Good Morning All.

830AM econ data has been released...

Housing Starts: +5.8 % vs. March +5.0 % (revised from +1.6 %) at 672,000 unit rate vs. consensus 650,000 vs. March 635,000 (revised from 626,000) 
Housing Permits: -11.5 % vs. March +5.4 % (revised from +6.8 %) at 606,000 unit rate  vs. consensus 680,000 vs. March 685,000 (revised from 680,000)
Housing Completions +19.2 % to 769,000 unit rate vs. March 645,000

PPI:  -0.1 % vs. consensus +0.1 %  vs. March +0.7 %
PPI Exfood/energy: +0.2 % (cons +0.1 %) vs. March +0.1 %
Year-Over-Year PPI:  +5.5 % (cons +5.6), core +1.0 % (cons +0.9 %)
PPI intermediate goods: +0.8 %, exfood/energy +1.1 %
PPI crude goods:  -1.2 %, exfood/energy +4.0 %

Plain and Simple:  Housing Starts showed more signs of life in April. Before saying "But Building Permits....don't forget building permits improved through the winter while housing starts plummeted. Inflation data was interest rate friendly.

The benchmark 10 year TSY note backed away from the session yield highs after better than estimated data. One would expect averse assets to behave in the opposite manner (rates tick up) when economic data prints better than forecast, but that was not the case today. Instead a "fade" occurred as traders covered short positions....this example of forced buying reminds us that short-term tactical biases continue to play a pivotal part  in intraday trading flows.

The 3.50% coupon bearing 10 year TSY note is currently +0-07 at 100-10 yielding 3.463%. In the chart below you can see that the recent trend channel, an ascending triangle, continues to consolidate. Tightening trading ranges make it harder for fast money accounts to play the market because it limits the distance traveled between support and resistance levels. Look for 10s to make a bigger move in the near term future....

After a choppy day trading session yesterday, rate sheet influential mortgages are playing follow the leader with benchmarks this morning.

The FN 4.5 is currently +0-04 at 101-21 yielding 4.311%. The secondary market current coupon is 2.3bps lower at 4.225%. The CC yield is +76.4bps over the 10yr TSY note yield and +72.8bps over the 10yr interest rate swap. 1 month LIBOR is .0008 higher at 0.3397 and 3 month LIBOR is up 0.0047 at 0.4647.  3m10y implied volatility is 1 normal lower.


The stock lever is still providing directional guidance for benchmark interest rates. The chart below is 10 yr TSY futures contract prices vs. S&P futures contract prices. When stocks fall, TSY prices rise. When stocks rise, TSY prices fall.  


Stock trader sentiment is still largely reflective of shifts in the value of the Euro currency (representative of the market's appetite for risk). Below is a chart of the Eur/USD pair vs. S&P futures. For the most part stocks have played follow the leader with forex markets. When the Euro gains on the dollar, stocks rally. When the Euro loses value against the dollar, stocks move lower.

Watch for the Euro, which has been gaining ground all morning, to reverse course and begin losing value against the dollar again. If this happens stock indexes will move away from early session highs and 10 year notes should retest lower yield levels. This would allow "rate sheet influential" MBS prices to tick slowly higher.   If the Euro is able to extend its modest two day rally , 10s will likely break 3.50% support and "rate sheet influential" MBS prices will fall.  


From the open yesterday:

And then there's the whole financial reform thing where Senators introduce amendments one day and vote on them the next. It's a shame that what is likely to become wealth shifting financial reform is taking place in an election year. I can't even keep up with all the amending and voting. This is a highly sensitive subject to the business models of market makers and  money has to wonder how the marketplace will react to misguided legislation.