Morning Report: Fed Week

Posted on December 17, 2018 by Brent Nyitray

Vital Statistics:

 

Last Change
S&P futures 2603.75 -1
Eurostoxx index 345.16 -2.05
Oil (WTI) 51.84 0.64
10 year government bond yield 2.88%
30 year fixed rate mortgage 4.72%

 

Stocks are flattish as we head into Fed week. Bonds and MBS are flat.

 

The Fed will meet on Tuesday and Wednesday, with the official announcement scheduled for 2:00 pm Wednesday. The markets are anticipating a 25 basis point hike, but the action will be in the forecasts and in the dot plot.

 

We actually do have some interesting data this week with the NAHB Housing market Index later today, housing starts, and existing home sales. We will also get the third revision to Q3 GDP on Friday.

 

Retail Sales rose 0.2% in November, in line with forecasts, and well below October’s torrid levels. The control group, which strips out volatile food, energy, and building product prices, rose 0.9%, which was well above forecasts. FWIW, the retail sector looks to have a good holiday shopping season.

 

The NY Fed’s is predicting 2.4% GDP growth for the 4th quarter. While this is a drop from the third quarter’s 3.5% pace, it is still a decent number. Much will hinge on December retail sales. Note that strategists are beginning to worry about 2019, and PIMCO is saying that recession signs are “flashing yellow.” FWIW, while there is a bit of a slowdown in housing, wages are increasing and that should pump consumption. IMO, the business press is talking their ideological book a lot here – they don’t like Trump, so they are generally pessimistic, and that is feeding into their outlook.

 

Congress and the President need to get a stopgap budget passed this week, and there is all sorts of partisan posturing over border security. Are we going to get a shutdown? Perhaps. Trump wants something like $5 billion for the border wall, and the Democrats are only willing to spend $1.6 billion in “border security.” For the record, $5 billion is chump change in Washington – so this isn’t about money. The D base loathes Trump and the Wall has become a sort of MacGuffin for partisans on both sides. For originators, if the government shuts down, most government lending will be just fine, but tax transcripts will probably be unavailable.

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