Morning Report: FOMC minutes 4/6/17

Vital Statistics:

Last Change
S&P Futures 2348.0 1.5
Eurostoxx Index 379.8 -0.3
Oil (WTI) 51.4 0.2
US dollar index 90.5  
10 Year Govt Bond Yield 2.35%
Current Coupon Fannie Mae TBA 102.53
Current Coupon Ginnie Mae TBA 103.813
30 Year Fixed Rate Mortgage 4.07

Stocks are lower this morning after the FOMC worried about stock prices. Bonds and MBS are down small.

Job cuts rose 17% in March, according to outplacement firm Challenger, Gray and Christmas. Telecom and retail were the two main sectors to trim staff. Note that this report only measures announced job cuts (in press releases), not actual job cuts. We are still seeing losses in the energy patch, however it is much slower than the past two years when we lost over 200k jobs.

On the other side of the coin, hiring announcements continue to hit records, with the Home Despot announcing 80,000 seasonal hires in March.

Initial Jobless Claims fell to 234k last week, while the Gallup Good Jobs index improved. The drop in initial jobless claims was the most in 2 years.

The FOMC minutes showed the Fed is beginning to discount the possibility of a big Trump fiscal expansion. The failure of health care reform means that the available resources for a big infrastructure spend or tax cuts is much less. The Fed also discussed what to do with their $4.5 trillion balance sheet, and how to go about shrinking it. The terms “gradual” and “phase out” were used, which means they probably aren’t going to stop reinvesting maturing principal all at once and will perhaps take a couple of meetings to see how it goes. The Fed’s fear is that the additional contractionary effects of reducing the balance sheet along with rate hikes will be too much and push the economy into a recession.

The staff also noted that stock values are above historical norms, which is undoubtedly another reason for them to go slowly. The worst-kept secret in financial markets is that the Fed targets asset prices and uses them to guide policy.

Goldman Chief Economist Jan Hatzius says that reducing the Fed’s balance sheet is probably a good step to clear the decks for whoever will be the new Fed President ahead of the end of Janet Yellen’s term in early 2018.

The left has set up a new website to keep track of HUD and what they are doing. They want to ensure that affordable housing targets don’t fall by the wayside as HUD works on housing reform. Given the tight housing inventory these days, affordable housing is a huge need.

Donald Trump economic adviser Gary Cohn supports some sort of return to the Glass-Steagall days, where consumer banking is separated from the underwriting and trading functions of investment banks. Some Senators and policy types were surprised to hear a Wall Street type advising that. The conversation regarding deposits will be further complicated by the emerging fintech sector which wants access to those deposits as well.

The Senate is expected to exercise the nuclear option today and eliminate the filibuster for Supreme Court nominees. Neil Gorsuch will probably be confirmed on Friday.

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