Morning Report: Looks like the Fed tightening cycle is winding down.

Vital Statistics:

 

Last Change
S&P futures 2730.25 -14
Eurostoxx index 356.36 -1.74
Oil (WTI) 50.5 -0.96
10 year government bond yield 3.01%
30 year fixed rate mortgage 3.85%

 

Stocks are lower this morning on no major news. Bonds and MBS are up small.

 

The minutes from the November FOMC meeting were released yesterday, and they said nothing all that interesting. Bonds, which had been supported by Powell’s comments on Wednesday ticked up slightly. The media seemed to take the minutes as dovish, but there really wasn’t any sort of statement that jumped out.

 

Initial Jobless Claims increased by 10k to 234,000.

 

Personal incomes rose by 0.5% in October, and consumption rose by 0.6%. Those were extremely strong numbers, and support the idea that Q4 is going to be strong as well. It was also a bit of a Goldilocks report, with the personal consumption expenditures inflation reading sitting right at the Fed’s target rate, with the core rate (ex-food and energy) rising 1.8%.

 

The Fed Funds futures are pricing in a December hike as a pretty much a sure thing, and then have coalesced around the forecast that we get one more hike in 2019. In other words, we are in the late stages of this hiking cycle. Note that monetary policy acts with about a year’s lag, so we haven’t really begun to feel the hikes from this year. Below is the implied probability chart for the December 2019 Fed Funds futures.

 

fed funds futures

 

Pending Home Sales fell 2.6% in October, according to NAR. For those keeping score at home, this is the 10th straight drop, and demonstrates the issues of higher home prices and mortgage rates. All regions experienced declines, and the West was hit particularly hard as home prices have experienced double-digit increases for years. Something has to give in the real estate market – either prices have to stabilize, interest rates have to fall, or incomes have to rise. Given the personal income numbers and other anecdotal data, rising wages will probably end up squaring the circle.

 

4 Responses

  1. Heh

    Like

  2. Why are the frogs bitching about a tax increase that helps Gaia?

    Like

Be kind, show respect, and all will be right with the world.

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: