Yesterday the NAHB housing market index increased 3 points to 64. Sales expectations jumped to 75 in October from 68. Current conditions rose to 70 from 67.Apparently the NAHB was all juiced up over multi-family improvements, but the report this morning doesn’t confirm the enthusiastic NAHB. Building permits are suggesting the enthusiasm may be overdone somewhat. The drop in permits is puzzling and a concern. How can the NAHB be so optimistic when building permits declined 5.0% with multi-family down 12.1% and single family down 0.3%? It is about starts, the future isn’t that optimistic.
At 9:30 the DJIA opened down 42, NASDAQ -6, S&P -3. The 10 yr note yield up 4 bps to 2.07%. 30 yr FNMA 3,5 coupon -16 bps frm yesterday’s close and -11 bps frm 9:30 yesterday.
Nothing left on the calendar today. Fed speakers went back into their shells now until after next week’s FOMC meeting. The meeting on Tuesday and Wednesday isn’t likely to increase the FF rate. Today’s starts and permits another report that keeps the Fed continuing to talk but not acting. Traders in the FF futures still betting that a rate increase won’t occur until next March.
The International Monetary Fund lowered its 2015 global growth forecast yesterday to 3.1% from its 3.3% estimate in July, citing China as well as weakness in Europe and Japan and the slowdown in countries producing commodities. The IMF, the Fed, the World Bank continue to revise downward their forecasts for the last 18 months. Nevertheless the bullish sentiment in US equities remains firm. Quarterly earnings are not as strong as Q2 so far. Main Street media and many Wall Street pundits believe the worst is over… that we’re well on the road to recovery… that we’re at the start of a multi-year bull market. Be very careful in that belief and idea.
The 10 yr is at 2.08% +5 bps frm yesterday’s close, MBS prices continuing to slip frm 9:30 levels. We don’t think there is much to it, mostly some selling after the 10 has failed to crack 2.00% as we have been noting. Traders don’t like hanging around too long when any market resists further advances, we have stayed flat and haven’t floated recently because of the resistance at 2.00% on the 10 yr. MBS prices and rates follow risk-free treasuries. The FOMC meeting next week, the ECB meeting this Thursday will keep the bond and mortgage markets frm improving much. Thankfully we don’t have to suffer more Fed officials until next Wednesday. Near term, we suggest keeping locked; the longer outlook though should see lower rates; let the market tell you when and don’t bet on it yet.