Morning Report - A softening of the tapering stance on QE?

Vital Statistics:

	Last	Change	Percent
S&P Futures	1677.5	6.3	0.38%
Eurostoxx Index	2685.7	20.0	0.75%
Oil (WTI)	106	0.0	-0.04%
LIBOR	0.266	0.000	0.00%
US Dollar Index (DXY)	82.5	-0.002	0.00%
10 Year Govt Bond Yield	2.47%	-0.06%
Current Coupon Ginnie Mae TBA	104.4	-1.1
Current Coupon Fannie Mae TBA	104.2	0.4
RPX Composite Real Estate Index	201.6	-0.9
BankRate 30 Year Fixed Rate Mortgage	4.48

Markets are higher this morning after good earnings out of Bank of America. Mortgage Applications fell 2.6% last week, a surprise given that rates fell. Bonds and MBS are up. The initial reaction to the prepared remarks is positive.

Today is Bernanke's semiannual Humphrey-Hawkins testimony in front of Congress, which begins at 10:00. The first thing to note is that this can be market moving, so don't be surprised if we get some volatility around rates. The burning questions concern the end of QE, although expect a lot of Congressional questions on banking regulation and Too Big To Fail. The prepared remarks are here.

The comment that seems to have everyone buying bonds is the statement that ending quantitative easing is "not on a preset course." Remember that was what hit the markets so hard the last time Bernanke spoke in front of Congress - he implied that the Fed expects unemployment to fall to 7% by the end of the year, and if the economy performs as expected, they will begin tapering QE this year. This statement seems to be a softening of that stance. This has pushed the 10 year to 2.47%.

Housing starts came in at a disappointing 836,000 annual pace. Building Permits fell as well. When you look at the internals, it was multi-fam which drove the decrease. Single family starts dropped by 5k, while 5+ units fell from 322k to 236k. Multi-fam in the South took the biggest hit. May was revised upward. I wouldn't read too much into this as far as purchase business goes - the weekly MBA purchase application index rose last week, and the homebuilders have been optimistic so far. Also note that homebuilder sentiment hit the highest levels since Jan 2006. 

The Senate reached a filibuster deal yesterday, and Richard Cordray was confirmed as head of the Consumer Financial Protection Bureau (CFPB). Republicans had been holding up the vote in an attempt to force changes to the agency - to make it a bipartisan committee vs a single head and to subject it to the normal Congressional appropriations process. Will it affect anything in our area? I am guessing not.