|January housing starts declined 2.0%, slightly weaker than -1.7% expected; the number of units on an annualized basis 1065K. Jan building permits declined 0.7% against estimates of an increase of 3.6%, to 1053K. Dec starts 1089K, Dec permits 1032K. Construction of single-family homes dropped 6.7% to a 678,000 rate in January from 727,000 the previous month that was the strongest since March 2008. Work on multi-family homes, such as townhouses and apartment buildings, climbed 7.5% to an annual rate of 387,000, the most since July. Yesterday the Feb NAHB housing market index was expected at 58 from 57 in Jan; the index dropped to 55. Not looking good for single family currently but the swings from month to month have been quite wide; one month isn’t a trend. Some thinking the weather didn’t have much impact on the data; we disagree, three out of the four regions showed declines while the South had gains. The regions with declines all in cold weather climates that usually see declines in the winter months. The Feb data a month from now will be more weather affected.Wholesale prices were expected down 0.5%, as reported down 0.8%. The core (ex food and energy) expected up 0.1% declined 0.1% (yr/yr +1.6%). Inflation measured by this PPI data is not a factor for concern even with the Fed poised to begin increasing interest rates by mid-year, at east that is the consensus now. Prices for energy goods tumbled 10.3% in January from the prior month, and the gasoline index sank 24%from December, according to Wednesday’s report. But prices were broadly weak even outside energy. Food prices fell 1.1% from December, and prices for services declined 0.2%. Janet Yellen insists the declining prices due to energy are “transitory effects” but will fade. The Fed has been trying to talk up inflation now for over three years, to no avail.
Jan industrial production was expected to be up 0.4%, as reported up 0.2%. Factory usage expected at 79.9% was 79.4%; Dec use was revised from 79.7% to 79.4%. The Institute for Supply Management’s manufacturing index showed similar results in January. The gauge declined to a one-year low of 53.5 from December’s 55.1. Manufacturing output, which accounts for about 12% of the economy, was previously reported as rising 0.3% in December but revised to unchanged in today’s report.
At 9:30 the DJIA opened -47, NASDAQ -6, S%P -5. The 10 at 9:30 2.12% down 2 bps, 30 yr MBS price +9 bps from yesterday’s close but down 53 bps from 9:30 yesterday. Yesterday was a huge selling binge in the rate markets as the Fed approaches its FOMC meeting in March. The current consensus is a rate increase of 0.25% in June. Feb so far has been good for the DJIA and other indexes; only two times in history has the DJIA recorded a 1000 point gain in a month, the DJIA 180 points away. Not as much of a factor though; at these levels a move like that is a lot less significant than a 1000 point gain at lower absolute levels as was the case in history. CNBC has to have something to tout.
This afternoon at 2:00 the minutes from the Jan FOMC will be released. Should be a lot to chew on with the rate increase the topic. Prior to the next FOMC meeting Yellen will testify to Congress next week at both the Senate and the House. Markets will be looking for clues and focused on Yellen’s present economic outlook that the fed has consistently over-stated for over 18 months now.
Markets so far quiet and should remain that way until 2:00 this afternoon when the FOMC minutes are released. Technicals bearish but approaching near term oversold on the 10 yr note, possibly a little improvement but will not change the trend. Greece still there but only getting passing attention now, markets watching but not reacting to the daily ping pong news of will they or won’t they escape defaulting. Most current beliefs, at the end of the day Greece will get a deal worked out. Ukraine, a train wreck but no direct interest in it from markets.
PRICES @ 10:10 AM
10 yr note: +4/32 (12 bp) 2.13% -1 bp
5 yr note: unch 1.61% unch
2 Yr note: +1/32 (3 bp) 0.61% unch
30 yr bond: +11/32 (34 bp) 2.72% -1 bp
Libor Rates: 1 mo; 0.173%; 3 mo 0.256%; 6 mo 0.380%; 1 yr 0.672%
30 yr FNMA 3.0 Mar: @9:30 101.06 +9 bp (-53 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Mar: @9:30 104.20 -3 bp (-36 bp frm 9:30 yesterday)
30 yr GNMA 3.0 Mar: @9:30 101.77 -2 bp (-34 bp frm 9:30 yesterday)
Dollar/Yen: 119.29 +0.04 yen
Dollar/Euro: $1.1362 -$0.0049
Gold: $1209.00 +$0.40
Crude Oil: $52.67 -$0.86 (crude consolidating at the $50.00 area)
DJIA: 18,016.05 -39.50
NASDAQ: 4893.16 -6.11
S&P 500: 2094.96 -5.38