Daily Market Color

US Markets Tepid Heading into Holiday Weekend as Housing Data Remains Strong

Housing Data, Consumer Sentiment Maintain High Levels  Highlighting US economic data today, new home sales rose more than expected in November, increasing 5.2% to an annualized 592,000 pace.  The figure represents a four-month high and increases the three-month average to 575,000, as rising mortgage rates continue to bring on-the-fence homebuyers into the market.  Supply for new homes remains low at a 5.1-month sales rate, partially limiting the total number of sales while marginally driving up median home prices 0.9% for the month.

In a separate report today, the University of Michigan’s consumer sentiment index rose to 98.2 last month, slightly above October’s reading and the highest since January 2004.  Detailed in the report, responses to both the current conditions and expectations components were strong, continuing the post-election trend as Americans look favorably towards future fiscal policy.  The positive sentiment stands as a solid precursor for consumer spending heading into the holiday shopping season.

European Banks Dominate Headlines Abroad
This morning, Deutsche Bank and Credit Suisse Group AG were finally able to put an end to the ongoing investigations conducted by the US Justice Department related to the sale of sub-prime debt dating back to the 2008 financial crisis.  The settlement reached between the banks and government totals $12.5 billion, with Deutsche to pay $7.2 billion and Credit Suisse owing $5.3 billion.  The agreements will most likely lead to both banks posting a second consecutive year of losses and certainly have an impact on future capital raising.  Also related to the investigations, Barclays Plc is being sued by the DoJ after its refusal to pay the government its requested settlement amount.  Complicating the resolution for Barclays is their purchase of Lehman Brothers back in 2009, in which they argue that a substantial portion of the toxic debt on the books dates to a time when Barclays was not in control of management.  At least three additional European banks are still in being investigated for their roles in the selling of the sub-prime mortgage-backed securities, including UBS, Royal Bank of Scotland, and HSBC.  A total settlement of more than $46 billion has already been reached with six major US banks in connection with the investigation.

With the trading session set for an early close, all three major US stock indices along with Treasury yields/swap rates are close to unchanged for the day, with the exception of a 1-2 bps decrease in the long end of the curve.  Oil prices similarly traded within a tight range on the day, with WTI crude currently at $52.80/barrel and Brent crude near $54.85/barrel. 
Have a great (long) weekend. The U.S. bond market is closed Monday for Christmas.

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