Sales Decline

New home sales dropped 1.9 percent in December after sliding 2.1 percent a month earlier, according to the median estimate of economists. Data tomorrow will show bookings for goods meant to last at least three years rose 1.8 percent last month after a revised 3.4 percent gain in November, analysts in a separate survey predicted.

Treasuries headed for the biggest monthly advance since May 2012, returning 1.4 percent as of Jan. 24 after falling 1.1 percent in December, according to the Bloomberg U.S. Treasury Bond Index. (BUSY) The securities climbed last week as emerging-markets losses and signs of slower U.S. economic growth led investors to seek safer assets.

10 Year

Treasuries fell, pushing the 10-year yield up from near a two-month low, before the Federal Reserve begins a two-day meeting tomorrow and the U.S. sells a combined $111 billion of notes and floating-rate debt this week.

The benchmark 10-year rate increased for the first time in three days before a report economists said will show a gauge of home sales declined for a second month in December. The 10-year note yield will rise to 3.37 percent by Dec. 31, according to the weighted-average estimate in a Bloomberg survey of analysts. The Fed decided in December to reduce its monthly bond buying to $75 billion from $85 billion, starting in January.

Friday Sell Off

The selloff spread to Asia Monday where markets took a beating as growing turmoil in emerging markets due to plunging currencies and uncertainty over expected further reductions in Federal Reserve stimulus inflicted damage on investor sentiment.

Technicians will talk about a break under the 50 day moving average and 1800 as being meaningful. Perhaps that is true for a short while until investors look around and see the coast is clear and stocks are still the place to be. 

This past week, Asian stocks ended lower after a preliminary reading of Chinese manufacturing activity fell to a six-month low, which could suggest a slowdown in the second-largest economy in the world. Whenever China hiccups the market tends to over react and in this case, the HSBC Purchasing Manager Index (PMI) for January came it at 49.6, down from a final reading of 50.5 the previous month. Anything below 50 indicates contraction. While the reading was not good, it by no means was out of the realm of expectations. Friday’s selling though was much more attributable to currency devaluation.

Currency Devaluation

Currencies in emerging markets have been going through a devaluation period and as a result all assets in these countries are worth less, including stocks. The market reacted to the currency problems in the emerging markets by engaging in a traditional “Risk-Off” trade. Stocks in sectors that are economically sensitive and finance companies that may hold international assets were sold. Conversely, more defensive sectors, such as healthcare and consumer staples performed relatively better.

What do the Economic Reports reveal about the state of the economy?

To be written...

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