Morning Report: Market at odds with Fed projections

Vital Statistics:

	Last	Change	Percent
S&P Futures	1942.2	12.7	0.66%
Eurostoxx Index	2972.2	26.5	0.90%
Oil (WTI)	34.31	0.6	1.66%
LIBOR	0.635	-0.001	-0.08%
US Dollar Index (DXY)	98.2	-0.012	-0.01%
10 Year Govt Bond Yield	1.74%	0.01%
Current Coupon Ginnie Mae TBA	105.5
Current Coupon Fannie Mae TBA	104.8
BankRate 30 Year Fixed Rate Mortgage	3.84

Green on the screen this morning as oil and emerging markets rally and the Chinese act to boost lending. Bondsd and MBS are flat.

The ISM manufacturing Index improved to 49.5 from 48.2 last month. Still below 50, which indicates a slowdown, but better than expected. The Markit US Manufacturing PMI came in at 51.3, better than expected. 

Construction Spending rose 1.5% in January, much higher than the 0.3% forecast. Public construction drove the increase. Private residential construction was flat for the month. 

The turmoil in the financial markets and the global economy have cooled the market's forecast for further rate hikes. The Fed Funds futures contracts are now forecasting only a 10% chance of a rate hike at the upcoming March meeting and a coin toss for one by December. This is at odds with the last dot graph from the December FOMC meeting, where the median forecast was 1.25% by the end of 2016. 

Vehicle sales are coming in strong this morning. Ford Feb sales were up 20%, while Fiat Chrysler sales were up 12% on strong Jeep sales. SUVs were the big gainer overall, as lower gasoline prices entice drivers to switch to bigger cars. Much of this growth is being fueled by cheap credit, however there is so much pent-up demand for new cars (the average age of a car in the US is 11.4 years) that this growth is probably sustainable for the near term and isn't just a cheap credit story. 

Today is Super Tuesday, where 12 states are holding primaries. So far, it looks like Hillary Clinton and Donald Trump will emerge as the winners. 

Elmer Fudd warns of "distortions to savings and investment" due to negative interest rates. As the primary architect of the Great United States Housing Bubble, it would have been nice if he had worried about monetary policy-driven distortions to savings and investment say, 15 year ago. 

Home prices continue to rise according to CoreLogic. Prices rose 1.3% MOM and are up 6.9% YOY. According to Corelogic, prices remain about 7% below their April 2006 peak. Overvalued markets include many in Texas, Washington DC, and Florida. You can see in the map below, which areas are cheap and expensive (green=cheap, red=expensive).

NAR is predicting existing home sales of 5.38 million in 2016, with average home price appreciation of 4% to 5%. It looks like the Northeast is finally starting to pick up a bit, with contracts up 11% in January.