Morning Report: DC focuses on Equifax 9/15/17

Vital Statistics:

Last Change
S&P Futures 2491.5 -2.8
Eurostoxx Index 380.8 -1.0
Oil (WTI) 50.0 0.1
US dollar index 85.0 -0.2
10 Year Govt Bond Yield 2.20%
Current Coupon Fannie Mae TBA 103.33
Current Coupon Ginnie Mae TBA 104.21
30 Year Fixed Rate Mortgage 3.83

Stocks are lower this morning as September options and futures expire. Bonds and MBS are flat.

Retail Sales fell 0.2% last month, and prior months were revised downward. The control group which excludes autos, gas, and building materials fell 0.2% as well. August retail sales included some early hurricane effects, but overall it points to a lousy back-to-school shopping season. I wouldn’t be surprised to see strategists start to cheat down their Q3 GDP estimates. Separately, business inventories rose 0.2%.

Consumer confidence slipped slightly in August, but is still reasonably robust. Consumer confidence is often an inverse of gasoline prices, so this number should fall going forward as gas prices have been increasing.

Hurricane Harvey affected industrial production and manufacturing production, both of which fell in August. Industrial production fell 0.9%, while manufacturing production fell 0.3%. Utilities and mining (really energy production) drove the decrease. September should also come in depressed as well due to Irma. Capacity Utilization fell 0.8% to 76.1%. The national industrial numbers have been exhibiting a bit of volatility over the past few months. Interestingly, the regional Fed indices (like the Empire State Manufacturing Index, which improved to a strong 24.4 reading this morning) have not been confirming the overall weakness.

Bond yields have been rising over the past week as Hurricane Irma had less damage than expected. Inflation numbers have come in slightly strong as well, and Goldman has upped its probability of a rate hike to 60% in December. The Fed Funds futures echo that sentiment right now: over the past week or so, we have gone from a 40% chance of a hike to a 53% chance of a hike.

The FTC announced an investigation into Equifax’s security breach. This is pretty unusual for the agency to comment on ongoing investigations, which demonstrates how seriously the government is taking it. Elizabeth Warren introduced a bill to require credit reporting agencies to freeze a person’s credit for free and would restrict their ability to profitably use that data during the freeze. Chuck Schumer called the security breach “one of the most egregious cases of corporate malfeasance since Enron.” He further said that “the company’s chief executive and board of directors should step down unless they take five steps to correct their mishandling: notify affected consumers; provide free credit monitoring to them for at least 10 years, offer to freeze their credit for up to 10 years; remove forced arbitration clauses from their terms of use; and comply with fines or new standards that come out of investigations.” Here are some tips if you were affected.

North Korea fired a missile last night that flew over Japan before crashing in the Pacific. The missile had a long enough range to hit Guam. US Secretary of State Rex Tillerson called on China and Russia to do more to contain NK. China supplies most of North Korea’s oil and Russia is the biggest employer of their forced labor. Both Russia and China have veto power for any UN sanctions.

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