Morning Report: Fed still constructive on the economy 5/4/17

Vital Statistics:

Last Change
S&P Futures 2389.5 6.3
Eurostoxx Index 391.1 1.7
Oil (WTI) 46.9 -0.9
US dollar index 90.1
10 Year Govt Bond Yield 2.34%
Current Coupon Fannie Mae TBA 102.84
Current Coupon Ginnie Mae TBA 103.92
30 Year Fixed Rate Mortgage 4.04

Stocks are higher as the GOP votes on the Obamacare replacement. Bonds and MBS are down.

The Fed made no changes to policy yesterday. Bonds sold off a few ticks on the announcement, which was constructive on the economy. Specifically, they noted that job gains remained solid, despite a slowdown in economic growth. Consumption remains an issue, but much of that is due to an increase in the savings rate post-crisis.

Job cuts decreased in April, according to outplacement firm Challenger, Gray and Christmas. Just over 36,000 job cuts were announced in April, which is down 15% from March and 43% from April last year. Retailers announced the most cuts, with autos and healthcare coming in second and third.

Initial Jobless Claims fell to 238k last week, which is still at the lowest levels since the early 1970s.

Productivity fell 0.6% in the first quarter while unit labor costs rose 3%. This reading certainly makes sense in light of the weak Q1 GDP print. The conundrum of the past decade has been the drop in productivity growth, which drives wage growth and increases in standards of living. While there is a definite measurement issue (for example the plethora of free information available on the internet would certainly seem to boost productivity, however because it is free, it doesn’t show up in the calculations). Last year’s productivity growth was 1.4%, which was well below the historical average of 2.2%. Theoretically, low productivity would lower the growth ceiling on the economy which would make inflation emerge quicker and force the Fed to act more aggressively, however inflation is nowhere to be found and while there are labor shortages we aren’t seeing any real wage inflation yet.

Donald Trump has mentioned breaking up the big banks and a return to some sort of Glass-Steagall regime. That said, it doesn’t appear to be a priority, and the administration barely discusses it. Any discussion of breaking up the big banks would probably be limited to Bank of America, JP Morgan, and Citi. Any sort of break-up of these 3 would probably have limited impact on the mortgage market, as non-banks now dominate the space and Wells Fargo really doesn’t have the investment banking footprint the big 3 have.

The continuing resolution was passed by the House which should take the risk of a government shut down off the table until later next year.

10 Responses

  1. I think the CR is only good until the new FY.

    Like

    • I don’t think it’s a CR. It’s an omnibus spending bill for the rest of the current fiscal year. The difference being that it changes spending levels and has some other authorizations in it akin to the regular spending bills and doesn’t just keep everything funded at current levels through the end of the year.

      NoVA would know better.

      Like

  2. FYI – Mark it looks like I’ll be back in Austin for ACL this year in October.

    Like

  3. senate passes omnibus and the house passes AHCA. i guess that’s governing?

    Like

Be kind, show respect, and all will be right with the world.

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: