The Day Ahead: Economic Data and Post-FOMC Follow-Through Potential

By: Matthew Graham

Yesterday rocked, plain and simple.  A dichotomy had arisen between the ostensible course of Fed policy and it's increasingly clear impact.  In other words, the apparent willingness to taper asset purchases and "see how that played out" was a well-known culprit behind the bond market sell-off in place since early May.  But as that sell-off progressed, the question arose, would the Fed taper before the sector most abjectly affected by its policy shift had a chance to really convey the magnitude of the damage?

No...  No they wouldn't.  This was a refreshing reiteration that the Fed understands the risks and is maybe even trying to get ahead of the potential fall-out that higher rates will cause in economic data.  While that doesn't sound very Fed-like, if they were going to do such a thing, now would be a great time considering the heretofore central role of housing in the recovery and the abrupt rise in rates making for the possibility of the entire mortgage industry getting voted off the island. 

In other words, if they needed housing/mortgage so much, why hurt them so bad?  Why indeed.  Lots of conjecture, but no solid answers.  Yesterday undoes some of that hurt, but how we progress from here remains to be seen. here's an "interesting" chart of Fannie 4.0s for no particular reason.

Especially interesting will be the discovery of the true motivation for holding off on tapering.  Was it the mortgage/housing market?  Or was the labor market data not strong enough yet and/or potentially faltering?  We'll learn more incrementally with days of data like today.  Jobless Claims, Existing Home Sales, and Philly Fed all report this morning, and the consensus for Existing Sales is only for a drop to 5.25 mln from 5.38 mln previously.  Either way, if the data is weak, it vets the Fed's notion to slow their roll, likely to the ongoing benefit of bond markets.

MBS Live Econ Calendar:

Week Of Tue, Sep 16 2013 - Fri, Sep 20 2013

Time

Event

Period

Unit

Forecast

Prior

Mon, Sep 16

08:30

NY Fed manufacturing

Sep

--

9.10

8.24

09:15

Capacity utilization mm

Aug

%

77.8

77.6

09:15

Industrial output mm

Aug

%

0.3

0.0

Tue, Sep 17

08:30

Annual Core CPI

Aug

%

1.8

1.7

08:30

Consumer Price Index (CPI)

Aug

%

0.2

0.2

08:30

Core CPI

Aug

%

0.2

0.2

10:00

NAHB housing market indx

Sep

--

60

59

Wed, Sep 18

07:00

MBA Mortgage market index

w/e

--

--

385.0

08:30

Housing starts number mm

Aug

ml

0.913

0.896

08:30

Building permits: number

Aug

ml

0.950

0.954

14:00

FOMC Announcement

N/A

%

--

--

14:00

FOMC Economic Projections

N/A

--

--

--

14:30

FOMC Chair Press Conference

N/A

--

--

--

Thu, Sep 19

08:30

Current account

Q2

bl

-96.8

-106.1

08:30

Initial Jobless Claims

w/e

k

330

292

10:00

Existing home sales

Aug

ml

5.34

5.39

10:00

Philly Fed Business Index

Sep

--

10.1

9.3

10:00

Leading index chg mm

Aug

%

0.4

0.6

13:00

10yr TIPS Auction

--

bl

13.0

--