Morning Report: Fed hikes by 25 basis points as expected 6/14/18

Vital Statistics:

Last Change
S&P futures 2786 8
Eurostoxx index 389.9 1.7
Oil (WTI) 67.03 0.39
10 Year Government Bond Yield 2.94%
30 Year fixed rate mortgage 4.61%

Stocks are higher after the FOMC raised interest rates a quarter of a point. Bonds and MBS are up.

As expected, the Fed raised the Fed funds rate by 25 basis points to a range of 1.75% – 2%. The economy is clicking on all cylinders, with unemployment down, consumer spending up and business investment increasing. They took up their estimates for 2018 GDP growth to 2.8% from 2.7%, took up core PCE inflation to 2% from 1.9% and took down their unemployment rate forecast to 3.6% from 3.8%. The dot plot was increased slightly and the Fed funds futures shifted to a 60/40 probability of 2 more hikes this year.

Bonds initially sold off on the announcement, touching 3% at one point, but have since rallied back. The ECB also announced that it will stop buying bonds in September, depending on the data. Bunds are rallying on that statement and the 10 year could be rallying on the relative value trade. The Fed noted that longer-term inflation expectations have not changed, and they didn’t change their outlook for inflation from 2019 onward. One other thing of note: the Fed is going to start having press conferences after every meeting in order to disabuse people of the idea that the Fed can only hike in December, March, June and September.

In other economic news, initial jobless claims fell to 218,000 last week, while retail came in way higher than expected, rising 0.8% for the headline number and 0.5% for the control group, which excludes gasoline, autos and building materials. Restaurants and apparel were the big gainers, increasing 1.3% and 1.5%. Consumer discretionary spending is back, as the FOMC statement indicated.  Finally, import and export prices were higher than expected, with increasing energy prices pushing up imports and higher ag prices increasing exports.

Outgoing Republican Congressman Darrell Issa is supposedly one of the finalists who will be appointed as the head of the CFPB. The Administration has said that it will abide by its June 22 deadline to appoint a permanent head of the CFPB. Acting Chairman Mick Mulvaney is not involved in the selection process. Mark McWatters, a former banking regulator is another top choice, and probably makes more sense than Issa.

The May real estate market was the strongest on record, according to Redfin. Prices rose 6.3% and the average home was on market 34 days. In Denver, the time on market was under a week. Over a quarter of the homes sold in May went over their listing price. San Jose saw a price increase of 27% YOY to a median home price of over $1.2 million.

Note that rents rose by 3.6%, which is tilting the rent-vs-buy decision a little. Interestingly, Sam Zell, a famous real estate financier, thinks the multifam market is topping and should become less attractive going forward.

Affordable home advocates are touting a statistic that shows a minimum wage worker cannot afford a 2 bedroom apartment anywhere in the country. That is an awfully high bar – heck entry level investment bankers can’t afford a 2 bedroom apartment either. That is why young adults usually have roommates. I get there is a shortage of affordable housing, but that is a completely disingenuous statistic. Sam Zell is probably correct, however there could in fact be a glut of luxury apartments and a shortage of affordable ones.

26 Responses

  1. The left eats its own

    View story at Medium.com

    Liked by 1 person

  2. Vox follows the income inequality arguments to their logical conclusion and goes for full poverty advocacy:

    “Income inequality is changing how we think, live, and die

    Why society might be more stable if we had more poverty and less inequality.
    By Sean Illing”

    https://www.vox.com/2018/5/24/17368308/income-inequality-poverty-in-america

    Like

    • “For starters, it produces serious health problems, and not subjective problems but objective health problems, like chronic diseases, obesity, drug and alcohol problems, and, ultimately, shorter life expectancies.”

      When you start blaming obesity and drug abuse on the presence of rich people, you have lost the plot.

      Liked by 1 person

      • “….and, ultimately, shorter life expectancies.”

        Yes, of course. The negative correlation between wealth and life expectancy is well established in the literature!

        Liked by 1 person

      • well, at least some of us are going to drink ourselves to death with nothing but the finest scotches and bourbons.

        Liked by 2 people

    • The lead example was amusing, namely first class vs coach passengers. But based on ticket prices that’s usually a 3:1 to 6:1 differential.

      Based on their arguments about the 1% being the problem, everyone in the plane should have been in an extreme state of rage because someone somewhere was flying in a private jet.

      Liked by 1 person

    • Such. F***ing. Idiots.

      Like

  3. Nice turn of phrase worth remembering:

    “the politics of competitive victimization”

    https://www.lawfareblog.com/nine-takeaways-inspector-generals-report-clinton-email-investigation

    Like

  4. Mother’s Day and Father’s Day cards don’t pass muster with the Atlantic’s gender studies department.

    https://www.theatlantic.com/family/archive/2018/06/mothers-day-fathers-day-card/562808/?utm_source=atltw

    “You like pizza and relaxing. Is that about being a father, or is that about reasserting your hegemonic masculinity even though you’re a father and you perform care work?”

    Liked by 1 person

    • This was good too:

      “The ‘Baby Daddy’ greeting card you won’t buy at Target for Father’s Day
      by Rachel Siegel
      June 15 at 9:04 AM”

      https://www.washingtonpost.com/news/business/wp/2018/06/15/the-baby-daddy-greeting-card-you-wont-buy-at-target-for-fathers-day/

      Liked by 2 people

    • OMFG. A phrase common in the 80s, often used by my peers at the time, comes to mind: Get a life.

      Christ, these people have far too much free time. Also, you know what? THOSE ARE THE CARDS PEOPLE BUY. They are produced primarily by modestly staffed art departments run by admittedly awful managers and the process allows things of general cultural meaningfulness to percolate through and end up with a finished product that is likely to be something a large number of the market wants to buy.

      Also, there’s a real problem with greeting cards. They suck and they are a stupid idea. Pretty much all of them. That’s an actual problem. Not the fact that some of them are designed to appeal to stereotypes about women or men (which, again, exist because there is a significant amount of truth to them)

      Liked by 1 person

    • BTW, I don’t like beer and I don’t drink it.

      Yet somehow I managed to be unoffended by a father’s day car suggesting father’s really like beer. If they can sell it, more power to them. Keep the economy moving, etc., etc.

      It’s okay. These people just need to chill.

      Alas, I’m afraid we’ve discovered that extreme leftward positions gets a lot of clicks and shares on the web and in the social media. There’s a reason we get these articles, and it’s not because they are speaking truth to power.

      Liked by 1 person

  5. https://voxday.blogspot.com/2018/06/dc-to-marvel-hold-my-beer.html?m=1

    DC is revamping Vertigo to be a dedicated progressive/leftist imprint. Because going full leftist has worked so well for the Marvel comics.

    Liked by 1 person

  6. Sure you guys saw this but here it is again:

    Liked by 1 person

    • “This is where some uncomfortable questions start to arise, particularly relating to intersectionality and solidarity.”

      Where’s the popcorn?

      Liked by 2 people

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