The Day Ahead: Regulators Meet to Sort Out Foreclosure Crisis
U.S. equity futures are pointing upwards Wednesday morning, offering some recovery after the sharp sell-off yesterday. Benchmark interest rates are essentially unchanged.
Ninety minuntes before the opening bell, S&P 500 futures are 4.50 points higher at 1,168.00 and Dow futures are 28 points higher at 10,971.
The belly of the yield curve is slightly weaker with 5s down 0-01+ at 100-21 yieding 1.113% (+0.009bps). 7s are -0-02 at 100-17+ yielding 1.791% (+0.005bps). 10s are -0-01 at 101-07+ yielding 2.482% (+0.003bps). And the long bond is catching a bid from real money accounts in anticipation of a curve flattening Fed policy move sometime down the road.
The December delivery FNCL 3.5 is -0-01 at 101-01. The December delivery FNCL 4.0 is -0-01 at 103-08. MND's current coupon is marked at 3.408%. Yield spreads are slightly tigther as the trading environment remains supportive of MBS valuations.
After getting smashed as the dollar rallied yesterday, commodities prices are making a comeback this morning. Light crude oil is +0.99% at $80.28 per barrel, Gold is +0.38% at 1341.05 at $1,336 per ounce, Silver is +1.84% at $23.75.
On Tuesday, the Dow shed 165 points and the S&P dropped nearly 19 points ― marking the biggest one-day declines in more than two months.
“Yesterday’s selloff that was triggered by a surprise tightening move in China, U.S. foreclosure worries and some uninspiring earnings outlooks,” said economists at BMO Capital Markets.
Today’s calendar is a light one. The focus will be the afternoon’s release of the Federal Reserve’s Beige Book. In addition, Q3 earnings results are expected from Morgan Stanley, Wells Fargo, and Boeing.
“More than 81% of S&P 500 companies have beaten earnings expectations, while 68% have beaten on revenues,” BMO analysts noted. However, they noted market reactions to the results have been muted following a strong rally leading up to earnings season.
AQ's Reuters screen...
Key Events in the Day Ahead:
7:00 ― MBA Mortgage Applications, just released, indicated that mortgage loan application volume fell 10.5% on a seasonally adjusted basis in the week ending October 15.
Refinancings declined 11.2% and purchases decreased 6.7% from one week earlier.
The average contract interest rate for 30-year fixed-rate mortgages was 4.34%, up from 4.21% in the prior week.
9:30 ― Jeffrey Lacker, president of the Atlanta Fed, delivers opening remarks to a “Economics Made Easy” journalism workshop at the University of Maryland.
12:45 ― Charles Plosser, president of the Philly Fed, speaks on incentives and regulation to the Union League in Philadelphia.
2:00 ― The Beige Book, an anecdotal summary of economic conditions across all 12 Federal Reserve districts, last indicated that auto sales and consumer spending increased in August, but that there “widespread signs of a deceleration compared with preceding periods.” Retail inventory was reported to be tight, shipping and transportation sectors expanded, and manufacturing was increasing. This report, which covers the six preceding weeks, is anticipated to report further deceleration.
“Businesses are reluctant to expand which negates their need for extensive commercial and industrial loans,” said analysts at BBVA. “We expect that the forthcoming Beige Book report will highlight ongoing weak recovery across the US.”
ISSUANCE
* 11:30 Treasury auctions $25 bln 56-day SFP bills
* Freddie Mac, benchmark 2-year [talk T+12.5]; DB/GS/UBS
* IsDB, benchmark 5-year [guidance ms +40-50 bps]; CIMB/Citi/HSBC/SCCM
* Sovcomflot, benchmark 7-year [talk 5.5% area]; DB/JPM/VTB
* Fortescue, $2.04bn 5-year; JPM/RBS; roadshow this week
* BicBanco, 5-year offering [guidance 5.5%(+/- 1/8)]; BAML/Citi/Itau/JPM
* Posco, $500m 10-year rumored [talk low 200s]; BAML/BNP/DB/GS/MS
OTHER EVENTS
From Reuters...
U.S. federal regulators will meet on Wednesday to discuss the foreclosure crisis amid concerns it could affect the housing market and broader economy, White House spokesman Robert Gibbs said. The Obama administration wants to ensure that banks' foreclosure practices were lawful, Gibbs said. Attendees at the meeting will include Treasury Secretary Timothy Geithner, Housing and Urban Development Secretary Shaun Donovan and a top Justice Department official, Associate Attorney-General Thomas Perrelli, Gibbs said. Banks would face federal fines and possible legal action from homeowners if investigators find irregularities in the banks's practices, he said. Foreclosed home sales are key to spurring a recovery in the fragile housing market, he said, and the White House was concerned about the dangers of "halting" the entire housing marketing and the knock-on effect on the broader economy.
AQ shared his perspective on foreclosure issues last night: ROBOCLOSURE-GATE: Getting Down to the Nitty Gritty. Poo Hits Fan