China is in the news, telling its regulators to put a hold on new bank loans. This follows a .50bps rise in reserve requirements put in place last week. Stateside, PPI, inflation at the producer level, rose .2% headline while the core index (ex-food and energy) was unchanged. Food prices rose 1.4% ( maybe high priced OJ) and finished energy goods were up .5%. Other than that, the report was inflation friendly and given the slack in the economy, should not give the Fed any heartburn.
Housing Starts were also released, falling 4.0% to 557K. The below consensus print took its punishment from single family homes down 6.9% and unseasonable cold weather for much of December. Building Permits when the other way, rising 10.9%. Interesting news from Pimco, the world’s largest bond fund on their changes in asset allocation. In December, they dropped their holdings of government related bonds from 51% to 32%, increased cash holdings from 7% to 8%, and increased holdings in both mortgage backed securities and dollar denominated developed market debt (Germany, etc.) to 17%. Bill Gross, Pimco’s bond god, said the decisions were based on their view of the dollar’s direction (negative) and increased government debt. All of the above has been good for mortgage pricing and bad for your 401K.
Stocks are really taking some heat, down 200 points on the big board. 10 year notes are plus 16/32’s (yield 3.65%) and mortgage backs are plus 6/32’s. Yesterday we talked about the 3.67% level being key for near term direction. If we can close below that level (currently at 3.64%), we should have a little more giddy up in our getalong. Buy signals are all over the chart along with positive trend signals on 8 day ADX. Given the close we are looking for, next target on the chart points to 3.55%. Shaping up to be a good day for the good guys/gals.