Morning Report: Big week ahead

Vital Statistics:

Last Change
S&P futures 2782 -0.5
Eurostoxx index 386.55 1.43
Oil (WTI) 65.12 -0.61
10 Year Government Bond Yield 2.96%
30 Year fixed rate mortgage 4.59%

Stocks are flattish this morning ahead of a busy week. Bonds and MBS are down small.

This is a big week with the FOMC meeting on Tuesday and Wednesday, the ECB, and also a slew of economic data, particularly inflation data. The FOMC meeting will dominate, and we will also get a fresh new set of projections. The Street will focus on the inflation projections, especially as we continue to get anecdotal evidence of wage inflation.

The G7 met over the weekend, and it largely consisted of Donald Trump playing Al Czervik to the Bushwood global elite. There is talk about us doing permanent damage to our allies, but these events are largely messaging affairs and nothing much concrete ever comes out of them. There were a bunch of threats and counter-threats over trade barriers, and the message from the Administration was that the US has historically accepted the short end of the stick on these trade deals in the name of free trade in general, but those days are over. Will anything actually come from this? Probably not, which is why the markets don’t care.

Trump left the G7 meeting early to head to the Singapore Summit to meet with Kim Jong Un.

CFPB Director Mick Mulvaney said on Friday that he fired the 3 advisory boards because they were simply too big. He said that many participants were uncomfortable being candid at these meetings, and that “There is actually some good information that can pass when you sort of turn the cameras off.” Mulvaney has also been frustrated by leaks coming out of the agency, and he hopes this will help. Mulvaney also intends for the CFPB to go out “in the field” and have more town hall discussion meetings.

The interest rate on excess reserves is a real “inside baseball” statistic that could hold some clues on how the Fed intends to proceed going forward. The Fed is worried that conditions are tightening in the money markets and there are less excess reserves (excess reserves in another name for “dry powder” in the banking system). If there is less dry powder (or lending capacity) in the system then borrowers will have to accept higher rates in order to access these funds. The Fed funds rate is already close to the high end of the target range, which is worrying the some on the FOMC. The Fed started unwinding its QE balance sheet, letting about $100 billion of its $4.5 trillion sheet run off. We are already seeing a swoon in emerging markets. Bottom line: tightening financial conditions could cause the Fed to take a breather sooner than anticipated.

Rising interest rates and home prices are not deterring potential home purchasers, as the Fannie Mae Home Purchase Sentiment Index hit a new high in May. “The HPSI edged up to another survey high in May, bolstered in part by a fresh record high in the net share of consumers who say it’s a good time to sell a home. However, the perception of high home prices that underlies this optimism cuts both ways, boosting not only the good-time-to-sell sentiment but also the view that it’s a bad time to buy, and presenting a potential dilemma for repeat buyers,” said Doug Duncan, senior vice president and chief economist at Fannie Mae.

23 Responses

  1. Interesting read:

    “Beware the ‘mother of all credit bubbles’
    by Steven Pearlstein
    June 8”

    https://www.washingtonpost.com/business/economy/beware-the-mother-of-all-credit-bubbles/2018/06/08/940f467c-69af-11e8-9e38-24e693b38637_story.html

    Like

    • The left has got a bee in their collectivist bonnets these days about share buybacks. I guess it never dawns on them that the way to make the stock price increase is to invest in positive NPV projects. And if there are no positive NPV projects available, instead of pissing away the capital on empire-building, the best thing to do is return it to shareholders who can deploy it more efficiently.

      “Corporate executives and directors are apparently bereft of ideas and the confidence to make long-term investments.” He then goes on to cite a bunch of companies that are in terminal decline: Sears, HP, Viacom….

      The Progressive Left simply has no concept of how a profit-minded business works.

      Liked by 1 person

      • I wouldn’t really characterize Steve Pearlstein as part of the “progressive left”.

        His point about Apple doing a stock buyback at the top of the market being bad timing made sense to me, but that’s also a contradictory example from Sears, etc who are doing it to prop up the stock price at the bottom of the market.

        If he’s right about the amount of stock buybacks that are being done with corporate debt, then I think there will be a problem.

        Like

        • Agreed. Pearlstein has been pretty reliable over the years not at all like Krugman, and the article made internal sense.

          Liked by 1 person

  2. Serious question, does anybody here think the MSM gives Trump consistently favorable press?

    https://m.dailykos.com/stories/1771037

    It’s a wild post.

    Like

    • Serious question, does anybody here think the MSM gives Trump consistently favorable press?

      Fox and Sinclair, yes; others, mainly no. WaPo, NYT, and WSJ no. I count Fox and Sinclair as mainstream on size and audience. There are many areas in the rural midwest where all broadcast media is Fox or Sinclair. All DK articles are TL,DR for me and I recommend against them.

      Liked by 1 person

    • As Mark says, Fox and Sinclair. But it’s worth noting that 99.9% of mainstream entertainment where politics is introduced ex is negative towards Trump. And negative towards Fox and Sinclair. So while market share may make exposure to pro Trum bias within the population fairly large, 95% of media (including entertainment media) is anti-Trump. And 95% of that boringly and tediously so. 😉

      Like

  3. Insufferable.

    Like

    • After Jack Dorsey screwed up and tweeted about Chick-fil-A during Pride month the left is piling on the company.

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      • It’s fun to watch!

        Like

      • He is right on the premise of the marketing campaign, but the whole “carnism” argument that people have been duped into eating meat by some sort of “system” is absurd.

        There was a good series of responses to the tweet though in the comments:

        “But I’m not for changing our practices based on our capacity to anthropomorphise animals.

        I do not like, however, people attempting to guilt others to their viewpoint through emotional arguments, images, or video editing that attempts to spur our natural tendency to pattern recognition that leads us to inflict animals with our own emotions and feelings as if they were capable of such.”

        Like

        • the whole “carnism” argument that people have been duped into eating meat by some sort of “system” is absurd.

          I guess anti-science is pervasive. Does one have to have taken HS biology to recognize that omnivorous animals, such as humans and domestic dogs, don’t have to be “duped” into eating ribeyes? Dentists should explain to them what the role of teeth is, I guess. Or, Aggies could explain ruminant stomachs and how humans don’t have them.

          Like

  4. Former DNI everybody!

    President Obama was so well served.

    Like

  5. Also, I’ve killed and eaten four people since Net Neutrality ended.

    Like

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