Morning Report – The Bernank is leaving the building 6/18/13

Vital Statistics:






S&P Futures 




Eurostoxx Index




Oil (WTI)








US Dollar Index (DXY)




10 Year Govt Bond Yield




Current Coupon Ginnie Mae TBA




Current Coupon Fannie Mae TBA




RPX Composite Real Estate Index




BankRate 30 Year Fixed Rate Mortgage




Markets are generally higher as we begin the two day FOMC meeting. Bonds and MBS are down small.
Housing starts came in at 914k, lower than the 950k expectation. May starts were revised down to 856k. Multi-fam drove the decrease, and really accounts for the volatility of the index lately. SFR construction has been steadily growing from 520k to 620k over the past year. Wet weather in the Midwest may have dampened the number a bit. Building permits came in at 975k, as expected. Overall, it shows the housing market is continuing to recover, but we are still at very depressed levels. These sort of numbers are often seen at the absolute bottom of recessions. It may be too early to jump to conclusions, but perhaps the hike in interest rates over the past six weeks is starting to bite. 
The housing starts number stands in contrast to the National Association of Homebuilders sentiment survey which jumped 8 points to a reading of 52, the first “net positive” number since 2006. 
The consumer price index came in at +.1% on the headline number, and + .2% ex food and energy. This number is still too low to please the Fed as they would like to see annual inflation in the 2% to 2.5% range. 
On Charlie Rose, Obama said that “Ben Bernake has stayed on as Federal Reserve Chairman longer than he wanted,” giving the clearest signal that the Bernank is going to leave when his term expires early next year. The two names mentioned have been ex Treasury Secretary Larry Summers and Vice Chair Janet Yellen. Yellen is the overwhelming favorite, and she is a bigger dove than Bernake. Something to keep in mind when you start thinking about QE tapering. That said, the current voting members on the Fed are very dovish on balance. Oh, and one other thing – she doesn’t believe the Fed’s interest rate policy has a role in bubble prevention. She would rather rely on supervision and regulation as the main line of defense against bubbles. Of course, with the stock market bubble and the real estate bubble so fresh in our minds, she will likely preside over the bursting of the Treasury bond bubble.
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