Escalation Overseas; Warsh for Treasury?; Weakness in Housing

The overseas conflict between Russia and Ukraine has entered a "dangerous new phase."?According to reports, the Biden White House recently granted Ukraine long-run missile capabilities, a sizable shift in the administration’s longstanding opposition, which President Volodymyr Zelensky quickly deployed, striking a military base on Russian territory at 2:30am local time earlier today. In response, Moscow escalated its threat of a nuclear response to further attacks.?Although, again, according to reports, the Biden administration indicated it will not adjust its current position at this time based on Russia’s response and a reduced nuclear threshold.??

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Markets scrambled to find safe havens amid the recent developments, with longer-dated U.S. Treasury yields falling notably over the last few hours. The 10-year is down 5bps, currently trading at 4.37% as of 10:33 a.m. ET. Gold, the Swiss franc, and the yen also pushed higher.??

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Back in the U.S., the latest reports indicate the incoming Trump administration may be considering Kevin Warsh for Treasury Secretary, perpetuating the revolving door between the Fed and the White House. Warsh served as a member of the Federal Reserve’s Board of Governors from 2006 to 2011, and prior to his role on the board, he served as Special Assistant to the President for Economic Policy and Executive Secretary of the White House National Economic Council from 2002-2006 under the Bush administration. Before his time at the White House and the Fed, Warsh worked in the Mergers & Acquisitions department at Morgan Stanley & Co from 1995-2002.

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On the economic calendar, housing starts fell 3.1% in October, pulling the annual pace down from 1.35M to 1.31M, a three-month low. Starts were expected to decline a lesser 1.5%, according to the median forecast on Bloomberg. On a regional basis, starts fell in two of four regions of the country, dropping 32.9% in the Northeast and falling 8.8% in the South, as a result of hurricane-related impacts. Starts rose, however, 9.4% in the Midwest and 21.1% in the West in October. Single family starts dropped 6.9%, while multi-family starts jumped 9.6% in October, the strongest gain in three months. Year-over-year, housing starts fell 4.0% in October, the largest annual decline in three months.

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Building permits, meanwhile, declined 0.6% in October, pulling the annual pace down from 1.43M to 1.42M, a three-month low. Building permits were expected to rise 0.7% in October, according to Bloomberg. Single family permits rose 0.5%, while multi-family permits dropped 3.0% in October, the second consecutive monthly decline. Year-over-year, building permits fell 7.7% in October, the ninth consecutive annual decline and marking the largest annual drop since May.

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Yesterday, the NAHB Housing Market Index unexpectedly rose three points to a reading of 46 in November, a seven-month high. According to the median forecast, the index was expected to remain at a reading of 43 in November for the second consecutive month.

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Tomorrow, weekly mortgage applications will be released.

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Later in the week, on Thursday, weekly jobless claims, the October Leading Index, October existing home sales, the Philadelphia Fed Business Outlook Index, and the November Kansas City Fed Manufacturing Index will all be released.

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Finally, on Friday, the final November S&P Global U.S. Manufacturing, Services, and Composite PMIs, along with the final University of Michigan Consumer Confidence Index, which is expected be revised down a point to a reading of 72.0 in the final November report.

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On the Fed-speak front, this afternoon at 1:10 p.m. ET, Kansas City Fed President Jeffrey Schmid will speak on the economic outlook and monetary policy to the Greater Omaha Chamber.

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-Lindsey Piegza, Ph.D., Chief Economist?