Morning Report: Investor optimism at a 16 year high 3/24/17

Vital Statistics:

Last Change
S&P Futures 2344.5 4.5
Eurostoxx Index 376.0 -1.3
Oil (WTI) 47.5 -0.7
US dollar index 90.0  
10 Year Govt Bond Yield 2.41%
Current Coupon Fannie Mae TBA 102.06
Current Coupon Ginnie Mae TBA 103.32
30 Year Fixed Rate Mortgage 4.17

Stocks are higher this morning after durable goods orders came in strong. Bonds and MBS are flat

We have a lot of Fed-speak today with 5 speakers, mainly in the morning.

Durable Goods orders rose 1.7% last month versus a 1.5% expectation. Aircraft orders drove the increase. Ex-transportation they rose 0.4%. The only disappointing part was capital goods orders, which fell 0.1% versus expectations of a 0.1% gain. Capital Goods orders is a proxy for business capital investment, and this number shows that while business may be more optimistic for the future, they aren’t putting their money where their mouth is quite yet.

Donald Trump challenged the GOP to either pass health care reform today or to forget it. Health care reform is being fought by both Democrats (who oppose any cuts whatsoever) and the GOP Freedom caucus (who oppose the program on general principles). Here are some of the proposed amendments and negotiation points. Health care reform is a critical piece of his planned infrastructure spending plan, so if that goes, then it will be much smaller than advertised and tax reform will probably have to be revenue-neutral. Note that revenue-neutral tax reform could still do a lot for the economy just by getting rid of the distortions caused by the tax code. At the margin, the failure to pass health care reform should make the Fed slightly less hawkish.

Regardless of the state of health care reform, Treasury Secretary Steve Mnuchin says tax reform will get done by the August recess.

Investor optimism is at a 16 year high, according to Wells Fargo. Interestingly, this is not based on taxes, as more people expect their taxes to increase (39%) than decrease (29%). Investors are also sanguine about the Fed’s proposed interest rate hikes, with equal percentages thinking they will be good, bad, or have no effect. 60% say now is a good time to invest, which is the highest number since 2011, when Wells started tracking that number. Note that extremely high investor sentiment can be a contrary indicator, however betting on that is usually a losing trade.

Suburbs and exurbs are again out-growing cities and their near suburbs, according to new Census data. This trend was upended during the post-bubble years as young Millennials stayed in the city.

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