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from Global Markets Forum Dashboard:

Sinking mortgage rates disguise investor fear – economist

A dip in 30-year mortgage rates to their lowest level in more than a year and stronger U.S. housing data on Friday appeared to be the green shoots of the next phase of U.S. economic recovery, that being the housing market.

U.S. housing starts were up a whopping 6.3 percent in September. Together, the mortgage and housing data seemed to suggest a housing recovery. That, in turn, fits neatly into the U.S. Federal Reserve’s initial timeline for ending its asset buying program this month, even as the number of sales of previously owned homes disappointed on Monday.

David Berson, chief economist, Nationwide Financial

David Berson, chief economist, Nationwide Financial

Taken as a part of the whole global financial picture, however, interference from economic slowdowns in Europe and China have begun to creep in and obfuscate the perception of a U.S. housing recovery.

The dip in mortgage rates has not been a nod toward increased home ownership, rather it has shrouded a flight to quality assets, David Berson, chief economist with Nationwide Financial told the Global Markets Forum on Monday. Banks are not necessarily getting more lenient with mortgage lending, rather sinking yields are a reflection of investor fear.

from Breakingviews:

“Seller beware” when profiting from market calm

By Swaha Pattanaik

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Seller beware. That is an unusual warning, but it applies right now to the options market. Sellers of protection against large price moves have been pocketing gains. But many will suffer losses if markets become less calm.

from Counterparties:

MORNING BID – Dot Matrix

The Federal Reserve did it again, giving back to the markets at a time when it wasn't expected, and showing once again that the early months of a new Fed chair's tenure are fraught ones, in terms of interpreting monetary policy.

Janet Yellen probably didn't mean to suggest rate hikes could come as soon as six months after the bond-buying program ends for good. And the release of the Fed minutes also demonstrated that the Fed - even in discussing projections - worried about how it would all look, specifically the "dot matrix" that showed several Fed members saw higher rates before long, and really, that it was all just kind of overstated. (Yellen even said this at her press conference - that the dots did not mean what you thought they meant).

from Counterparties:

MORNING BID – Turkey, the Fed, and we all float down here

The messy sell-off in emerging markets was stemmed overnight after Turkey surprised everyone by raising rates to 12 percent – but it didn’t last. Major averages in Britain and Germany opened at their highs of the day but have since faded, and even though the big rate increases in Turkey, South Africa and India are meant to stem capital flight, so far the market’s shooting first and asking questions later. S&P futures were up about 20 points after the Turkey rate hike – an odd move for such a localized event – and we’re seeing the reaction now, which, to quote Tom the cat about the ‘white mouse no longer being dangerous,’ “DON’T…YOU…BELIEVE…IT.” So we’re lower, and continue to head lower, and for those of you new to the markets, this is what’s called a selloff.

The big question: Will the Federal Reserve defer its tapering campaign in recognition of emerging-markets difficulty? One could say the Fed cannot be expected to act as the underwriter for global risk-taking, but you’d be laughed out of the room, given the performance of assets around the world in the last several years as the Fed went into full-QE mode.

from Global Investing:

A boost for cheap emerging equities. So will they bite?

Emerging stocks have rallied 3 percent today after the Fed's startling decision to leave its $85 billion-a month money-printing in place, and some markets such as Turkey are up more than 7 percent. With the first Fed hike now expected to come in 2015 and tapering starting only from December, emerging markets have effectively received a three month breather. So will the buyers return?

A lot of folks have been banging the drum about how cheap emerging markets are these days. But imminent Fed tapering has been scaring away any who might have been tempted. Plus there is the economic growth slowdown that could knock profit margins at emerging market companies. Bank of America/Merrill Lynch which runs a closely watched monthly survey of fund managers shows just in the following graphic how unloved the sector is relative to history:

from MacroScope:

Fed taxonomy: Lacker is a hawk, not a bull

Not to mix too many animal metaphors but, generally speaking, monetary policy hawks also tend to bulls on the economy. That is, they are leery of keeping interest rates too low for too long because they believe growth prospects are stronger than economists foresee, and therefore could lead to higher inflation.

That is not the case, however, for Richmond Fed President Jeffrey Lacker, a vocal opponent of the central bank’s unconventional bond-buying stimulus program, particular the part of it that focuses on mortgages. He reiterated his concerns last week, saying the Fed should begin tapering in September by cutting out its mortgage bond buying altogether.

from MacroScope:

Curious timing for Fed self-doubt on monetary policy

If there was ever a time to be worried about whether the Federal Reserve's bond-buying stimulus is having a positive effect on the economy, the last few months were probably not it. Everyone expected government spending cuts and tax increases to push the economic recovery off the proverbial cliff, while the outlook for overseas economies has very quickly gone from rosy to flashing red. But the American expansion has remained the fastest-moving among industrialized laggards, with second quarter gross domestic product revised up sharply to 2.5 percent.

Yet for some reason, at the highest levels of the U.S. central bank and in its most dovish nooks, the notion that asset purchases might not be having as great an impact as previously thought has become pervasive.

from Breakingviews:

Emerging market woes support higher U.S. yields

By Swaha Pattanaik

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

When there is turmoil in global markets, safe havens, such as U.S. government bonds, typically benefit. But right now, the pattern may be different. In Brazil, India and Indonesia, central banks have intervened to slow their currencies’ slide in the past two weeks. Traders say that other countries are doing the same. These raids on foreign exchange reserves will add to the tailwinds that are driving U.S. Treasury yields higher.

from MacroScope:

Time to taper the taper talk?

It's been three months since the Federal Reserve first hinted that it's going to have to ease off on its extraordinary monetary stimulus, but financial markets are still not settled on the matter.

But while volatility is on the rise - surely partly a result of thinned trading volumes during the peak summer vacation season - the consensus around when the Fed will start cutting back hasn't budged.

from Lipper Columns:

CTRL:ALT:INVEST: Interest rate hedges gain favor in 2013


Steve Sachs, head of capital markets at alternative ETF provider ProShares, says that, with rising interest rates, funds that short treasuries have gained popularity this year.

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