Morning Report: 10 year pushing 3% 4/23/18

Vital Statistics:

Last Change
S&P futures 2675 3.9
Eurostoxx index 381.41 0
Oil (WTI) 67.33 -1.07
10 Year Government Bond Yield 2.97%
30 Year fixed rate mortgage 4.51%

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

US Treasury Secretary Steve Mnuchin signaled that the US is ready to discuss a truce in the trade war with China. He characterized his mood as “cautiously optimistic” and said he won’t make a commitment on timing. Beijing welcomed the announcement. Separately, Mnuchin also discussed easing sanctions on Rusal which sent aluminum prices back down.

Existing home sales rose on a month-over-month basis in March, but are down on an annual basis according to NAR. Lawrence Yun, NAR chief economist, says closings in March eked forward despite challenging market conditions in most of the country. “Robust gains last month in the Northeast and Midwest – a reversal from the weather-impacted declines seen in February – helped overall sales activity rise to its strongest pace since last November at 5.72 million,” said Yun. “The unwelcoming news is that while the healthy economy is generating sustained interest in buying a home this spring, sales are lagging year ago levels because supply is woefully low and home prices keep climbing above what some would-be buyers can afford.”

The median home price was $250,400, up 5.8% YOY. Inventory is down over 7% YOY to 1.67 million units, which represents a 3.6 month supply at current sales levels. A historically balanced market would be 6.5 month’s worth. Properties stayed on market for an average of 30 days, which is down almost a week YOY. The first time homebuyer accounted for 30% of sales, and all-cash sales were 20% of transactions.

Commodity price inflation has pushed the 10 year yield to 3%. Many technical analysts consider that to be confirmation that the 3 decade bull run in bonds is over. The one caveat is that the sell-off is being driven by rising commodity prices which tends to be temporary, especially if it doesn’t translate into wage growth. You can see the pop in yields post-election below. Hard to believe we were sub 1.8% in late October 2016.

This week will have some important data to the bond market, with GDP and the employment cost index on Friday. We will also get a slew of housing data with existing home sales, new home sales, and Case-Shiller.

The Street estimate for Q1 GDP is 2%. Generally speaking, the estimates from the banks are lower than the estimates from the regional Federal Reserve banks.

Economic activity moderated in March, according to the Chicago Fed National Activity Index. Production and employment indicators fell. February’s reading was unusually strong, however. The CFNAI is a meta-index of 85 different economic indices, and can be volatile. It isn’t a market-mover.

A paper suggests that the ratings agencies largely got it right with the bubble-era RMBS. The AAA tranches (even subprime) were largely money good, and the study pours cold water on the popular narrative that inflated ratings on RMBS caused the financial crisis.

The big banks are rushing to launch websites and apps for mortgages as volume contracts. Bank of America, Wells Fargo, and JP Morgan have either launched or plan to launch mortgage banking tech products in response to Rocket Mortgage from Quicken. The company claims that 98% of its customers in the first quarter (some $20 billion in origination) accessed Rocket at some point in the application process. That is an astounding number, though I wonder if that includes push notifications that the borrower didn’t necessarily respond to or interact with.

Speaking of tech, HUD is looking into allegations of housing discrimination by Facebook. Facebook uses big data to allow advertisers to slice and dice the demographics any way they want to target their specific market. What if advertisers decide to target some demographics and not others? That is considered non-problematic for things like consumer products, but housing could be a different story.

15 Responses

  1. What I find really interesting is Harris’s claim that he’s been severely damaged by racism accusations.

    https://www.nationalreview.com/2018/04/ezra-klein-vox-accuses-sam-harris-of-racism/

    Liked by 1 person

    • McWing:

      What I find interesting is that idea that it took this episode to reveal Klein to be a bad-faith-arguing demagogue.

      Like

      • I hope George Will is right:

        https://www.nationalreview.com/2018/04/neil-gorsuch-supreme-court-decision-against-administrative-state/

        Last week, one week after the first anniversary of Neil Gorsuch’s ascension to the Supreme Court, he delivered an opinion that was excellent as it pertained to the case at issue and momentous in its implications pertaining to the institutional tangle known as the administrative state. If he can persuade his fellow court conservatives to see why they were mistaken in disagreeing with him, and if he can persuade his liberal colleagues to follow the logic of their decision with which he concurred, the judiciary will begin restoring constitutional equilibrium. It will limit Congress’s imprecise legislating that requires excessive unguided improvising by all those involved in seeing that the laws are “faithfully” executed.

        Convincing his conservative colleagues that they are wrong is possible, but hoping that the liberal court members will follow their own previously articulated logic if in fact it would result in a politically disfavored result would be hoping against all known experience.

        Liked by 1 person

        • “and if he can persuade his liberal colleagues to follow the logic of their decision”

          i’ll bet the Don’t Pass line on that one.

          Liked by 1 person

    • It’s part of the dance. And being super-irritating is damaging.

      Like

    • Of course they do! It’s like seeing ghosts if you’re a “ghost hunter” or religious signs if you’re faithful.

      As of 2016, researchers estimate that there are just over 30 active Klan groups exist in the United States, with about 130 chapters. Estimates of total collective membership range from about 3,000 to between 5,000–8,000.

      In other words, a statistical zero.

      Like

  2. Saw this Tweet:

    Apparently it’s just known this guy was a white nationalist (running around naked, as they do, to best show off their superior white skin). While I tend to feel it’s just more evidence that social media and identity politics are intersecting to create a powerful fictional narrative that will consume more and more people into a completely counterfactual reality.

    Like

    • This is the second case in the last year in which the UK government has not only ordered the removal of life support from a child over the protests of the parents, but has also prevented the parents from moving the child to another country in order to continue life support.

      https://www.theguardian.com/uk-news/2018/apr/23/alfie-evans-european-court-human-rights-life-support

      This type of Orwellian government decree will come to the US if the century long authoritarian march of progressivism continues.

      Liked by 1 person

      • it’s bizarre. here, we have the state intervening to keep people alive against the wishes of the family. there, it’s the opposite.

        oh, the the NHS should just change its motto: Lebens unwertes Leben

        Liked by 1 person

        • nova:

          Lebens unwertes Leben

          I had to look it up, but that sounds right.

          Like

        • You watch Man in the High Castle? It’s incredibly effective because it treats the actual National Socialist ideology seriously and thus shows how truly dangerous real Nazis (not the buffoons in Charlottesville) were.

          Liked by 1 person

        • “Lebens unwertes Leben”

          The entire state–because it’s not just the NHS, it’s the courts deciding against the parents–need to adopt that motto. Make it clear how they feel about things.

          Like

        • It’s incredibly effective because it treats the actual National Socialist ideology seriously

          ^This

          And misses the point about how Nazism became such a huge destructive force. And how progressive its roots were.

          The next Nazis aren’t going to call themselves Nazis, dress up in jackboots, and hold rallies around confederate statues.

          But they will be people just as convinced as the Nazis of the centrality of the state. And equally dismissive of the individual.

          The modern strain of state-worshipping progressive lacks, generally, the ethno-nationalism and drive for empire of the Nazi variety. But their belief in the state and their disinterest in the individual is as strong as ever. Thus the NHS and the UK courts.

          Like

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