Morning Report: Q3 GDP comes in strong 10/27/17

Vital Statistics:

Last Change
S&P Futures 2567.3 5.8
Eurostoxx Index 392.7 1.4
Oil (WTI) 52.4 -0.3
US dollar index 88.2 0.4
10 Year Govt Bond Yield 2.46%
Current Coupon Fannie Mae TBA 102.875
Current Coupon Ginnie Mae TBA 103.938
30 Year Fixed Rate Mortgage 4

Stocks are higher this morning on strong earnings and a good GDP report. Bonds and MBS are down.

Very slow news day.

Third quarter GDP came in at 3%, much higher than the 2.5% the Street was looking for. This is the strongest back-to-back performance since 2014. It looks like the hurricanes had a negligible effect on growth, and the Commerce Department cannot measure the effect at any rate. Consumption increased 2.4%. Housing remained a weak spot, falling 6%, as builders struggle with labor shortages and a lack of buildable land. This is the worst stretch for housing since 2010. The core inflation rate rose at 1.3%, an increase from the 0.9% from Q2, but well below the Fed’s 2% target.

Paul Ryan is confident he can sweeten tax reform to bring some of the last GOP holdouts in line. The biggest hurdle will be Republican house members in blue states, who will be affected by any changes to the state and local tax deduction. Tax reform is scheduled to be unveiled November 1.

The luxury end of the market is beginning to bifurcate, as the super high end ($5 MM plus) languishes while homes in the $1.5 million range are moving quickly. Demand for high-end homes is being driven by foreign demand as well as the stock market rally. That said, in the Northeast, particularly the pricey NYC suburbs, sellers are pulling their listings given weak demand.

Janet Yellen is reportedly out of the running now for Fed Chairman. It will come down to John Taylor (the conservative choice) versus Jerome Powell (the Professional Economist’s choice). Her term ends February 1.

Ben Carson says that HUD will work with DOJ to pull back on fines for mortgage lending errors. Aggressive prosecution during the Obama Administration pushed J.P. Morgan to get out of the FHA business altogether. “Innocent errors should not create chaos and fear and make people less likely to get involved in the first place,” he said.

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