U.S. Markets closed

U.S. Can Handle Fed QE Tapering, Latest Data Signal

Strong housing, factory and confidence data out Tuesday backed the Federal Reserve's stimulus-tapering outlook, pointing to an economy that may finally be able to ditch its crutches.

The Conference Board's Consumer Confidence Index rose to the highest in 5-1/2 years in June. Consumers were also the most upbeat on the job market since 2008, and they were more likely to buy big-ticket items.

Confidence was likely aided by surging home prices, which rose 12.1% in April vs. a year earlier, according to Case-Shiller's 20-city index. It was the biggest gain in more than seven years. New-home sales hit a five-year high of 476,000 in May, the Commerce Department said.

Factories Heat Up

Factories are seeing more demand as well, despite weaker overseas markets. Orders for durable goods rose 3.6% in May from April. Excluding volatile transportation orders, demand grew 0.7%. A measure of business investment advanced for the third straight month.

"On the taper measure, the latest reading supports the hypothesis that the Fed will follow its timetable of scaling back its bond purchases," said Andrew Wilkinson, chief economic strategist for Miller Tabak, in a research note about durables.

U.S. stock indexes rose, helped by China's central bank comments that it will ease a liquidity shortage there. The 10-year Treasury yield rose to 2.58%.

Homebuilder Lennar's (LEN) Q2 results topped views Tuesday, and the CEO said spiking mortgage rates have had little impact on sales or prices.

Tight existing-home supply, especially distressed properties, may also have sent more investors to new homes, analysts said.

But by giving a green light to QE tapering, a stronger U.S. economy may add pressure on overseas markets, which are already suffering big stock, bond and currency losses in anticipation of the Fed reducing the easy-money spigot.

Investors are pulling money out of once-robust emerging markets like Brazil and may shift more to the U.S. China is also trying to rein in liquidity without precipitating a financial crisis while it engineers slower, consumer-focused growth.

Eurozone bond yields have been heading back up too, threatening to trigger another flare-up in the debt crisis.

Last year's pledge from the European Central Bank to buy sovereign bonds via "outright monetary transactions" had eased borrowing costs.

But in contrast with the Fed's view that bond purchases are needed less in the U.S., the need for potential eurozone bond buys has grown as yields for Spain and Italy near unsustainable levels.

"OMT is even more essential now as we see potential changes in the monetary-policy stance with associated uncertainty in other jurisdictions of the integrated global economy," said ECB President Mario Draghi Tuesday.