Morning Report - What to watch for with the FOMC today

Vital Statistics:

S&P Futures	1775.5	-18.0	-1.02%
Eurostoxx Index	3010.7	-27.9	-0.92%
Oil (WTI)	96.97	-0.4	-0.45%
LIBOR	0.236	-0.001	-0.21%
US Dollar Index (DXY)	80.71	0.137	0.17%
10 Year Govt Bond Yield	2.72%	-0.03%
Current Coupon Ginnie Mae TBA	105.8	0.2
Current Coupon Fannie Mae TBA	104.5	0.3
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.33

Markets are getting slammed this morning on weakness in Europe and emerging markets currencies. Bonds are rallying on the risk-off trade. We should hear from the Fed at 2:00.

The Street is predicting that the Fed will decrease asset purchases by 10 billion a month, equally split between MBS and Treasuries. I would be surprised if they mention the turmoil in emerging markets, and it probably won't affect their thinking regarding QE unless credit begins to tighten. I don't think anyone expected the Fed to stick the landing with regard to extricating themselves from the asset markets, so sell-offs like these should be expected. 

The WSJ has a good write-up on what to look for in the statement today. It also looks at the new voting members that will accompany Janet Yellen. If anything the Federal Reserve Board will become slightly more hawkish, especially with the addition of Philly Fed President (and my ex faculty adviser) Charles Plosser and Dallas Fed Head Richard Fisher.

I don't see emerging markets affecting the U.S economy all that much. That said, Canada's real estate bubble is bigger than ours and is ripe to burst. Most mortgages in Canada are guaranteed by the government or by the Ontario Teachers Fund, so it won't have the soft of fallout that 2008 had, but there could be still be some issues that could roil credit markets. Luckily for the Canadians, their government doesn't view housing as an vehicle for social engineering.

Mortgage Applications fell .2% last week, which was a holiday-shortened week. A short week + a 6 basis point drop in rates = a wash. Purchases increased while refis fell.

There were 41,000 completed foreclosures in December, according to CoreLogic. This is a decrease of 4% month-over-month and 14% year-over-year. Approximately 847,000 homes were in some stage of foreclosure as of the end of the year, versus 1.2 million a year ago. The foreclosure inventory remains the highest in the judicial states.