Morning Report: Fed Beige Book points to strong labor market 3/8/18

Vital Statistics:

Last Change
S&P Futures 2729.3 6.0
Eurostoxx Index 374.0 1.3
Oil (WTI) 61.2 0.0
US dollar index 83.6 0.1
10 Year Govt Bond Yield 2.87%
Current Coupon Fannie Mae TBA 102.25
Current Coupon Ginnie Mae TBA 102.5
30 Year Fixed Rate Mortgage 4.4

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

Donald Trump is set to impose tariffs on steel and aluminum, however there is talk of exempting Canada and Mexico from them (which is where we get most of our foreign steel to begin with). That exemption will be used as leverage to renegotiate NAFTA. So far, the trade war is largely symbolic – Trump tweeted that he wanted to see a $1 billion decrease in our trade deficit with China, which is about $375 billion. In other words, it is a drop in the bucket, and all for show. That might have been an error however, some reports are saying he meant $100 billion, which probably makes more sense. That said, stocks are taking the trade war in stride, and bonds seem to have found a level here.

Initial Jobless Claims rose to 231k last week from 220k. Job outplacement firm Challenger, Gray and Christmas reported that companies announced 35,369 job cuts in February.

The overall economy grew at a modest to a moderate pace in January and February, according to the Fed’s Beige Book survey. With regard to employment, it said: “On balance, employment grew at a moderate pace since the previous report. Across the country, contacts observed persistent labor market tightness and brisk demand for qualified workers, as well as increased activity at staffing placement services. Several Districts reported continued worker shortages across most sectors, with contacts often mentioning shortages in the construction, information technology, and manufacturing sectors. In many Districts, wage growth picked up to a moderate pace. Most Districts saw employers raise wages and expand benefit packages in response to tight labor market conditions. Contacts in a few Districts conveyed reports of modest increases in compensation following passage of the Tax Cuts and Jobs Act.” The increases in wage inflation are a good sign for the economy overall, but not so much for interest rates. The Street is looking for a strong reading in wage growth in tomorrow’s Employment Situation Report: an increase of 2.9% YOY.

Buyer sentiment fell last month, according to the Fannie Mae Home Purchase Sentiment Index. “Volatility in consumer housing sentiment continued into February, with the new tax law beginning to impact respondents’ take-home pay and the stock market creating negative headlines due to early-month turbulence,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “Additionally, consumers’ expectations for higher mortgage rates suggest that consumers expect the Fed to hike rates a few more times in 2018. We will continue to track how consumer housing attitudes trend in the coming months as these various market forces play out.”

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