Housing Starts

The biggest event overnight came from Europe, where Draghi managed to once again jawbone the Euro lower by ober 50 pips when he told European lawmakers in a prepared testimony that downside economic risks are "clearly visible," repeating his October press conference statement, adding that the ECB will reexamine degree of accommodation in December as "inflation dynamics have somewhat weakened." And the statement that crushed the Euro: "If we were to conclude that our medium-term price stability objective is at risk, we would act by using all the instruments available within our mandate to ensure that an appropriate degree of monetary accommodation is maintained." I.e., another "whatever it takes" moment.

For the first time since April, Case Shiller Home Prices rose month-over-month (though barely at +0.11%). However, this very modestly better than expected print was all thanks to downward revisions of previous data. San Francisco continues to lead the 20-city index with a 10.7% YoY gain. This is the 6th month in a row in which year-over-year gains are basically stagnant at +5%

Last week it was all about central banks, when both the ECB and the PBOC unleashed a massive market rally. This week it will be about even more central banks, this time the Fed, which won't hike, and the BOJ, which may but most likely won't as the Fed and the ECB already did its work for it, sending the Yen tumbling with their actions and/or jawboning.

The Fed has created permanent housing crisis from which there is no escape.

26 years ago, today was envisioned as day when cars flew, holographic movies were box office hits, hoverboards roamed, and people were fired by fax. None of the happened. Instead the only "back to the future" moment this morning is a deja vu one we have seen every day for the past 7 years: bad economic news leading to surging stocks.

Having missed for the last 2 months, Housing Starts bounced 6.5% in September back to cycle highs (which previously occurred right before the last recession). The South and West regions both saw housing completions drop notably (as The Midwest soared as housing starts slid in that region). However, the more forward-looking Building Permits remains well off the June pre-reg change spike highs. Despite soaring homebuilder sentiment, permits plunged to 1.103mm SAAR - the lowest in 7 months - thanks to a collapse in multi-family permits to the lowest since 2014.

After yesterday's closing ramp "prudently" just ahead of an abysmal IBM earnings report with the lowest revenues since 2002, and the latest rally in capital markets which sent European stocks to their highest level since August on the back of a barrage of global bad data which has unleashed the Pavlovian liquidity dogs screaming for moar central bank bailouts, this morning has seen a modest decline in the Stoxx 600 driven by energy names, while S&P500 futures are set to open lower on IBM's disappointment at least until the latest massive BOJ USDJPY buying spree sends the pair to 120 and the S&P solidly in the green. The biggest political event overnight was the Canadian election, where Trudeau's liberals swept PM Harper from power, capping the biggest political comeback in the country's history; the Canadian dollar is largely unchanged after initially weakening then rising.

It is a generally quiet week on the economic front, with updates mostly on the housing front where following today's euphoric NAHB Housing Market Index, we have housing start and permits, blaims and existing home sales. Elsewhere, Fed speakers continue to speak, with Lacker, Dudley (again) and Powell confusing traders once more. The big news this week is earnings as some of the most prominent companies report, including IBM, Verizon, GM, Ebay, Coke, Boeing, Amazin, AT&T, CAT, Microsoft and P&G.

"...the markets did retest the late August lows, and when combined with the very oversold conditions, led to a frantic 'short covering' rally back to previous resistance. It is worth noting that the recent market action is very similar to that of the August decline and initial rebound as well... . If the market is still confined within a more "bearish" trend, the current rally, like the ones that preceded it, will be a "rally to nowhere."

What was one "one and done", just became "none and done" as the Fed will no longer hike in 2015 and will certainly think twice before hiking ahead of the presidential election in 2016. By then the inventory liquidation-driven recession will be upon the US and the Fed will be looking at either NIRP or QE4. Worse, the Fed just admitted it is as, if not more concerned, with the market than with the economy. Worst, suddenly the market no longer wants a... dovish Fed?

"There have been a number of studies that have been done recently that have tried to take account of many different ways in which monetary policy acting through different parts of the transmission mechanism affect inequality, and there's a lot of guesswork involved, and different analyses can come up with different things. But a pretty recent paper that's quite comprehensive concludes that the -- that Fed policy has not exacerbated income inequality."

While today's economic data is likely too late to influence the Fed's decision which is now due in just over 5 hours, moments ago the latest housing starts and permits data painted another mixed picture, with Starts declining to a three month low of 1,126K, missing expectations of 1160K, and below last month's downward revised 1161K. The miss was a result of housing starts in the Northeast tumbling by 34% to 108K, the lowest prince since March now that the tax-driven surge, which we discussed previously expired in July, is over.

The long awaited day is finally here by which we, of course, mean the day when nobody has any idea what the Fed will do, the Fed included. Putting today in perspective, there have been just about 700 rate cuts globally in the 3,367 days since the last Fed rate hike on June 29, 2006, while central banks have bought $15 trillion in assets, and vast portions of the world are now in negative interest rate territory.

"Looking into 2016, we believe the three major headwinds highlighted in the medium term - excess capacity in many industries, oversupply in the housing market and high debt burdens (especially among local governments) - together with anti-corruption and policy uncertainties will continue to weigh on growth."

The title does give it away: the only event that everyone will be focusing on this week will be the Fed's announcement and Yellen's press conference on Thursday. Here is what else is on deck.