Markets Split: Euro Rally vs US Economic Fears

The BP hearings are riveting, but it is housing and the weak nonfarm payroll report that is front and center for the trading community.

Bottom line: euro rally vs. economic worries in US.

Markets have been supported all week by a euro rally. Today, the successful Spanish bond auction is muting worries that Spanish banks are being frozen out of the market (the Spanish government is clearly not frozen out of the markets).

But reduced headline risk (Europe, BP ) is being replaced by increasing economic risk. First poor retail sales, then U.S. jobs and housing weakness, and today Philly Fed numbers far below expectations for June.

Toll Brothers down 4 percent along with most home builders today. They are presenting at an investor conference, but last night surprised the street with a mid-quarter update that said in the last three weeks per-community deposits have been running about 20% behind the comparable period in last year's third quarter and our per-community traffic has been running about 3% behind.

Toll is mostly higher-end buyers. Toll's chief financial officer made it clear he thought the problem was not with the home buyer tax credit (most of which did not get dramatic benefits from the credit), but more to consumer confidence and the stock market.

May of course was a disaster for stocks, with the S&P 500 down about 8 percent, and the news flow out of Europe has certainly not been supportive of an optimistic stance on stocks.

However, if this is true, then most of the other builders — which are focused more on first time and move-up buyers — should not be as affected.

But yesterday's weaker than expected housing starts/permits data is reinforcing the concept that housing is indeed slowing down — but across the board, not just with high-end buyers.

Also remember that the yesterday the US Senate approved an amendment to extend the homebuyer tax credit closing deadline to September 30 from June 30. Assuming the House passes it, this may push some builders to push closings out into the second quarter. There's going to be a huge mass of closings in June; pushing some out into July and August will help smooth out earnings.

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