Morning Report: Chinese selling of Treasuries

Vital Statistics:

	Last	Change	Percent
S&P Futures	1922.9	-46.3	-2.35%
Eurostoxx Index	3170.6	-99.0	-3.03%
Oil (WTI)	47.13	-2.1	-4.21%
LIBOR	0.329	0.005	1.42%
US Dollar Index (DXY)	95.59	-0.234	-0.24%
10 Year Govt Bond Yield	2.17%	-0.05%
Current Coupon Ginnie Mae TBA	104.2	0.2
Current Coupon Fannie Mae TBA	103.8	0.3
BankRate 30 Year Fixed Rate Mortgage	3.9

Stocks are lower this morning on global growth fears. Bonds and MBS are up.

IMF Managing Director Christine Lagarde said that global growth will likely remain weaker than the IMF was projecting two months ago. Chinese manufacturing fell to a 3 year low. 

China continues to sell US Treasuries in order to support its currency. There has been a fear that China could take down the US by dumping Treasuries and pushing up interest rates here. In reality, the US has more leverage here. China's economy is beginning to soften, and the last thing they would want to do is injure their biggest customer. Second, Japan would gladly take China's supply of Treasuries. Third, the article mentions that China has no better alternatives than US Treasuries to stash a trillion dollars. Actually I think that is wrong. The proceeds will go to pay off domestic debt pledged against falling asset prices within China. 

The ISM Manufacturing Survey fell to 51.5 in August, missing the Street expectation of 52.5. Prices paid fell from 44 to 39. 

Economic Optimism took a big hit in August as well, as the index fell from 46.9 to 42, missing the Street expectation of 47.1 by a country mile. 

Constructions spending rose 0.7% in July and June was revised upward from 0.1% to 0.7%.

Obama threw a bone to organized labor as his National Labor Relations Board ruled that companies that use contractors are considered joint employers. This makes parent companies liable for how their subcontractors treat their employees and also is intended to make it easier for unions to get a foothold in the big fast food chains. Who else has to worry about this? The homebuilding industry, which uses a lot of contract labor and has since the 1980s. "Are we concerned that this ruling might have some impact? I think we are alert to the ruling. We are aware that the Labor Department feels its mandate is broad, but we think that our business is highly differentiated from what's being discussed in the current case or even extensions," said Stuart Miller, CEO of Miami-based Lennar. Given how much homebuilding means to the overall economy, depressing the sector even further is not really what the economy needs at the moment. And the lack of housing supply leads to...

Higher prices and low affordability. The CoreLogic Home Price Index rose 1.7% in July, which is up 6.9% year over year. Prices remain 6.6% below their August 2006 peak.