Morning Report: personal incomes and personal spending rises

Vital Statistics:

	Last	Change	Percent
S&P Futures	2097.1	-1.3	-0.06%
Eurostoxx Index	3636.8	36.2	1.00%
Oil (WTI)	46.16	-1.0	-2.04%
LIBOR	0.309	0.009	2.83%
US Dollar Index (DXY)	97.49	0.149	0.15%
10 Year Govt Bond Yield	2.20%	0.02%
Current Coupon Ginnie Mae TBA	104.5	0.5
Current Coupon Fannie Mae TBA	103.9	0.5
BankRate 30 Year Fixed Rate Mortgage	3.9

Markets are lower this morning after Chinese and Greek stocks fell overnight. Bonds and MBS are down small.

Personal Incomes rose 0.4% in June, beating the 0.3% street forecast. Personal spending rose 0.2%, in line with estimates. May's blockbuster 0.9% increase was revised downward to 0.7%. The PCE Deflator (the inflation measure preferred by the Fed) rose 1.3%, still well below their 2% target rate. 

Auto sales will be coming in drip-by-drip during the day. Ford reported 5% increase in light vehicle sales, better than the 1.8% estimate. Auto sales have been doing well as of late as the average age of a car on the road in the US has hit 11.4 years, which is a record. The next big "tell" on spending will be the back-to-school shopping season, which is right around the corner. 

Obama is set to unveil new emissions limits for utilities today. Supposedly they go farther than earlier proposals. Will undoubtedly raise prices and slow the migration of manufacturing back to the US. Note industry and states aren't taking this lying down. Cheap energy is the US offset to cheap labor overseas. Note that coal miner Alpha Natural Resources filed for Ch. 11 bankruptcy this morning..

The ISM July Manufacturing Index fell to 52.7 in July. Production-related indicators rose, however employment and exports fell. 

Construction spending rose 0.1% in June, much lower than expectations, however May was revised upward from 0.8% to 1.8%. Residential construction is up 0.4% month-over-month and 13% year-over-year. 

We will get the all-important jobs report on Friday. The Fed will get one more jobs report before the September FOMC meeting. The Street has handicapped the chance of a hike as a coin toss. The stock market remains sanguine about rate hikes - the VIX (a measure of fear in the marketplace) is bouncing along the bottom. There is an old market saw: "VIX is high, time to buy. VIX is low, time to go." There is a lot of complacency with stocks right now. Below is a chart of the VIX over time. It hit 80 during the financial crisis. Given the short shelf life of traders (by the time you are 40, you are a senior citizen), there is an entire generation of traders who have never been through a tightening cycle. This could get interesting. 

Note that Blackrock is forecasting a 5% - 10% correction when the Fed starts raising rates.