Morning Report - Was Wednesday the capitulation?

Vital Statistics:

	Last	Change	Percent
S&P Futures	1875.4	24.8	1.34%
Eurostoxx Index	2928.1	53.4	1.86%
Oil (WTI)	83.74	1.0	1.26%
LIBOR	0.228	-0.001	-0.44%
US Dollar Index (DXY)	84.82	-0.138	-0.16%
10 Year Govt Bond Yield	2.19%	0.03%
Current Coupon Ginnie Mae TBA	107	-0.1
Current Coupon Fannie Mae TBA	106.3	0.1
BankRate 30 Year Fixed Rate Mortgage	3.93

Markets are higher as yesterday's rally carries through. Bonds and MBS are down.

Housing Starts came in at 1.02 million, while building permits came in at 957k. Normalcy is 1.5 million, and that doesn't even take into account population growth. We should be seeing starts coming at double what they are. Single family starts came in at 646k. Single fam has been relatively stable, while multi-fam has been extremely volatile. 

Fed Head James Bullard made some dovish comments yesterday,which really turned around the market. The statement that got everyone's attention was his suggestion that the Fed should consider maintaining QE for the time being. However, his point was not really all that dramatic - just that given the volatility in the markets, (coming primarily from Europe) and the fact that inflation expectations are falling with commodity prices, it might make sense to end QE at the December meeting, not the October one. He also stated that he believes we are a couple of jobs reports away from reaching historical norms in unemployment and the fundamentals of the economy are strong. He is not suggesting that we delay increasing interest rates, which is what people were hoping. Note that the Fed Funds futures moved pretty dramatically this week as they re-assessed their forecast for the first interest rate hike. The central tendency moved to late 2015 from mid 2015. 

Wednesday's pre-market bottom in the 10 year is feeling more and more like a capitulation. Look at the intra-day chart of the 10 year bond yield this week. It looked like a perfect storm of flight-to-safety, convexity buying, shorts throwing in the towel, and algo trading. The thing was trading like a tech stock. Again, I think of the roller coaster metaphor for the market - dizzying climbs, sickening drops, you end up in the same place where you started with less money in your pocket.