Morning Report: Turkish situation continues to degenerate

Vital Statistics:

			Last	Change
S&P futures			2836	-0.55
Eurostoxx index			384.89	-0.96
Oil (WTI)			67.37	-0.26
10 Year Government Bond Yield				2.88%
30 Year fixed rate mortgage				4.58%

Stocks are lower as the Turkey situation snowballs to other emerging markets. Bonds and MBS are up on the flight to quality trade. 

Financial markets are being driven by the situation in Turkey, with the Turkish Lira continuing to depreciate. This has spread to other emerging markets currencies like the South African Rand. The Chinese currency has hit the lowest level in a year, which is bound to increase trade tensions with the US. There is the potential for this to affect the balance sheets of some European banks, however the US will be pretty much insulated from it. The most likely effect is that it will cause a flight to quality to the US dollar which will keep a lid on interest rates.

The Turkish crisis hasn't affected the Sep Fed Funds futures, which are handicapping a 94% of a hike, but they have tempered the probability of a follow-on hike in December. It isn't a dramatic move, but we have slipped from 66% to 61%. 

We won't have much in the way of market-moving data this week - retail sales on Wednesday will be the only one that matters. We will also get housing starts on Thursday. Other than that, it should be a dull week. 

Ben Carson is changing the way HUD encourages multifamily real estate development. The Obama HUD used the stick approach - suing local governments to force them to change their zoning rules, based on demographic analysis. The Carson HUD will use the carrot approach - tying grants to changes in zoning restrictions. 

Conventional financing accounted for 69% of all financing last year. Of the non-conventional types of financing, FHA loans led with 12%, followed by cash with 10% and VA with 4%. 

Elon Musk clarified his tweet regarding taking Tesla private. He decided to use Twitter in order to notify the public of his intention to take the company private. Most companies file an 8-K with the SEC and do a press release, but Elon decided to use Twitter. Second, his "funding secured" comment was based on a conversation with the Saudi Sovereign Wealth Fund who asked if Tesla was interested in selling to the fund. Musk then looked at the assets of the fund, concluded they had the money, and then tweeted that funding was secured. One thing is for sure, if this deal ever happens, the background section of the proxy statement is going to make for some entertaining reading. 

Morning Report: Median home ages climb

Vital Statistics:

			Last	Change
S&P futures			2842	-11.5
Eurostoxx index			386.37	-3.68
Oil (WTI)			67.28	0.48
10 Year Government Bond Yield				2.90%
30 Year fixed rate mortgage				4.58%

Stocks are lower this morning on overseas weakness. Bonds and MBS are up on the risk-off trade. 

Inflation at the consumer level remains under control, with the Consumer Price Index rising 0.2% MOM and 2.9% YOY. Stripping out food and energy, it rose 0.2% / 2.4%. A big driver of the increase was shelter, adding 0.3%. Food rose slightly while energy declined.

The EU and the US are scheduled to meet to discuss ways to bring down tariffs. The US would like to see more soybean and energy exports to the Continent, and is hoping to derail a potential pipeline of natural gas from Russia to Germany. 

The Turkish Lira is in freefall, and there is discussion of how that will affect Euro banks, specifically BBVA, BNP Paribas, and Unicredito. Yields on the Turkish 10 year bond have hit 20%. This is causing a flight to quality which is benefiting US bonds. While Turkey is probably not big enough to cause any sort of contagion, it could cause the ECB to go a little slower on policy normalization. Note Trump is stirring the pot, threatening to double tariffs. 

Fannie Mae has also announced forbearance policies for borrowers affected by the California wildfires. Borrowers can get up to 12 months forbearance without penalty if they live in FEMA-designated disaster areas. 

The average age of a home is 37 years old, according to the American Communities Survey. This really speaks to how weak housing starts have been since the real estate bubble burst. Pre-bubble they averaged 1.5 million a year. 

Slower delivery times are beginning to affect manufacturers (and their earnings reports). Ultimately, bottlenecks are usually inflationary. This is also the downside of making supply chains elongated and lean - capacity is maxed so meeting incremental demand requires investment that many firms are reluctant to make. The good news is that demand is strong, but the downside is that this is yet one more inflationary issue. The odd thing is that capacity utilization is sitting at 78%, which is about the historical average.