Morning Economic News - January 27, 2009

Commentary and Overnight Trading

While investors were understandably excited over the double upside surprise Monday - actual increases in both the Existing Home Sales Index and the Leading Index - there are a few notes of caution appropriate going into Tuesday. First, the big housing indicator due out Tuesday is the Case-Shiller Price Index, which is very unlikely to post an upward surprise. The Existing Home Sales report showed a fairly sizeably month-to-month drop in home prices and the Case-Shiller index, which focuses on the most overheated big metro markets has performed worse on prices than the existing home sales report for several months. It's doubtful that the trend is going to reverse right now. Second, that increase in the Leading Index was driven heavily by Federal Reserve actions which boosted two components of the index directly, the money supply and the interest rate spread. There was very little evidence that those actions had bled through to affect other leading indicators and no indication that there were any current effects, as the Coincident Index fell 0.5%.

On the other hand, the Existing Home Sales report is usually considered a lagging indicator. In normal times, this would mean that existing home sales would not start to rise until after the general economy was beginning to recover. Because this recession is driven so heavily by the housing market, that probably doesn't apply completely, but it is still reason to consider the good news especially good.

Oil markets seem to be liking the news, with the futures price north of $46 in spite of the dollar rising against the yen and the Canadian dollar. The dollar had risen against the pound and euro earlier, but is currently down a quarter to half percent against those currencies. [1:02 AM Eastern] Japan's Nikkei index is up more than 5.5% with an hour and a half left to the close. US stock market futures are up more than 1% for the three major indexes.

Monday's Economic Numbers

Existing Home Sales - December 2008

• Total Existing Home Sales Annual Rate: 4.74 million units


• Monthly Change: Up 6.5%

Leading Index - December 2008

• Leading Index: Up 0.3%


• Coincident Index: Down 0.5%


• Lagging Index: Down 0.4%

What I'm Reading

Goldman Sachs: Economy Looks Bad for 2010. Sorry, Democrats.

Big Mideast Funds Scale Back

Sovereign wealth funds, among the stars of last year's World Economic Forum, are a lot more skittish this time around.

U.S. Retail Sales Are Expected to Drop

U.S. retail sales are forecast to decline 0.5% this year as
consumers continue to pull back, according to the National Retail
Federation.

Fed Move Into `Uncharted Waters' Spurs Pressure to Overhaul Its Forecasts Federal Reserve officials are
considering an overhaul of their economic forecasting, aiming to
make clear their objectives for growth and inflation in the aftermath of the longest recession since the 1930s.

Bank of Japan Focusing on Easing Corporate Borrowing Costs, Minutes Show Bank of Japan policy board members
said they should focus on lowering longer-term borrowing costs
for companies after cutting the overnight rate to 0.l percent in
December, meeting minutes show.

Subbarao May Keep Indian Interest Rates on Hold After Cutting to Record India's central bank Governor Duvvuri
Subbarao may keep interest rates unchanged today after lowering
them to a record this month.

Australian Business Confidence Rises From Record Low on Stimulus Measures Australian business confidence rose
in December from a record low as a government stimulus package
and the most aggressive interest-rate cuts since the last
recession in 1991 buoyed consumer spending.

Germany's Business Confidence May Drop to 26-Year Low as Recession Deepens German business confidence probably
fell to the lowest level in more than 26 years in January as the
global recession damped exports, prompting companies to curb
production and cut jobs.

Philippine Imports Fell Most in 10 Years in November Amid Slowing Demand Philippine imports fell the most in
10 years in November as manufacturers reduced purchases amid
slowing demand at home and abroad.