Data Flash: Housing Starts and Producer Level Inflation Worse Than Forecast

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Good Morning. 830am data has been released.

Housing Starts were much worse than expected as were Building Permits....

08:30 16Jun10 RTRS-US MAY HOUSING STARTS -10.0 PCT VS APRIL +3.9 PCT (PREV +5.8 PCT)
08:30 16Jun10 RTRS-US MAY HOUSING STARTS 593,000 UNIT RATE (CONSENSUS 650,000) VS APRIL 659,000 (PREV 672,000)
08:30 16Jun10 RTRS-US MAY HOUSING PERMITS -5.9 PCT VS APRIL -10.9 PCT (PREV -10.9 PCT)
08:30 16Jun10 RTRS-US MAY PERMITS 574,000 UNIT RATE (CONSENSUS 630,000) VS APRIL 610,000 (PREV 610,000)
08:30 16Jun10 RTRS-US MAY HOUSING COMPLETIONS -7.4 PCT TO 687,000 UNIT RATE VS APRIL 742,000
08:30 16Jun10 RTRS-US MAY HOUSING STARTS DROP LARGEST SINCE MARCH 2009, RATE LOWEST SINCE DEC 2009
08:30 16Jun10 RTRS-US MAY HOUSING PERMITS RATE LOWEST SINCE MAY 2009
08:30 16Jun10 RTRS-US MAY SINGLE-FAMILY HOUSING STARTS -17.2 PCT, LARGEST DECLINE SINCE JAN 1991
08:30 16Jun10 RTRS-TABLE-U.S. May housing starts fell 10.0 pct

The Producer Price Index declined less than forecast....

08:30 16Jun10 RTRS-U.S. MAY PPI -0.3 PCT (CONSENSUS -0.5 PCT), VS APRIL -0.1 PCT
08:30 16Jun10 RTRS-U.S. MAY YEAR-OVER-YEAR PPI +5.3 PCT (CONS +4.9), CORE +1.3 PCT (CONS +1.2)
08:30 16Jun10 RTRS-U.S. MAY PPI INTERMEDIATE GOODS +0.4 PCT, EXFOOD/ENERGY +0.3 PCT
08:30 16Jun10 RTRS-U.S. MAY PPI CRUDE GOODS -2.8 PCT, EXFOOD/ENERGY -1.6 PCT
08:30 16Jun10 RTRS-U.S. MAY PPI ENERGY -1.5 PCT, GASOLINE -7.0 PCT, HEATING OIL -7.4 PCT
08:30 16Jun10 RTRS-US MAY PPI FOOD -0.6 PCT, TOBACCO +2.2 PCT, PASSENGER CARS +0.2 PCT, LIGHT TRUCKS +0.8 PCT
08:30 16Jun10 RTRS-TABLE-U.S. May producer prices fell 0.3 pct

The yield curve is flatter and the benchmark 10yr note yield has extended overnight gains after the data release, currently -5.5bps at 3.253%.

Rate sheet influential prices are higher and yield spreads are wider after the data. The FN 4.0 is currently +0-10 at 99-24 and the FN 4.5 is +0-08 at 102-20. The secondary market current coupon is 4.6bps lower at 4.057%.

Whether or not this interest rate rally sticks is a function of the stock lever. Currently S&P futures are -7.00 at 1102.25. The S&P finds support at 1100 at 1096. If these levels hold and buying accumulates...interest rates will likely retest higher levels.

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