Housing starts and building permits dropped to record lows in October, a sign that the housing market has yet to bottom out, the Commerce Department said today. Housing starts fell 4.5% to a record low 791,000 annual unit rate while building permits tumbled 12% to a record low 708,000 AR. Economists polled by Reuters News were expecting a 780,000 AR on both starts and permits.

Commerce upwardly revised September starts higher to 828,000 AR, originally reported to be 817,000 AR. Housing starts are down 38% from October 2007, the largest year-over-year decline since December 2007.

New construction of single-family homes, a better and more stable indicator of new home trends, fell 3.3% in the month to an annual rate of 531,000, the lowest rate since October 1981. Starts of homes for two or more families fell 6.8% in the month to an annual rate of 260,000.


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Federal Reserve Board Vice Chairman Donald Kohn said today that even in the wake of the housing collapse and resulting credit crisis, he does not believe earlier action by the Fed to address the housing bubble would have helped avoid these outcomes.

"I am not convinced that the events of the past few years and the current crisis demonstrate that central banks should switch to trying to check speculative activity through tighter monetary policy whenever they perceive a bubble forming," he said in remarks in Washington today.

Kohn said he is "a little less dubious" that monetary policymakers can see bubbles, but said he still doubts the Fed can move against them early enough to make a difference.

As an example, he noted that some economic models at the peak of the housing market around 2005 seemed to justify higher housing prices, a sign that it is "tricky" to positively identify bubbles even late in the game.

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Headline CPI fell 1.0% between September and October while the core rate fell 0.1%. The decline in the all-items index is the largest in 51 years of BLS records, while the drop in the core rate is the first since December 1982. The results compare to the Reuters News consensus call of a 0.8% drop in the all-items index and a 0.1% increase excluding food and energy charges.

Consumer inflation plunged at the fastest pace since the government began keeping records just after World War II and core inflation fell for the first time since the recession of 1982, slamming the door on anybody who was still worried about rising prices as a threat to the economy, the Labor Department said today.

Overall inflation has risen 3.7% in the past year, sharply lower than the 4.9% yearly gain just a month ago. Core inflation has risen an unadjusted 2.2% over the last 12 months, slower than the 2.5% through September.

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With half a dozen key data prints out at 8.30AM, BoC"s Carney made a very dovish speech in the minutes ahead of the data. He says that economic conditions have deteriorated so greatly since a month ago that "further monetary stimulus will likely be required to achieve the inflation target over the medium term".

He says the slowdown in global demand is dragging down commodity prices resulting in a deterioration of Canada"s terms of trade which is reducing incomes. He says the US housing and auto sectors are impairing the results of Canadian exporters particularly, but the depreciation of the C$ will ameliorate the impact.

Spot USD/CAD trades 1.2400 having kissed 1.2414, oil still sliding $54.15 last.

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Early sales of EUR/USD Vols in London Wednesday. Overnight atmf given 23.0 compared with 33.0 at the same time Tuesday and 1 week atmf in through mid 20.0"s from 25.0 just 24 hours ago. 1 month atmf posting fresh 4 week lows in the low 20.0"s, with 2 month given 19.0, 3 month at 18.75 and 1 year at 16.7. Big Expiry at 1.2650 today may well draw as session progresses.

A similar story for Cable vols, with 1 month atmf given sub 24.0 (down 5.0 vols from Monday"s peak) and 3 month at 23.0-22.5 today. 1 year atmf in toward 18.0. Talk of size direct demand for end of year 1.2500 GBP puts/USD calls but no details. This would equate to rates around 1.00 in EUR/USD and 1.00 in EUR/GBP. 1 month 1.3800 GBP puts heard trading around 28.0.

Vols in EUR/GBP losing further ground alongside related pairs. 1 month EUR/CHF trades new 4 week lows at 12.75. Expiries in USD/JPY at 96.50, 96.75 and large at 97.00 helping to contain spot today.


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