CPI was suppose to be the day’s headliner but Housing Starts stole the show. While CPI, inflation at the consumer level, was in line with expectations (up .3% with the core index up .2%), October Housing Starts fell 10.6% to 529k units (annualized). The decline was in large part due to a 33.3% drop in multi-family homes (5 units or more), setting a new record low. Building Permits fell as well, down 4.0% to 552K. Every region in the country took a dip with the Northeast leading the way (down 9.6%). The best performing region was the wild West, off 5.9%. Some have blamed the fall on uncertainty over the 8K first time home buyers stimulus while others point to a consumer who is unemployed and over budget.
The MBA Purchase Index reflects the latter with new applications off 4.7% even though interest rates are low. Reinforces our belief that the Fed will continue to buy mortgage backed securities, helping to keep mortgage rates low into the new year. Market reaction to all of the above has been a bit choppy. Mortgage backs were down as much as 10/32’s this morning, in line with fast money selling of treasuries. We have started to recover but are still off 6/32’s. Stocks opened slightly lower, then accelerated to the downside but have now cut their losses in half (Dow down 37 points). The dollar index is once again on the slide, falling below 75 after yesterday’s brief, dead cat bounce ( no offence cat lovers). The slide has everything to do with the Obama Administration trying to convince the Chinese to let the Yuan appreciate, helping American exports. Fat chance given their (China’s) treasury and real estate holdings in the U.S.
Technically speaking, the market continues to rattle around within the confines of a bullish upward sloping trend channel. Most oscillators, including trend intensity are giving bullish reading yet the chart fails to make new highs. This is somewhat of a concern so we need to be careful. That said, the onus is still on the bears to take control which just hasn’t happened. We like the market but want to see a new high (lower yield on the 10 year) by week’s end.
