Morning Report: Personal spending rises on strong vehicle sales 10/30/17

Vital Statistics:

Last Change
S&P Futures 2572.3 -6.3
Eurostoxx Index 393.6 0.2
Oil (WTI) 54.1 0.2
US dollar index 87.7 0.4
10 Year Govt Bond Yield 2.39%
Current Coupon Fannie Mae TBA 102.875
Current Coupon Ginnie Mae TBA 103.938
30 Year Fixed Rate Mortgage 4

Stocks are down this morning on no real news. Bonds and MBS are up.

This week will have a lot of market-moving potential, between the FOMC meeting and the jobs report. We will also get productivity and employment costs, two numbers the Fed monitors closely.

Personal incomes rose 0.4%, while spending rose 1%. Wages and salaries increased 0.4%. Inflation remains under the Fed’s target, but it did pick up in September to 1.6% on higher food and energy prices. The core rate increased 1.3%. A bump up in motor vehicle spending was behind the strong spending number, however that could be replacement activity for areas affected by the hurricanes in September. Regardless, it was the strongest jump in vehicle sales since “Cash for Clunkers” in early 2009.

Donald Trump is leaning towards Jerome Powell to run the Fed after Janet Yellen’s term expires in February. Jerome Powell is the economists’ choice and will probably continue on the same path that has already been established: gradual rate increases and a gradual tapering of QE. “People are anxiously awaiting my decision as to who the next head of the Fed will be,” Trump said an Instagram video Friday. Historically, nobody pays too much attention to who runs the Fed aside from bankers and financial economists. Reagan jammed Paul Volcker’s re-appointment in an unrelated radio address from Camp David. He even joked before the big announcement that “I have a story that will crack this town wide open”

Home price appreciation continues, as the Black Knight Home Price Index rose .2% in August and is up 6.2% YOY. New York (!) was one of the fast growing states, rising 1.6%. Georgia, Maryland and Virginia saw slight declines. Seattle continues to astound, with prices up 12% YTD and up 14% YOY.

We should get more details on tax reform this week, and we have been getting a lot of mixed signals and trial balloons. After talk about limiting 401k contributions, now the talk is of increasing the deduction to $20k. On the state and local tax deduction, it looks like property taxes may still be deductible, but state taxes will not be. Stay tuned.

There is a big merger in the homebuilder space this morning: Lennar and CalAtlantic will merge which will create the US’s biggest homebuilder by revenue.

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