The Market Today
Mixed Housing Data as Focus Turns to Next Week’s Housing Data
by Craig Dismuke, Dudley Carter
Housing Starts and Building Permits Miss Again: The February housing starts and building permits reports were both weaker than expected as mortgage rates continued to climb. Freddie Mac’s Mortgage Market Survey showed the 30-year mortgage rate up 25 bps to 4.40% by the end of February. Housing starts fell 7% MoM (-2.7% exp.) and building permits dropped 5.7% (-4.1% exp.). The weakness in housing starts was driven entirely by multi-family activity, down 26% MoM after a 26% increase in January. Single family starts only rose 2.9% during the month. On a year-over-year basis, housing starts are now down 2.2% as multi-family have dropped 19.7% and single family have increased 6.6%. The West region has seen the best results with a 27.7% increase in single family starts and a 2.1% increase overall. The Midwest has fared worst with single family starts falling 38.2% and overall activity down 6.7%. While the building permits data were also disappointing, they at least continue to reflect a positive pace year-over-year. Nonetheless, rising mortgage rates are creating a headwind for the housing market and it is evident in every report except homebuilder confidence.
Industrial Production, Job Openings, and Consumer Confidence: At 8:15 a.m. CT, the February Industrial Production and Capacity Utilization report will be released. At 9:00 a.m., the BLS will report on job openings and labor turnover in January while the University of Michigan will release its preliminary report on March consumer confidence.
Yesterday – Stocks Ended Mixed Again as the 2-Year Yield Reached a New Cycle High, the 10-Year Yield Rose for the First Time This Week: After falling at the start of Asian trading, Treasury yields embarked on a choppy grind higher that would leave most points on the Treasury curve higher and the overall slope flatter. The 2-year yield rose the most, adding 2.7 bps to 2.29% and setting a new high for the cycle. The 5-year yield rose 1.5 bps while the 10-year yield added 1.1 bps to close at 2.83%. In the initial drop during the Asian session, the 10-year yield briefly fell below 2.80%, a rarity since mid-February. One of the sharpest intraday downshifts for yields came after the New York Times reported Special Counsel Mueller had subpoenaed the Trump Organization, requesting documents related to Russia among other things. That report also sent the S&P 500 on a string of downticks and to its daily low. By the close, the index had almost recovered to unchanged for the day, splitting the Dow’s 0.47% gain and the Nasdaq’s 0.20% loss. Material companies continued their recent volatility, dropping 1.28% on average and doubling the less of consumer staples companies, the index’s second worst performer.
Overnight – Yields Lower Heading into Friday’s U.S. Session: Outside of two years, European yield curves are modestly lower and flatter, helping to add a slight downward pressure on the U.S. Treasury curve for most of the overnight session. Yields in Europe were trending lower early and bottomed after a weaker-than-expected headline CPI inflation result. Headline prices rose 1.1% YoY compared with an initial estimate from the final day of February for 1.2%. Core prices rose an as-expected 1.0% from a year ago. The 10-year German bund yield was down 0.4 bps while the Italian 10-year yield fell 3.2 bps. Ahead of this morning’s U.S. open, the Treasury curve was little changed. U.S. equity futures were modestly weaker despite slight gains in Europe but after most Asian indexes closed down. Japan’s Nikkei was one of Asia’s underperformers as the Yen gained sharply against every other major currency. While not clearly evident in other asset classes, a sense of risk-off sentiment boosted the Yen immediately following a report that President Trump was planning to remove his national security advisor.
Home Builders Look a Little Less Confident to Start 2018: The NAHB’s housing market index unexpectedly slipped one point in March from a negatively revised 71 for the month before (February initially estimated at 72). An indicator tracking current sales activity was unchanged but forward looking indicators – sales expectations over the next six months and foot traffic of prospective buyers – were slightly weaker. Geographically, the weakness was centered in the Midwest as surveys covering the Northeast, South, and West all improved. Despite the three-month downtrend, the absolute level remained near its highest levels in 18 years. The NAHB’s Chairman said of the March result, “Builders’ optimism continues to be fueled by growing consumer demand for housing and confidence in the market. …However, builders are reporting challenges in finding buildable lots, which could limit their ability to meet this demand.”