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Wednesday, August 19, 2009

Morning Market Report

The markets shrugged off some weaker than expected economic news yesterday and all indices were up betweeen .75% and 1.5%. Yet, they look to be selling off most of yesterday's gains this morning. World markets were nearly all down and currently the Dow, NASDAQ and S&P alld down about one percent. Housing starts came out yesterday and showed more evidence of a phenomenon I have been speaking about.

U.S. housing starts were essentially unchanged in July, as a small increase
in new construction of single-family homes was offset by a large decline in
multifamily units, government data showed Tuesday.

Starts fell 1% last month to a seasonally adjusted annual rate of 581,000
from an upwardly revised 587,000 rate seen during June, according to Commerce
Department estimates. Single-family starts rose 1.7%, while multifamily starts
fell 13%.

I have been writing about the looming commercial mortgage disaster and here we have more evidence of this phenomenon. Multi family starts, which mostly include commercial properties, were down 13% in the month of July which is yet another sign of the difficulty of getting commercial mortgages.

The starts point to the difficulty in securing commercial mortgages for purchases but the real trouble comes in refinancing those mortgages that are already being held. Those mortgages, many of which have balloon payments that come due, will begin to adjust in earnest at the beginning of 2010 and have their zenith in 2013. This latest number is further evidence that commercial mortgages are a looming crisis that very few people are talking about.

Meanwhile, U.S. Treasury bonds continue to see their rates drop. The ten year is now trading at 3.42%. The yield spread between the 2 and 10 year also continues to shrink and is now at 2.35%. It was at 2.5% as recently as two weeks ago and reached an all time high of 2.75% in June. This yield spread measures the chances of future inflation.

If world markets are any indication, today will be a very bloody day domestically. All major indices in the Far East and in Europe were down. The Chinese index shaved 4.1%. That was the worst performing index however others all performed poorly. The Hang Seng also in China was down 1.73%, the Straits Time Index in Singapore was down 1.75%, and the NIKKEI was down .79%. In Europe, the FTSE in London was down .62%, the DAX index in Germany was down .91%, and the Spanish index was down 1.32%.

Crude oil is down this morning but that was after a huge spike yesterday. It's currently trading at $68.70 a barrel. The Dollar is doing better against most major currencies though it continues to trail the Japanese Yen which has been the strongest currency over the summer months. The Dollar is up by .14% against the Euro, it's up by .89% against the British Pound, up by .68% against the Canadian Dollar, but down by .78% against the Japanese Yen.

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