Housing starts, inflation, and looming debt ceiling

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Published Date 7/17/2019

Interest rates are improving slightly this morning; the 10-yr was at 2.08%, down 4 bps and below the 2.10% pivot level.

Starting early this morning weekly MBA apps were down 1.1%, purchases dropped by -4.0%, and refinances added +2.0%.

At 8:30 am ET we were made privy to June housing starts and permits; starts were thought to be 1260K, as reported 1253K, and May starts were revised down from 1269K to 1265K; percentage-wise starts were down 0.9% from the revised May numbers. June permits were expected at 1300K, as released 1220K, and May revised higher from 1294K to 1229K, percentage decline 6.6% from the May revision. Permit decline was mostly in multi-family; year-on-year, multi-family permits are down 10.2%. Single-family homes are the more important of the two subcomponents and despite a respectable 0.4% monthly rise in June to an 813,000 rate are down 4.7% on the year. Completions of single-family homes fell 1.8% on the month to 870,000. Multi-family completions fell 12.9% to 291,000. Lack of completions will limit ongoing sales.

Last week the US June PPI and CPI were both hotter than estimates sending rates a little higher, mortgage rates were slightly higher. Today Eurozone's June CPI increased 0.2% m/m (expected 0.1%; last 0.1%), growing 1.3% yr/yr (expected 1.2%; last 1.2%). June Core CPI increased 0.4% m/m (expected 0.3%; last 0.3%), rising 1.1% yr/yr (expected 1.1%; last 0.8%). U.K.'s June CPI was unchanged m/m (expected 0.3%; last 0.3%), but increased 2.0% yr/yr, as expected (last 2.0%). June Core CPI increased 1.8% yr/yr, as expected (last 1.7%). June Input PPI fell 1.4% m/m (expected -1.0%; last 0.0%) and Output PPI ticked down 0.1% m/m (expected 0.1%; last 0.3%). June House Price Index increased 1.2% yr/yr, as expected (last 1.5%). The lack of any increase in inflation in Europe has been a worry point for the ECB, now somewhat better.

There isn’t much economic data today. Earnings season for equities is the focus; the dominant high-flying tech companies will be reporting beginning late this afternoon after the stock market closes with Netflix reporting, tomorrow Microsoft; next week Facebook, Amazon and Alphabet (Google). These companies (including Apple) account for 17% of S&Ps valuation. In the meantime, until those are released, the stock indexes have been mostly quiet after solid gains last week. The bond and mortgage markets crept a little higher (rates) adjusting to the reality the Fed will increase the Federal Fund rate by 25 bps instead of 50 bps, which had gained some momentum the past two weeks.

At 9:30 am ETthe DJIA opened down -22, the NASDAQ added +6, and the S&P increased by +1. The 10-yr stood at 2.09%, -3 bp from 4:00 pm yesterday but down 1 bps from 5:00 pm yesterday. MBS prices added +8 bps from yesterday’s close at 5:00 pm and +18 bps from 9:30 am yesterday. After 4:00 pm yesterday the 10 and MBS prices improved.

At 2:00 pm the Fed will release its Beige Book.

Here comes the debt ceiling; Pelosi and Mnuchin are talking, but there is no progress. Mnuchin is warning the debt ceiling may hit sooner than some expect, before the end of September. Congress is on recess through August and early Sept. If there is no last-minute compromise and Treasury runs out of money the government will shut down. Not to worry though, there will be something worked out. Neither political party going into the election can afford another shutdown.

Source: TBWS

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