Housing Starts Blow Past Expectations

Before 8:30 am ET this morning, the 10 yr note traded at 1.81% unchanged from yesterday, MBS prices -2 bps. At 8:30 am ET December housing starts and permits changed all of the that; starts expected at 1373K +0.6%; permits expected at 1458K +0.2%. Start at 1698K were up 16%, permits at 1416K –0.4%. The percentage gain was the largest since October 2016. Data for November was revised higher to show starts rising to a pace of 1.375 million units, instead of advancing to a rate of 1.365 million units as previously reported. The initial reaction sent the 10 yr yield up to 1.84% +3 bps and MBS prices at 8:45 -12 bps from yesterday’s close.

We had bullish remarks this morning from David Pepper and Stan Druckenmiller on the outlook for the economy and the equity markets. Two Wall Street billionaires add to the general outlook for the stock market, DJIA futures on the comments traded +76 points. Their comments, however, head caveats using the near term phrase.

Oh no, it’s Davos starting today in Switzerland. The big money, economists and central bankers meet each year in the snow to schmooze and chat. There’ll be a lot of TV interviews with the likes of Jamie Dimon sitting in heated shelters, commenting on all things good. Generally, no market reactions come out of it.

Dec Industrial production declined 0.3%; capacity utilization at 77.0%; both right on forecasts.

China said its economy grew 6.0%. Many analysts believe it is lower than that as China is infamous, putting out inaccurate data. Its weakest in nearly 30 years in 2019. China’s December Retail Sales rose 8.0% yr/yr (expected 7.8%; last 8.0%), December Industrial Production increased 6.9% yr/yr (expected 5.9%; last 6.2%), December Fixed Asset Investment grew 5.4% yr/yr (expected 5.2%; last 5.2%), and December Unemployment Rate ticked up to 5.2% from 5.1%. Q4 GDP increased 1.5% qtr/qtr, as expected (last 1.5%), expanding 6.0% yr/yr, as expected (last 6.0%). 2019 GDP grew 6.1% (prior 6.2%).

To fund the increasing annual budget deficit, expected to exceed $1 trillion, Treasury announced it will begin 20 yr bonds in the first half of this year. Previously issued 30-year Treasuries with about 20-years left to maturity yield about 2.15%, suggesting the new debt will offer a sizable premium over other comparable notes. Debt growth is a critical issue, but politicians and the markets sweep it under the rug; there will be a day of reckoning but not these days.

At 9:30 am ET the DJIA opened +39, NASDAQ +30, S&P +6; any improvements in the indexes are new all-time highs. The 10 1.84% +3 bps. MBS prices at 9:30 -14 bps from yesterday’s close and -17 bps from 9:30 yesterday.

At 10:00 am ET, the U. of Michigan preliminary Jan index expected unchanged from Dec. at 99.3, as released the index was 99.1.

Also, at 10:00 am ET Nov JOLTS job openings were thought to be 7.1 mil down from 7.27 mil in October, as released 6.8 mil. A bit disappointing but not much of a market-mover.

By 10:00 am ET, the stock market was slipping somewhat, and the 10 yr and MBSs have shown a little improvement. Some volatility today so far in MBS trading.

The rate markets remain in tight ranges, not worsening when stock indexes continue to make new highs and like this morning improving from overnight and early morning.

Source: TBWS