The US dollar is strengthening and equity futures are sharply lower this morning ahead of key housing and durable goods data. Yesterday the Dow strengthened for the 11th straight day, but this morning the focus is on continued financial troubles in Europe, causing risk aversion across the board and a flight to the greenback.

90 minutes before the bell, Dow futures are down 31 points to 10,797 and S&P 500 futures are off 4.20 points to 1,165. WTI crude oil is down $1.24 to $80.67 per barrel and Spot Gold is $9.00 lower to $1,096.15.

The dollar strengthened mainly due to a steep fall in the euro overnight, which sank to its lowest level since last May, according to BMO Capital Markets. They attribute the weakness to talk of Greece receiving help from the International Monetary Fund.

“Markets are concerned that IMF involvement could mean ever harsher austerity measures ― since currency devaluation isn’t an option ― which could prompt a potential exit from the Euro area by Greece,” the economists wrote.

Greece would be the first euro dollar country to drop the currency, and if that occurred attention could quickly turn to Portugal, where Fitch Ratings just downgraded the sovereign debt rating by one notch to double-A minus with a negative outlook. 

According to the New York Times, the downgrade reflects the 9.3% budget shortfall in the government’s 2009 budget, which was expected to be only -6.5%. 

“This has significantly increased the scale of the fiscal challenge to stabilize and reduce debt over the medium term,” Fitch analysts wrote.

Key Events Today:

8:30 ― Durable Goods are anticipated to rise 1% in February, building upon the 2.6% jump in January and a 1.8% gain in December. The expected lift is due to aircraft orders from Boeing and broad gains in core capital goods, while Defense orders are set to decline after the 23% leap in January.

“Excluding transportation, orders are expected to retrace part of the prior month’s 1% decline,” wrote economists from BMO Capital Markets. “Core capital goods orders ― a good proxy for business capital spending ― which were particularly weak in January, plunging 4.1%, likely also rebounded, but probably not enough to erase the earlier decline.”

Meantime, economists from Nomura only look for a 0.5% gain because of the reversal in defense spending. Elsewhere they see strength. 

“We forecast a gain of 5.0% in core orders (non-defense capital goods orders ex-aircraft), the largest gain since December 2007,” they wrote. “We believe that business equipment spending has considerable momentum and that January's weakness (-4.1%) was temporary. Based on this increase in orders and their upward trend over the last four months, we forecast an increase in core shipments ― the component that enters into GDP ― of 2.0% month over month.”

10:00 ― New Home Sales are expected to see a modest improvement in February after seeing an 11.2% decline in January and a 3.9% drawback in December. The annualized pace of sales, currently at a record-low 309k, is set to rise to 315k, with economists’ estimates ranging from 290k to 330k.

“Sales are weak because builders, who must cover their costs, have trouble competing in today's saturated housing market,” said economists from IHS Global Insight. “Market conditions will improve later this year, as the economy adds jobs. But we are not expecting much improvement in February's numbers.”

Analysts from Nomura point out that builder sentiment remains “extremely weak” and that recent mortgage purchase applications “have shown few signs of life.” They look for a 2% increase in line with the consensus, but add that this “entirely reflects a payback from a steep drop in January and not fundamental strength in the sector.”

10:45 ― Tom Hoenig, president of the Kansas City Fed, speaks to the Financial Foundation for Main Street at the US Chamber of Commerce Center for Capital Markets Competitiveness in Washington.

Treasury Auctions:


  • 1:00 ― 5-Year Notes