifo think tank said its business climate index, based on a monthly survey of some 7,000 companies, rose to 107.2 in December from 106.6 in November.

Not everyone is that optimistic. Three research groups on Tuesday downgraded their 2012 forecasts for German economic growth, one even forecasting a recession.

Views also differ on the potential for Greece reaching a deal with private sector bondholders, which is crucial to a new bailout package for the debt-laden country.

"We are close to an agreement, I believe that," Greek finance minister Evangelos Venizelos said at a conference today in Athens, according to Reuters.

"I believe that because I have a personal insight into the negotiations and I know this is feasible, provided our institutional partners respect the Oct 26 decision," he said, referring to an agreement by euro zone leaders over a second bailout for Greece.

And evidence of another variation in expectations can be found in commodities.

Speculators reduced bets on commodities to a 31-month low on mounting concern that global economic growth is slowing as Goldman Sachs Group and Barclays Capital reiterated predictions that prices will gain, according to Bloomberg News.

Money managers slashed combined net-long positions across 18 US futures and options by 9.6 percent to 532,521 contracts in the week ended December 13, Commodity Futures Trading Commission data show. That’s the lowest since April 28, 2009. Wagers on gold dropped to an eight-week low and coffee holdings tumbled 60 percent, the most since August, Bloomberg News said.


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