Homebuilder Sentiment Hits 7-Year High

The majority of homebuilders view conditions in the industry as favorable for the first time since the start of the housing crisis seven years ago, with an industry report showing confidence in the sector surged in June.

At the same time, a separate report on Monday showed manufacturing growth in New York state picked back up but the improvement was undermined by weakness in new orders and employment that suggested activity in the sector remains sluggish.

The National Association of Home Builders/Wells Fargo Housing Market index surged to 52 in June from 44 in May, handily topping forecasts for 45. It was the biggest one-month gain since 2002.

Readings above 50 mean more builders see market conditions as favorable than poor. It was the first time the index has been above that dividing line since April 2006 and was its highest level since March of the same year.

"Another good sign that the recovery continues," said Jed Kolko, chief economist at Trulia, an online real estate marketplace.

Confidence among homebuilders has strengthened in the last year and a half, alongside a recovery in the broader housing sector. The index is 23 points higher than where it was in June of last year.

Rising prices, tighter inventory and improved sales have all helped the housing market get back on its feet. In the stock market, the data pushed the housing index (.HGX) up 2.1 percent. Homebuilders Toll Brothers (TOL.N) and Pulte Group (PHM.N) gained more than 3 percent, while Lennar (LEN.N) rose over 1 percent.

Cheap mortgage rates have helped lure in buyers, with borrowing rates kept low by the Federal Reserve's bond-buying stimulus program, while real estate purchases by investors have also helped soak up the excess demand left in the wake of the housing market collapse.

A recent spike in rates has raised concerns about the headwinds that might pose to the recovery, though mortgages still remain cheap by historical standards.

"The pent-up demand is there," said Sam Bullard, senior economist at Wells Fargo Securities in Charlotte, North Carolina.

Analysts are looking to the Fed's policy-setting meeting later in the week for insight into when the central bank may start to slow its $85 billion a month in bond purchases.

Homebuilders felt even more optimistic for the coming months with the gauge of single-family sales expectations for the next six months accelerating to 61 from 52. The single-family home sales component rose to 56 from 48, while prospective buyer traffic climbed to 40 from 33.

Builders could still face a hurdle if the recovery in the market convinces current homeowners and lenders that are holding foreclosures that it's the right time to sell, said Daren Blomquist, vice president at RealtyTrac.

That would give "the builders more competition, particularly in markets where existing home prices are still well below the average price of building a new home," he said.

U.S. stocks held on to gains following the data, though investors were mostly focused on expectations the Fed will reinforce its commitment to supporting the economic recovery at its meeting over Tuesday and Wednesday.

Separately, the New York Fed's "Empire State" general business conditions index rose to 7.84 from minus 1.43 in May, topping expectations for zero. A reading above zero indicates expansion.

But many of the details of the report deteriorated, including gauges of new orders and employment that fell to their lowest levels in five months.

"Sentiment may be improving but actual output isn't improving," said Michelle Meyer, senior economist at Bank of America Merrill Lynch in New York.

"This report suggests manufacturing activity is sluggish and that we are seeing that in the U.S. and the rest of the world."

While the housing recovery has been gaining traction, manufacturing activity in contrast has softened, hurt by belt-tightening in Washington and less demand overseas.

Platinum Faces Supply Squeeze

A record deficit in platinum supplies is set to push prices higher, as unrest sweeps the South African mining industry and demand is boosted by the auto sector and a new exchange traded fund (ETF), according to HSBC.

Platinum, which has been influenced by the wild swings in the price of gold since April this year, hit a six-week high of $1,531 earlier this month following the "highly successful" launch of a new physically backed ETF. According to James Steel, chief precious metals analyst at HSBC, prices will rise further over the next two years, as the risk of South African mining strikes weigh on output.

But Steel also cut his price target on the metal because platinum had been influenced more than he had anticipated by the sharp swings in the price of gold.

Steel's new average price forecasts for 2013 is $1,580 down from $1,710 forecast previously and for 2014 it's $1,725 down from $1,800 previously. Based on platinum's traded price of $1448 on Monday, that's a forecasted 9 percent gain this year.

Platinum prices have fallen around 17 percent from the highs in February, as investors sold their gold positions. While both commodities are considered precious metals, platinum has far greater industrial uses.

"A rotational shift out of commodities and into equities also took its toll on the platinum market," Steel said.

He predicts the metal will peak at $1,875 by 2015, before falling back to a more steady level of $1,825 thereafter.

"The launch of the South African ETF in mid-May has already attracted a whopping 371,000oz of platinum demand to date. This is more double the growth in the rest of the platinum ETFs combined this year," he added.

Jewelry demand remains strong, and if industrial or auto demand pushes above forecasts, Steel said platinum prices would rise. At the same time, limited output is likely as further strike action in South Africa, the hub for global platinum production, could hit supplies.

"Widespread strike action and other stoppages in South Africa greatly reduced domestic platinum production in 2012. According to Johnson Matthey, production fell almost 16 percent in 2012," said Steel.

"The possibility exists for further disruptions to production in South Africa. Additionally, the long-term challenges of low platinum prices make a sizable amount of current production uneconomical. This leads us to believe that higher prices are necessary to sustain production longer term."

Supreme Court Hits Pharma’s Profit-sharing Deals

Profit-sharing deals between brand-name and generic drug companies that preserve patents and prevent competition can be challenged as anti-competitive, the Supreme Court ruled Monday.

The verdict was a victory for the federal government, which had contended that arrangements keeping generic drugs off the market benefited companies at the expense of consumers.

But the court, in a 5-3 decision written by Justice Stephen Breyer, did not automatically strike down such deals between drug companies. It ruled that the government must apply a "rule of reason" and challenge each deal individually. That could lead to more lawsuits in the future.

Breyer was joined by Justice Anthony Kennedy and the court's liberal members. Chief Justice John Roberts wrote the dissent. Justice Samuel Alito took no part in the case.

The so-called "pay-for-delay" settlement, Breyer said, "simply keeps prices at patentee-set levels, potentially producing the full patent-related $500 million monopoly return while dividing that return between the challenged patentee and the patent challenger.”

In his dissent, Roberts said the high court never has held that a competitor's decision not to challenge a patent violates antitrust law. A settlement between the two drug makers in which money is exchanged for dropping a legal claim is routine, he said.

"In doing so, they put an end to litigation that had been dragging on for three years," Roberts said. "Ordinarily, we would think this is a good thing."

The deals are the product of a nearly 30-year-old federal law that aims to get generic drugs on the market as soon as possible. Without the occasional settlements, generic drug makers must win patent lawsuits -- and if they lose, the patent runs its full course.

The ruling leaves billions of dollars at stake. While consumers benefit most from early entry of generics -- which can slash drug prices by 85% or more -- settlements can reduce the duration of brand-name patents, producing some savings. When generics are blocked for the duration of the patent -- usually 20 years -- consumers lose the most.

"Today's ruling is a victory for millions of Americans who depend on generic drugs to treat illness and pain," New York Attorney General Eric Schneiderman said. "Pay-for-delay drug settlements should receive serious scrutiny because they are frequently anti-competitive, unlawful, and harmful to health-care consumers across the country."

World Looks to Bernanke to Clarify Stimulus Plans

Is the era of ultra-low interest rates nearing an end?

That's the question — and the fear — Chairman Ben Bernanke will face this week when he takes questions after a Federal Reserve policy meeting.

Financial markets have been gyrating in the 3½ weeks since Bernanke told Congress the Fed might scale back its effort to keep long-term rates at record lows within "the next few meetings"— earlier than many had assumed.

Bernanke cautioned that the Fed would slow its support only if it felt confident the job market would show sustained improvement. And earlier in the day, he said the Fed must take care not to prematurely reduce its stimulus for the still-subpar economy.

Yet investors were left puzzled and spooked by a mixed message. Fear spread that the Fed would soon slow its $85 billion-a-month in bond purchases. Those purchases have been intended to hold down long-term borrowing rates to spur spending. Many worried that a pullback in the bond purchases could boost long-term rates, trigger a stock selloff and perhaps weaken the economy.

On Wednesday, when the Fed ends a two-day policy meeting with a Bernanke news conference, the financial world will be looking to the chairman to settle the confusion. What, Bernanke will likely be asked, would show sustained improvement in the job market? And when will the Fed most likely slow the pace of its bond purchases?

Last month, the U.S. economy added a solid 175,000 jobs. But the unemployment rate was 7.6 percent. Economists tend to regard the job market as healthy when unemployment is between 5 percent and 6 percent.

Since Bernanke's vague public comments May 22, the Dow Jones industrial average has fluctuated sharply and shed about 3 percent of its value. But the bigger shock has been in the bond market. The rate on the benchmark 10-year Treasury has jumped from a low of 1.63 percent in early May to 2.13 percent.

Higher rates ripple through the economy by making mortgages and other loans costlier. The average rate on the 30-year fixed mortgage, which tends to track the 10-year Treasury yield, reached 3.98 percent last week, according to Freddie Mac. That's its highest level since April 2012.

Just as cheap mortgages have helped feed a housing recovery, higher rates might slow it. Refinancings have declined since Bernanke's comments led to higher mortgage rates: Refinancings are 36 percent below their recent peak at the start of May, according to the Mortgage Bankers Association.

Compounding the confusion stirred by Bernanke's remarks have been comments from other members of the Fed's policy committee. Minutes of the previous meeting suggest a sharp division: Some, like Bernanke, still stress the need to fight high unemployment with low rates. Others warn that rates kept too low for too long raise the risk of high inflation and financial instability later.

The Fed's investment purchases have swollen its portfolio to $3.4 trillion — a four-fold increase since before the 2008 financial crisis. Eventually, the Fed will need to gradually sell its portfolio. Doing so would likely lead to higher rates. Yet some think it would also defuse some risks to the financial system.