Morning Report: Fed hikes but markets sanguine 3/16/17

Vital Statistics:

Last Change
S&P Futures 2384.5 4.0
Eurostoxx Index 377.3 2.2
Oil (WTI) 49.2 0.3
US dollar index 90.7  
10 Year Govt Bond Yield 2.53%
Current Coupon Fannie Mae TBA 101.53
Current Coupon Ginnie Mae TBA 102.87
30 Year Fixed Rate Mortgage 4.29

Stocks are higher this morning after the Fed hiked rates. Bonds and MBS are up.

As expected, the Fed hiked rates yesterday. The statement was taken as relatively dovish, and the dot plot showed a slight increase in the 2017 Fed funds rate projection, however it was only about 4 basis points from December. In the press briefing, Yellen’s main message was that the economy is doing well. The dovish language and the modest increase in the dot plot caused bonds to rally, which pushed the 10 year below 2.5% yesterday.  We saw a similar reaction in the 2 year, which went from a 1.4% yield to a 1.3% yield. The economic projections were pretty much unchanged from December. You can see a comparison of the dot plots below, where the central tendency (or average of the 2017 dots) increased from 1.49% in December to 1.53% in March:

dot plot comparison dec vs mar

Housing starts came in at 1.29 million in February, slightly better than expected. This is 3% above January, and 6% higher than last year. Single family starts increased to 872k, which was 3% above last year. Building Permits came in at 1.21 million which is up 3% YOY, but below January’s numbers. Housing starts are still surprisingly depressed given the dearth of inventory.

Job openings increased to 5.6 million in January, according to the JOLTS data. The quits rate (which usually leads wage growth) inched up to 2.2%. The quits rate is a big number to the Fed and one they watch closely.

In other economic data, initial jobless claims fell to 241k, while the Philly Fed fell from 35 year highs. Consumer comfort edged up as well.

Donald Trumps’s proposed budget increases defense, while cutting discretionary spending pretty much everywhere else. Entitlements stay untouched. HUD will see a decrease, although it appears (at least as of now) that Ginnie Mae and the mortgage area will not feel it. It is too early to tell if it has much support. If he can’t get a budget deal, then we continue to fund the government on continuing resolutions, which more or less means the first Obama budget.

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