Morning Report: Housing starts disappoint

Vital Statistics:

 LastChange
S&P futures3938-13.4
Oil (WTI)63.88-0.46
10 year government bond yield 1.66%
30 year fixed rate mortgage 3.27%

Stocks are lower this morning as we await the FOMC decision at 2:00 pm. Bonds and MBS are down again.

The FOMC decision at 2:00 will be potentially market moving based on any changes in the dot plot and economic projections. Jerome Powell will have a press conference afterward.

Housing starts came in much lower than expected in February, according to Census. The seasonally-adjusted annual number was 1.42 million, which was down 10% compared to January, and down 9% year-over-year. Building permits also came in low at 1.68 million, which was down 11% MOM but up 17% YOY. This is another disappointing economic number.

The 10 year bond yield continues to rise due to the Supplemental Liquidity Ratio issue, which is set to expire at the end of the month. While these rules are somewhat arcane, they have become a political football in DC. The main point is that eliminating the SLR relief will force the big banks to reduce the size of their balance sheets, which means they will reduce deposits and sell Treasuries. I am wondering if this will come up in the FOMC release or the press conference.

Mortgage applications fell 2.2% last week as purchases increased 2% while refis fell 4%. “Mortgage application activity was mixed last week, as the run-up in rates continues to reduce incentives for potential refinance borrowers,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “The 30-year fixed rate increased to its highest level since June 2020, and all other surveyed rates were either flat or increased.”

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