The Day Ahead: Jobless Claims, Housing Starts, Philly Fed Survey

Benchmark interest rates spiked yesterday afternoon following the Senate's passage of the tax cut extension bill. About half of those losses were recovered overnight and while yields are creeping higher into the U.S. session, the 10 year TSY note has moved below 3.50%. Equity futures struggled in the overnight session but are currently bid slightly in the green.

The 10 year note is +10/32 at 92-23 yielding 3.499%. The FNCL 4.5 is +5/32 at 100-20. S&P 500 futures are +1.00 at 1233. Commodity prices are weaker, with light crude oil down 0.39% to $88.28 per barrel and gold prices down 0.04% at $1,379.80 per ounce.

Key Events Today:

8:30 ― Economists are expecting to see a rebound in November Housing Starts, or plans for constructing new homes, after the index dropped 11.7% a month before. Starts are expected to rise to an annual pace of 550k in November, up from 519k a month before. Building Permits, which anticipate starts by a month or two, are forecast to be at 560k, up from 552k in October. 

At best, these increases are an indication of stabilization than a renewal in the sector. Over the past 24 months, the average starts rate has been 575,000 units, whereas under normal conditions it would be at least 1.5 million, according to economists at IHS Global Insight.

In October, single-family starts slipped 1.1%, while multi-family starts dropped 43.5%.

“The sharp 64,000 drop in October multi-family starts appears to be an aberration, since it is out of line with recent data points,” the economists said. “We are expecting multi-family starts to bounce back by half of this amount in October.”

They added, “Given that September's number was the  third lowest ever ― data go back to 1947 ― this is hardly much of an improvement. With the economy growing and adding jobs, and applications to buy homes rising, we are expecting a small improvement in housing permits.”

8:30 ― Jobless Claims are receiving a lot of attention recently as the 4-week average continues to fall, indicating that the pace of lay-offs is finally slowing and the economy is  actually creating jobs. Some are even predicting upward revisions to the disappointing payrolls report in November, in some part based on the jobless claims reports. Economists are looking to see 420k new claims in the week ending Dec.11, compared with 421k the week before. The 4-week average was 428k last week, or 22k lower than the 450k mark, the level which economists say indicates labor expansion.

“The week after Thanksgiving has one of the largest seasonal adjustment factors of the year and always should be treated with some caution,” economists from Nomura said of the latest 421k figure. “However, it seems clear that the trend in jobless claims is improving. We think further declines are more likely than increases over the next month.”

Continuing claims ― the tally of those receiving regular unemployment benefits ― are expected to come in at 4.05 million in the week ending Dec. 4, down from 4.086 million.

10:00 ― Forecasters think the Philadelphia Fed Survey will fall to 15.0 in December  from 22.5, indicating expansion but at a lower pace than a month before. The previous score was the highest in 11 months, and helped to keep markets optimistic after the sharp decline in the New York regional index. 

“In stark contrast to the Empire State index, the Philadelphia Fed's measure of manufacturing conditions surged in November back to its cyclical peak,” said economists at Nomura. “We see a modest reversal from current levels to 15.0, but think most of last month's gain will stick.”

10:15 ― Fed buys an estimated $6-8 billion in Treasury coupons maturing between 06/30/13 and 11/30/14

2:30 ― The Federal Reserve Board holds an open meeting to discuss proposed rules governing debit card interchange fees and routing.