Equity markets gave up their Monday gains and more on Tuesday following mixed news from the housing sector. The latest data on new home starts and permits showed a surprisingly large increase in starts coupled with a larger than expected decline in permits. The news suggests buyers with contracts are in a hurry to front-run interest rates while those earlier in the home-building process are leaving the market. The takeaway is that FOMC interest rate hikes are having an effect on the economy albeit with a lagging effect on inflation.

The FOMC is expected to hike rates by another historic 75 basis points on Wednesday and could spook the market with its statement. The latest inflation data was far from good and suggests consumer level inflation is still accelerating so a hawkish tone should be expected. Regardless, net activity is slowing on a global basis and bringing the world economy closer to recession.