Bill Losey’s Weekly Economic Update for January 25, 2010

“Volcker rule” worries Wall Street. Investors frowned last week as the President talked of rules that would bar banks and bank holding firms from getting involved in hedge funds or conducting proprietary trading operations. Crafted with input from former Federal Reserve chairman Paul Volcker and past SEC head William Donaldson, the new regulatory proposal is likely to face stiff opposition from Senate Republicans.

Big gain in leading indicators. The Conference Board’s index of leading indicators rose 1.1% in December, with November’s gain revised to 1.0% from 0.7%. The index, a forecast of future economic activity, rose 5.2% across the second half of 2009.

PPI up 0.2% for December. That gain was much smaller than November’s 1.8% jump. Core producer prices (minus food and energy) were flat last month.

Encouraging housing news. While new home construction decreased by 4.0% in December, housing starts were up 0.2% from a year before, marking the first year-over-year gain since March 2006. Building permits were up 10.9% in December.

30-year loans back under 5%. For the third consecutive week, Freddie Mac measured a decline in average rates on 30-year FRMs: they were at 4.99% last week, down from 5.06% a week prior. 15-year FRMs averaged 4.40%. Rates on 5-year and 1-year ARMs respectively averaged 4.27% and 4.32%.

A quick pullback. Besides the envisioned limits on bank risk, investors got news of China’s instruction to its banks to raise capital ratios. These factors took stocks south: the Dow closed Friday at 10,172.98, the NASDAQ at 2,205.29, and the S&P 500 at 1,091.76.