The Day Ahead: New Residential Construction, Bank Earnings, U.S./Chinese Summit
Investors are keeping both stock and bond markets flat as we await Q4 earnings from Goldman Sachs, State Street, U.S. Bank, and Wells Fargo. On top of that we are set to see Housing Starts and Building Permits data at 830.
Beyond scheduled economic releases, global markets will be paying close attention today to a meeting between Chinese President Hu Jintao and our own President Barack Obama. Reuters says their talks are expected to focus on a host of thorny issues, from rebalancing the global economy to dealing with North Korea and the value of the Yuan. Analysts are calling the visit the most important by a Chinese leader in 30 years given China's growing military and diplomatic influence and its emergence as the world's second largest economy after the United States.
Despite record earnings from Apple after the closing bell yesterday, S&P 500 futures are 1 point lower at 1,293.70 and Dow futures are flat at 11,811. The 10 year Treasury note is +5/32 at 93-31 yielding 3.351%. The FNCL 4.5 is +3/32 at 102-11.
In the latest MBA Mortgage Applications index, loan application volume jumped 5% in the week ending Jan. 14. Refinances led the increase with a 7.7% gain, marking the the third straight increase and pushing the component to its highest level since early December.
Purchases, however, fell 1.9% in the week.
“Mortgage rates have moved somewhat lower since the beginning of the year, as mixed data on the job market continue to cloud the outlook for the economy,” said MBA’s Michael Fratantoni. “Refinance applications have picked up, as borrowers take advantage of lower rates, but purchase applications remain quite low, indicating that home sales are unlikely to pick up any time soon.”
Key Events Today:
8:30 ― Housing Starts, a measure of new home construction, are expected to fall 5k to an annualized pace of 550k in December. That leaves the index 60% below its historical average, according to analysts at BBVA. Generally, economists blame the the anemic housing recovery on the attractive supply of existing home inventories, plus weak demand. For December, cold weather likely slowed development even further.
“A combination of cold weather in the South, wet weather in the West, and snowstorms that blanketed much of the Northeast and Midwest most likely suppressed housing starts in December,” said economists at IHS Global Insight. “Our projection is that housing starts dropped 2.7% to a 540,000 rate. With the economy slowly adding jobs, we are expecting an increase in housing permits to 562,000.”
In contrast, economists at Nomura look for the annualized rate to jump 2.7% to 570k, with building permits rising 4.8% to 570k.
“The expected improvement reflects a judgment that multi-family starts and permits were artificially depressed in November and should recover strongly,” they said. “However, we also see an improvement in single-family building activity.”
If the consensus forecast is correct, housing starts would be at the slowest pace of homebuilding since April 2009, according to BMO Capital Markets.
“Moreover, given the still-depressed level of homebuilder activity shown in the January NAHB survey, starts probably didn’t snap back in the New Year,” they added. “Residential construction likely contracted 10% annualized in Q4 after sliding 28% in Q3, carving a couple tenths of a percentage point from GDP growth.”