Morning Report: Awaiting the FOMC minutes 10/11/17

Posted on October 11, 2017 by Brent Nyitray

Vital Statistics:

Last Change
S&P Futures 2545.8 -2.8
Eurostoxx Index 389.4 -0.8
Oil (WTI) 50.9 -0.1
US dollar index 86.5 -0.1
10 Year Govt Bond Yield 2.35%
Current Coupon Fannie Mae TBA 102.875
Current Coupon Ginnie Mae TBA 103.938
30 Year Fixed Rate Mortgage 3.9

Stocks are lower this morning as we await the FOMC minutes. Bonds and MBS are flat.

There were 6.1 million job openings at the end of August, little changed from the prior month. The quits rate (which is a number the Fed watches closely) was unchanged at 2.1%. The quits rate is a leading indicator for wage growth.

Chicago Fed President Charles Evans said yesterday that a December hike is not a sure thing, and that he hoped for an “honest discussion” on whether it was time to hike rates again. He said the Fed should not treat the 2% inflation target as a ceiling, and should be comfortable with higher than 2% inflation given that it has undershot the target for so long. He was also bullish on the economy in general: “Global growth has really solidified,” which has helped the U.S. economy, he said. “I suspect the wage story is improving.”

The FOMC minutes will be released at 2:00 PM EST today. They probably won’t be market-moving, although we could see some adjustment in the December rate hike probabilities, which currently stands at a 93% chance of a rate hike.

Mortgage applications fell 2.1% last week as purchases fell .1% and refis fell 4%. Mortgage rates increased 4 basis points to 4.16%.

Donald Trump plans to adjust his tax reform plan over the next few weeks. With Democrats uniformly in opposition, Republicans have a narrow path to get this across the line. The issue with the tax plan is that it could raise taxes for people in the $50k-$150k range who live in high tax states. There are enough Blue State Republicans in the House to kill it. In the Senate, Trump has a strained relationship with Bob Corker and John McCain, which means he has no margin for error. Rand Paul has also said that any tax hikes on middle and upper middle class incomes is unacceptable. Tax reform is looking like a long shot, especially since 2018 will be all about posturing for midterms.

Blackrock’s Larry Fink said that his biggest fear is an over-aggressive Fed. He considers this to be a low-probability event, however. His fear is that we could see an inversion of the yield curve, which happens when longer-term interest rates are lower than shorter term interest rates. Historically, that has been a recessionary signal. It is more than a theoretical possibility: the yield curve almost always flattens during a tightening cycle, and the technical mechanics of unwinding QE also would encourage the curve to flatten. What does that mean for mortgage rates? Probably nothing, but at the margin it would favor 30 year fixed rate mortgages over ARMs.

CoreLogic estimates that 172,000 homes could be at risk from the wildfires in Napa and Santa Rosa. Mother Nature has made life miserable for servicers this fall, however the effects probably won’t begin to be felt until the end of the year.

Canada is trying to figure out what to do with their housing bubble. The median house price in Vancouver is currently at 1.6 million (or about 20x income). To put that number into perspective, the US bubble peaked at 4.8x. Vancouver’s market is probably tied most closely to China’s and will burst once that one does.

Filed under: Economy, Morning Report |

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24 Responses

  1. markinaustin, on October 11, 2017 at 2:11 pm said:

    NAFTA talks - they don't agree on the numbers

    Liked by 2 people

    Reply
  2. Brent Nyitray, on October 11, 2017 at 2:40 pm said:

    Does the Weinstein kerfuffle basically just say that the DNC and the Clintons sell sexual harassment licenses?

    Donate enough, raise enough, and you can do whatever the hell you want?

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    • markinaustin, on October 11, 2017 at 5:09 pm said:

      No – it means he had a casting couch. Remember this Eagles classic?

      http://www.dailymotion.com/video/xfxfmi

      Liked by 1 person

      Reply
    • Kevin S. Willis, on October 13, 2017 at 11:45 am said:

      More about the skeevy culture in Hollywood. For all their virtue signalling, it’s been Mad Men style 50s-era “of course you force women to have sex with you” attitudes.

      It’s been about their power. Over actresses and the media and Up-and-comers. Ultimately, nonbody really wants to be a secretary bad enough to sleep with the boss (and generally, the boss knows it). In Hollywood, there are enough people who want it that the casting couch is and has always been a real thing.

      As with many things, it just took enough people actually saying something for everybody who didn’t want to take on the culture (and the powerful Weinstein) alone. And this represents a shift in the culture. Hollywood predators could generally count on being able to keep their victims silent. I think that’s done. Each future jerk is going to be outed much sooner. It will be the past victims who end up with the power. Execs will have to have witnesses at every meeting, because the shortcut to fame will no longer be sleeping with the boss, but accusing them of harassment or rape.

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  3. Brent Nyitray, on October 11, 2017 at 2:57 pm said:

    Boy scouts now has to accept girls. (or transgender boys, whatever)

    How in the hell does a group that doesn’t amount to 1% of the population get the power to boss everyone around?

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  5. Brent Nyitray, on October 11, 2017 at 4:52 pm said:

    I wonder how much of this is true…

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    • markinaustin, on October 11, 2017 at 8:51 pm said:

      Almost unbelievable. HS kids I have known who took appointments to any of the three academies were all really good students, decent athletes, and IIRC, all were engineering majors. If this turns out to be true, the regular ROTCs will end up as the successful ones. Colin Powell was regular ROTC, btw.

      Liked by 1 person

      Reply
      • Brent Nyitray, on October 11, 2017 at 9:56 pm said:

        The military is weird these days. There was a CO on a ship who really was a hard-ass with NJP. Guy would hand out 3 days bread and water like candy, for stupid shit like being 20 minutes late for muster. Back in my day, that sort of thing rarely made it up to the division officer. The CPO would handle it by assigning the guy extra duty for a week or so. He wouldn’t send the guy to Captain’s Mast unless it was a repeat occurrence.

        I don’t think I ever saw 3 days bread and water given out as a punishment in my whole time in the Navy..

        Liked by 1 person

        Reply
  6. Brent Nyitray, on October 11, 2017 at 10:25 pm said:

    Wouldn’t it be cool if at least someone around here believed in freedom?

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    • Kevin S. Willis, on October 13, 2017 at 11:53 am said:

      He’s a troll. And a megalomaniac. Of course he wants to control the press. Put another way: most of the press’s personal criticisms of Trump as a person are accurate. Political criticisms not so much, unless it’s about presentation or lack of diplomacy. And even that is a personality thing.

      I’ve said it before and I’ll say it again. He’s non-ideological. He believes in Trump. Thus he can be better than a hard-core progressive, but can also be worse.

      Given that the Democrats are working so hard to reelect Trump, they should be thankful he’s working so hard to lose.

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