Morning Report: Job openings at 6 million 12/11/17

Vital Statistics:

Last Change
S&P Futures 2651.8 0.8
Eurostoxx Index 389.0 -0.2
Oil (WTI) 57.5 0.2
US dollar index 87.2 -0.1
10 Year Govt Bond Yield 2.37%
Current Coupon Fannie Mae TBA 102.625
Current Coupon Ginnie Mae TBA 103.625
30 Year Fixed Rate Mortgage 3.92

Stocks are flat this morning after a bomb went off in New York City’s Penn Station. Bonds and MBS are up small.

This week will be dominated by the FOMC meeting on Tuesday and Wednesday. The markets are forecasting a 25 basis point hike in the Fed Funds rate, but the economic forecasts will be the focus, as well as the dot plot. It will be interesting to see the 2018 GDP forecast. The Fed was consistently high in their GDP estimates during the Obama administration, however their 2.1% forecast for 2017 looks to have been way light, given that the NY Fed just upped its Q4 GDP estimate to 3.92%. That would put 2017 GDP growth just shy of 3% for the year.

Job openings were largely unchanged at 6 million in October, according to the JOLTS survey. The hires rate increased to 5.6 million. The quits rate was unchanged at 2.2%. The quits rate is the most important number in this release, as increases in the rate usually correspond to increases in wage growth.

So far, the Fed’s tightening has had almost no effect on the market. In the old days, a couple Fed Funds hikes and you would start to see a slowdown. If anything, the economy is accelerating, not decelerating. JP Morgan believes that we won’t see a meaningful effect on the economy until we get to a real 1% Fed Funds rate, where “real” means inflation-adjusted. Currently, the Fed Funds real rate is negative (inflation is higher than the Fed Funds rate). Once the Fed Funds rate is 1.5% higher (or around 2.5%, we should see an impact, which makes that a 2019 event, not a 2018 event.

35% of new home sales in October were for homes that hadn’t even begun construction, the highest number since 2005. Shortages of skilled labor, along with increasing commodity prices are preventing new home sales and housing starts from being high enough to meet demand. Housing will almost certainly be the engine to propel US economic growth over the next few years.

Last week, a news story suggested that the Trump CFPB would back off the banks, referring mainly to Wells Fargo. He then tweeted that the story is false, and if anything, he would increase penalties on the banks for bad behavior.

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