Daily Market Color

U.S. Housing Data Misses Expectations Heading into “Super Central Bank Wednesday”

Unlike yesterday’s strong NAHB Housing Index, today’s data on housing starts and building permits reflected a cooling off in housing for the month of August.  The number of residential starts fell 5.8% to an annualized rate of 1.142 million, a larger decrease than the expected -1.7%, or 1.190 million starts.  Building permits similarly came in below predictions, reporting at -0.4% vs. +1.8% expected.  The deviation from the consensus was attributed to the southern region of the U.S., where August housing starts declined by 14.8% as floods affected building activity in the area.  Comparatively, the North, Midwest, and West regions all saw increases in MoM starts.  The U.S. housing data marked the final release before the FOMC announces its rate decision tomorrow, with the odds of a rate hike sitting near 20%.  Both equities and bonds have traded mixed throughout the day as investors wait for tomorrow’s announcement at 2pm EST. 

Asian and European markets closed near flat today as international markets also prepare for tomorrow’s monetary guidance from the BOJ and the Fed.  While further rate cuts have been highlighted as the most likely next policy move in Japan, there remains much debate surrounding the measures that will be chosen.  Potential actions to be selected by the BOJ include increasing its asset-purchasing program up to 100 trillion Yen per year, diversifying the asset classes in the purchase program to include more short term debt, and cutting interest rates further to as far as -0.7%.  Alternatively, the BOJ could choose to hold steady with their current policy as they continue to try to achieve their 2% inflation target.  The BOJ decision will be announced prior to the U.S. markets opening tomorrow.  
All three major U.S. stock indexes are currently trading up near 0.25% while Treasury yields and swap rates are down 1-3 bps across the curve.  Crude oil prices have fluctuated throughout the day over supply concerns but have settled near even on the day.   

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