The Day Ahead: Housing Starts & FOMC Statement

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Interest rates are marginally lower and equity futures are roughly flat ahead of key housing data and the afternoon release of the policy statement from the Federal Reserve’s Open Market Committee.

Ninety minutes before the bell S&P 500 futures are-0.75 at 1,135.75. Dow futures are trading  7 points higher at 10,678.

The 10-year Treasury note is +0-07 at 99-17 yielding 2.677% (-2.7bps) and the November FNCL 4.0 is +0-05 at 102-11.

Aside from new economic data, the second data of the Reuters Washington Summit features a number of public policy speakers. “Newsmakers are expected to take an in-depth look at the November election and its implications for President Obama,” the news wire said. “They include inspector general for the bank bailout program Neil Barofsky and ambassador for the Republic of Korea Duk-Soo Han.”

In addition, the Senate Banking Committee will hold a hearing on the administration's proposal for a national infrastructure bank ― a six-year plan to rebuild U.S. infrastructure beginning with a $50 billion investment and new business tax cuts. 

Alan Krueger, Treasury secretary for economic policy, is expected to testify before the committee. 

Finally, Treasury Secretary Tim Geithner and Elizabeth Warren, who is leading efforts to build a consumer protection agency, are hosting a forum in Washington to gather opinions on how to simplify mortgage disclosures for borrowers.

Key Events Today:

8:30 ― Housing Starts, or construction of new homes, are expected to inch up in August after a slight 1.7% gain in July and a much larger 8.7% decline in June. Economists anticipate the index to report a seasonally-adjusted annual pace of 550k starts, slightly up from the 546k reported a month before. Single-family housing starts,  the key component in the index, are expected to fall as building permits ― or plans for construction ― have declined for the past four months. 

“These declines point to a drop in housing starts over the next two months,” said economists at IHS Global Insight. “For August, we project that starts fell 0.9% to 541,000 units (annual rate).”

2:15 ― Economic commentary from Ben Bernanke & Co. will be closely watched in the FOMC Meeting Announcement. It’s a virtual certainty that the Fed’s overnight lending rate will remain in the zero to 0.25% range, but a number of other issues are uncertain. A key topic is whether the Fed introduces new quantitative measures given the apparent slowdown in the economic recovery.

“In addition, there are greater than even odds that the Fed will reduce the interest rate paid on bank reserves as a measure to discourage excessive hoarding of cash balances held by banks at the Fed,” said economists at IHS Global Insight. “The FOMC will certainly discuss the pros and cons of additional quantitative easing measures, but will not likely ramp them up at this time.” 

ISSUANCE

  • 11:30 Treasury auctions $25 bln 4-week and $25 bln 52-week bills
  • Pemex, benchmark perpNC5 [guidance 6.875% area]; Citi/HSBC
  • HSBC, $750m 10-year [guidance T+240]; HSBC
  • BCI, roadshow this week; BNP/JPM
  • Gerdau, benchmark deal expected; HSBC/Santander
  • Kepco, $500-$750m 5 or 5.5-year; BAML/BARC/CS/GS/MS