Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1389.6	-7.9	-0.57%
Eurostoxx Index	2531.7	-35.9	-1.40%
Oil (WTI)	104.88	-2.4	-2.23%
LIBOR	0.4737	-0.001	-0.11%
US Dollar Index (DXY)	79.851	0.194	0.24%
10 Year Govt Bond Yield	2.26%	-0.03%

World equity markets are weaker after disappointing economic data from China and Europe. Initial Jobless Claims came in at 348k, more or less in line with expectations. The FHFA House Price Index and Leading Indicators come out at 10:00. The FHFA is a narrower index than Case-Schiller or RPX in that they only focus on conforming mortgages.

How is the deleveraging of the consumer going? Actually pretty well, according to one measure. Moody's notes that the delinquency rate on credit cards reached 4.02% in Feb, the lowest rate since August of 2007. That number is even more impressive when you consider the seasonal factors - Feb is usually a bad month for credit card delinquencies.

One thing the consumer does not need is higher gasoline prices. While oil prices have continued to rally, crack spreads are pushing 10 year highs. Crack Spreads are the price differential between crude oil and the refined product. WTI 321 Crack Spreads are at $32 a barrel, pretty much erasing the decline from last year. Apparently a large chunk of US east coast refining capacity is going to be taken off line this summer, causing a shortage of gasoline on the East Coast. For further details and analysis, click here. While people bemoan the lack of refining capacity, people forget that refining is in general a lousy business. Sunoco is looking to sell its Philadelphia refinery and will close it if they can't find a buyer. Sunoco got only $400 million for the sale of its Toledo OH refinery last year. So look for higher gas prices for the summer driving season.

For those keeping score at home, the XHB (Homebuilder ETF) has been on a tear since early October, gaining 77%. Is the stock market signalling something the economic indicators have yet to reflect? For the record, I noted the the change in tone on KB Homes 3Q conference call which seemed to predict that life for the homebuilders was improving. Also, someone made a punchy bet last Oct that paid off well.

Is an arcane rule change from the Fed influencing mortgage rates? The Fed has changed the rules for failure to deliver in MBS transactions, adding a charge in addition to the interest a seller must pay on a fail. With interest rates so low, sellers had the incentive to short MBS instead of delivering from inventory. This rule change will force dealers to hold more inventory, which the Fed ultimately hopes will drive up prices.