The Day Ahead: New Residential Construction, Earnings

While cash fled equities in the wake of Standard & Poor’s revising its outlook on U.S. debt to negative from stable yesterday, the Treasury market rallied to near-one month highs. The benchmark 10-year yield declined four basis points to 3.37% while the 30-year yield fell two basis points to 4.35% and the FNCL 4.5 MBS coupon went out 9/32 higher in price at 102-05.

Treasury yields drifted progressively higher in active overnight trading. The benchmark 10-year note is currently -4/32 at 101-29 yielding 3.391% (+1.1bps) and the FNCL 4.5 is -2/32 at 102-03 yielding 4.139% according to MND's MBS yield model. 

Equities are roughly flat following a sharp sell-off Monday that pushed indexes more than 1% lower. S&P 500 futures are up 2 points at 1,303.00 as Dow futures trade 28 points higher at 12,168.

Light crude oil  futures are  currently -0.63% at $106.44 and gold futures are +0.19% to $1,495.30. Gold prices traded around the $1,500 mark yesterday, a new record high.

Guidance from world markets is mixed. Asian stocks are mostly lower with shares in Japan and Hong Kong falling 1.21% and 1.30%, respectively; the ongoing session in Europe is more positive with London shares rising 0.49% and German stock climbing 0.36%.

Key earnings releases this morning include Goldman Sachs, Intel, and IBM. After the bell, results from Yahoo are expected too. While housing data hits the wires too, the focus is clearly on earnings.

Key Events Today:

8:30 ― The five-month average for Housing Starts has been relatively flat since the summer of 2009, but the month-to-month figures are wild and unpredictable. In February the index dropped a mind-numbing 22.5% to their second-lowest in the records book (which date back to 1946), but the month before in jumped 18.4%. So what’s expected this month? Another big jump.

Economists polled by Thomson Reuters look for the annual pace of housing starts to leap 9.6% to 525k per year. Estimates, of course, all all over the place, from half-a-million to 625k.

“Melting snow in the Northeast and Midwest and a payback from building code changes in the West ― which boosted starts in December and January at February's expense ― may have played a role in February's deplorable numbers,” said economists at IHS Global Insight. “We are expecting much better numbers for March, but these increases will be payback numbers, not numbers pointing to a pickup in demand.”

Economists at BBVA advise keeping expectations low for the coming year.

“The housing market continues to struggle with foreclosures despite robust economic recovery,” they said. “Significant declines in existing home prices attract buyers and limit demand for new homes and therefore, we expect housing starts and building permits to improve but remain weak throughout the year.”

Treasury Auctions:
11:30 ― 4-Week Bills