Home Builders Reporting Stronger Sales in January The housing market has been disappointing in the past year, with sales essentially flat. But there are signs that the market is starting to stir.

The nation’s biggest public home builders are telling investors that new-home sales picked up during the second half of January, reflecting rising consumer confidence, low interest rates and an improving economy.

Taylor Morrison Home Corp. , a builder in five states, on Wednesday reported a 30% increase in its January sales from a year earlier, following its 24% gain in the fourth quarter. That followed fellow builder M/I Homes Inc. ’s report on Tuesday that its January sales were up 8%, as well as recent comments from PulteGroup Inc., Ryland Group Inc. and Beazer Homes USA Inc. that January sales exceeded their year-ago tallies. (…)

EU Raises Eurozone Forecasts The European Union’s official economists said the sharp drop in global oil prices and a weaker euro should boost growth in the eurozone this year, raising their forecasts for the currency area’s largest economies.

The economists at the European Commission, the EU’s executive arm, said the eurozone should grow 1.3% this year and 1.9% in 2016. In November, they expected growth of 1.1% this year and 1.7% next. The commission raised its growth estimates for most of Europe’s largest economies, including Germany, France and Spain.

German Manufacturing Fired Up, Data Show

Orders rose 4.2% on the month in adjusted terms, data from the country’s economy ministry showed on Thursday. The increase surpassed a 1.2% rise expected by economists in a Wall Street Journal poll conducted last week.

The improvement in German manufacturers’ order books was broad-based, with foreign orders growing by 4.8%, while domestic orders were up 3.4%. Orders from the eurozone rose 5.9% while orders from outside the currency bloc were up 4.0%.

Given that it takes around three months for orders to feed through to production, the outlook for German manufacturing output in the first quarter “looks even more solid than initially expected after today’s upward surprise,” said BNP Paribas economist Evelyn Herrmann.

Greek Stocks, Bonds Sink Greek assets took a beating after the ECB fueled an increasingly tense standoff between Athens and its international creditors by declaring that it would stop accepting Greek bonds as collateral for central bank loans.

“It is currently not possible to assume a successful conclusion” of Greece’s current bailout, the ECB said late Wednesday, just hours after its president, Mario Draghi , met with Greece’s new finance minister, Yanis Varoufakis in Frankfurt. (…)

The ECB’s decision to no longer accept Greek bonds as collateral ups the stakes in these negotiations and increases financial pressure on the government. Although Greek banks will still have access to funds through the emergency lending program of the Greek central bank, the move shows the ECB is serious. (…)

“Letting [national governments] use cheap ECB funding as a means of postponing reforms wasn’t its intention and this morning markets are a tad shocked that it has finally made good and has quite publicly returned its wallet into its back pocket,” he added. (…)

• Schauble And Varoufakis Meeting Ends: “We Didn’t Even Agreed To Disagree”

SCHAEUBLE: “MY PRESS SPOKESMAN ADVISED ME TO SAY “WE AGREED TO DISAGREE”

VAROUFAKIS: “WE DIDN’T EVEN AGREE TO DISAGREE”

Europe’s Auto Market Growth Set to Slow

ACEA, as the association is known, said on Thursday it expects registrations of new cars, a proxy for sales, to rise about 2%, edging closer to the 13 million mark.

Last year, new passenger car registrations rose 5.7% to 12.6 million units from the year before, representing a return to growth for the European car market for the first time since the financial crisis began in 2007.

A Evans-Pritchard: Devaluation by China is the next great risk for a deflationary world

Some excerpts of this excellent analysis that deserved to be read in its entirety.

China is trapped. The Communist authorities have discovered, like the Japanese in the early 1990s and the US in the inter-war years, that they cannot deflate a credit bubble safely. (…)

The employment component of the manufacturing survey contracted for the 15th month. Premier Li Keqiang targets jobs – not growth – and the labour market is looking faintly ominous for the first time.

Unemployment is supposed to be 4.1pc, a make-believe figure. A joint study by the International Monetary Fund and the International Labour Federation said it is really 6.3pc, high enough to cause sleepless nights for a one-party regime that depends on ever-rising prosperity to replace the lost elan of revolutionary Maoism. (…)

The property slump is turning into a fiscal squeeze since land sales make up 25pc of local government money. Zhiwei Zhang, from Deutsche Bank, says land revenues crashed 21pc in the fourth quarter of last year. “The decline of fiscal revenue is the top risk in China and will lead to a sharp slowdown,” he said. (…)

The IMF says China’s fiscal deficit is nearly 10pc of GDP once land sales are stripped out and all spending included, far higher than generally supposed. It warned two years ago that Beijing was running out of room and could ultimately face “a severe credit crunch”.

(…) there is no doubt that Beijing is blinking. It may be right to do so – given the choice of poisons – yet such a course stores up even greater problems for the future. The China Development Research Council, Li Keqiang’s brain-trust, has been shouting from the rooftops that the country must take its post-debt punishment “as soon possible”. (…)

China’s yuan is loosely pegged to a rocketing US dollar. Its trade-weighted exchange rate has jumped 10pc since July. This is eroding the wafer-thin profit margins of Chinese companies and tightening monetary conditions into the downturn.

David Woo, from Bank of America, says Beijing may be forced to join the currency wars to defend itself, even though this variant of the “Prisoner’s Dilemma” leaves everybody worse off. “We view a meaningful yuan devaluation as a major tail-risk for the global economy,” said.

If this were to happen, it would send a deflationary impulse worldwide. (…)

Such a shock would be extremely hard to combat. Interest rates are already zero across the developed world. (…)

The mother of all black swans!

• The CNY depreciation risk remains

Another BoAML FX observation on Thursday, this by way of Claudio Piron, emerging Asia FI/FX strategist, and his team.

On the analysts’ radar this week, the continuing risk of CNY depreciation, and in particular this chart:

See the widening variation and its tendency to overshoot to the up side?

According to the analysts, the PBoC’s plan to appreciate the currency versus the dollar is still firmly intact, but the ability to guide the exchange rate is not what it used to be, though whether that’s an intentional policy or not is yet to be determined.

Notably, they add, there is now an obvious justification to weaken the currency so as to lessen the burden on the real economy due to the disinflationary global environment.

From the analysts:

Indeed, the trend in diminishing profit growth among Chinese industrial enterprises has correlated strongly with real CNY appreciation in tradeweighted terms, implying limited economic upside for short-term CNY appreciation.

While we retain our broader view that CNY appreciation has still further to run over the longer run, we believe the shorter-term, three- to six-month horizon will see increasing CNY flexibility, depreciation risks, and volatility by extension. (…)

EARNINGS WATCH

Earnings just keep getting better. As of last night, 288 companies (72.5% of the S&P 500’s market cap) have reported. So far, EPS ex-Energy are seen up 9.3% (8.8% yesterday). Total S&P 500 EPS are seen up 6.2% (6.0%) excluding the likelihood of continued beats. So far, they are beating by 5.0% (5.0%). Strength appears broad based with ~73% of those reported surprising to the upside on EPS. Revenues ex-energy are seen up 4.2%. (RBC)