The Day Ahead: Housing Starts, Building Permits, Industrial Production


Rates are mostly unchanged amid light trading volume as investors await new housing and industrial production figures.

Debt concerns in Europe are still the focus for global investors as Euro zone finance ministers green-lighted a €78 billion aid package to Portugal. The move is intended to guard the zone’s financial stability. 

“There seems to be some semblance of calm in financial markets this morning as the who’s who of European finance gathers for Day 2 of the EU meeting in Brussels, while the head of the IMF continues to cool his heels in a jail cell in New York,” said economists at BMO Capital Markets.

Meanwhile, Eurogroup Finance Minister Jean-Claude Juncker has called a debt restructuring for Greece out of the question, but certain finance ministers are behind the idea of a debt “reprofiling,” which could defer bond payments in the short term.

The benchmark 10-year note is currently +1/32 at 99-27 yielding 3.143%. The 2s/10s yield curve is 1bp flatter at 262bps wide. The FNCL 4.0 is +4/32 at 100-11 and the FNCL 4.5 is +1/32 at 103-12.

Equities are flat as well. The SP 500 is 0.50 points higher at 1,326 and the Dow is 5 points up at 12,503.

Light crude oil fell 0.03% overnight to $97.36 per barrel, while gold prices rose 0.91% to $1,490.60.

The Day Ahead…

8:30 – The pace of Housing Starts has been scraping along the bottom for the past two years. The annual pace is anticipated to rise to 570k in April, up from 549k the month before and 512k the month before, but still well below a long-term average of 1.4 million. Forecasts range widely this month, from 500k to 600k, on account of weather playing a key role.

“April housing starts likely showed signs of extending the March rebound from the severe late winter storms,” wrote analysts at Citigroup, who expect single-family units to lead the recovery. “Building permits have been above starts for the past few months, suggesting a backlog of building waiting for better weather for actual ground breaking.”

More broadly, Citi says there are few signs of fundamental improvement in the new home market.

A more positive outlook came from Janney Capital Markets.

“As the economic data season turns from winter to spring, we’re apt to see increases in residential construction over and above those that will be weeded out by the usual seasonal adjustments,” they wrote. “Residential construction has become super-seasonal, an impact of the absolute low level of sales and the lag of the seasonal-adjustment-adjustment process.”

However, they noted the weather situation in April was complication, consumer income growth has stagnated, and distressed homes continue to glut the market. 

9:15 – After a solid 0.8% gain in March, Industrial Production is only expected to rise 0.4% in April. Uncertainty is high – the culprit is the mid-March earthquake-tsunami and subsequent production shutdown in Japan, which hurt the auto sector.

“Motor vehicle production tumbled in April because of shockwaves to the supply chain following the March earthquake in Japan, leading to reduced hours at plants reliant on parts from Japan,” said economists at IHS Global Insight. 

“We estimate that unit production in the U.S. fell 12.2% from March,” they added. “Motor vehicle plants would have been humming save for the supply shock, as vehicle sales have remained strong. The downdraft from autos comes amidst a decent, but uninspiring, month in most other manufacturing industries, after several very good months. A workmanlike month for most sectors combined with a drop in automotive output should yield either flat or slightly declining manufacturing output.”

As of March, industrial production was 5.9% higher than one year ago. The index has also increased in 20 of the past 21 months, according to BBVA.

Treasury Auctions:
11:30 – 4-Week Bills ($28 billion)

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