Looks like builders got caught in one of those east coast “turn abouts” and couldn’t get off as Housing Starts fell to 19 year lows. PPI, inflation at the wholesale level, dipped .3% headline while the core (ex-food and energy) rose .2%. Nothing here to be scared of. Batting cleanup, May Industrial Production and Capacity Utilization came in a little better than expected. IP rose 1.2%. Cap U was up 1.0% to 74.7%. Durable goods manufactured rose 1.7% on broad based gains while nondurables were flat. Utility output was better than expected, pushing the Cap U number to its best level since last August.
Spain seems to be in the hunt as well with Spaniards and Germans locked in a war of words. Credit spreads throughout Europe blew out once again, keeping global markets trapped between hope and fear. With quarter end/mid-year end approaching, illiquid conditions and lower volume are starting to take hold. We can expect this back and forth, headline trending action to continue albeit at a less volatile pace.
Currently, the 10 year note is plus 6/32’s (yield 3.29%), mortgage backs plus 3/32’s, and stocks unchanged on the big board. Technically, we’re looking to sell strength into month end, especially if stocks hold their head up. Range on the note seems to be 3.37% to 3.25% (currently 3.29%). Chart wise, we’re sitting on the 200 day simple moving average with sellers in charge so far today. This will keep the bias for more of a bearish trade. Stocks however could become very supportive for bonds, notes and Austin mortgage pricing. Reason being is the number of pre-release guidance on a number of stocks reporting that revenues, etc. will be short of expectations. Early July (2nd quarter earnings) will be crucial for stock market direction and Austin mortgage pricing, helping us to sort out whether the double dip is economic reality or only at Braums.