Morning Report: Strong wage growth in December

Posted on January 4, 2019 by Brent Nyitray

Vital Statistics:

 

Last Change
S&P futures 2480 32.75
Eurostoxx index 338.85 4.35
Oil (WTI) 48.05 0.95
10 year government bond yield 2.61%
30 year fixed rate mortgage 4.43%

 

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

 

Jobs report data dump:

  • Nonfarm payrolls up 312k, street expectation 177k
  • Average hourly earnings up 0.4% MOM / 3.2% YOY, street expectation 0.3% / 3.1%
  • Labor force participation rate 63.1%, November 62.9%
  • Unemployment rate 3.9%, street expectation 3.7%

Overall a strong report. The uptick in the unemployment rate was a surprise, but is still below 4% and the labor force increased by quite a bit. Wages are increasing smartly, rising 3.2%. Those in the press (and DC) hoping for recessionary data will be disappointed with this report.

 

Yesterday, we touched 2.57% on the 10 year bond yield. If you were hoping to see that reflected in mortgage rates, you were probably disappointed. MBS are lagging the move in Treasuries (as usual).

 

The action in the Fed funds futures is truly astounding. There has been a complete sea-change in market perception over the past month. Look at the January 2020 futures (a year from now). Implied probability of another hike in 2019? Zero. Chance of a rate cut? Better than 50/50. Note the implied probabilities a month ago versus today. The market is saying the Fed overshot.

 

fed fund futures dec 2019

 

Compare that to the dot plot from the December meeting which suggests another 50 basis points of hikes:

 

dot plot

 

This is an astounding change in sentiment in just a month. It is certainly possible that the Fed Funds futures have it wrong, but it is clear the market and the Fed aren’t seeing the future even remotely the same.

 

Chinese demand is collapsing, as evidenced by falling consumption tax receipts. People have known that China has a real estate bubble and a shaky banking system for a while, but bubbles generally go on for longer than anyone ever expects. With the Chinese pulling out of the hot US markets, we are seeing a decline in places like Manhattan, where the median apartment price fell below $1 million for the first time in 3 years. There is a 16 month supply of luxury apartments in Manhattan, compared to an overall 4.5 month supply of existing homes for sale in the US. 6.5 month’s worth is generally considered a balanced market. The same thing is happening in the hot West Coast markets.

 

Kathy Kraninger, the new head of the CFPB sent an email to staffers saying that the agency will “continue to vigorously enforce the law,” but keep in mind “costs and benefits” and “maintain an open mind, without presumption of guilt.” So, she sounds like a continuation of the Mick Mulvaney approach and not a return to the Cordray “regulation by enforcement” model.

 

Mr Cooper bought IBM’s $48 billion servicing portfolio.

Filed under: Economy, Morning Report |

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14 Responses

  1. Brent Nyitray, on January 4, 2019 at 8:47 am said:

    I could drink two pots of Cafe Bustelo and not be as woke as this:

    https://www.nike.com/us/en_us/c/women/nike-pro-hijab

    Best quip on shit like this: companies pretend to care about social justice to market to millennials who pretend to hate capitalism.

    Like

    Reply
    • Michigoose, on January 4, 2019 at 1:48 pm said:

      I dunno. She looks like she could probably take you in a knife fight. Or at least a fencing match.

      And besides–what’s wrong with providing a uniform appropriate for her to wear?

      Like

      Reply
      • jnc4p, on January 4, 2019 at 2:43 pm said:

        It’s not about the sports hijab itself or the athletes who wear them. It’s about who the ad campaign is directed at (hint: it’s not the athletes wearing the hijabs) and the whole absurdity of Nike positioning itself as woke while, for example, continuing to utilize third world labor for cost reasons.

        Like

        Reply
        • ScottC, on January 4, 2019 at 3:02 pm said:

          jnc:

          and the whole absurdity of Nike positioning itself as woke while, for example, continuing to utilize third world labor for cost reasons.

          The absurdity to me is not that Nike does it, but that the bien pensants of the left fall for it. How stupid are these people? Nike has a pretty good measure of how stupid, I guess.

          Like

        • jnc4p, on January 4, 2019 at 3:11 pm said:

          You see this from the other thread?

          http://rentaminority.com/

          It’s a parody of exactly what Nike is doing here.

          Like

      • jnc4p, on January 4, 2019 at 2:47 pm said:

        Also, I can recommend José Andrés America Eats Tavern in Georgetown, especially if you like beef brisket and other BBQ.

        I was there recently and it was great.

        Liked by 1 person

        Reply
        • Michigoose, on January 4, 2019 at 9:19 pm said:

          Thanks! Haven’t heard back from second cousin yet, so don’t know what their thoughts are. All I know is that I’ve never had anything at any José Andrés restaurant that I didn’t like.

          Like

      • Brent Nyitray, on January 4, 2019 at 2:48 pm said:

        i was just pointing out the cheesy virtue-signalling aspect of it.

        Edit: plus, how many are they going to sell? two? certainly not enough to cover the costs of making / marketing. it is just a feel-good gesture to stroke the woke egos and to prevent the left from going after them on social media.

        it is like a cultural protection racket payment.

        Liked by 1 person

        Reply
        • jnc4p, on January 4, 2019 at 3:09 pm said:

          Actually more than that. Making the sports hijabs themselves isn’t primarily about the US market and the Muslim fashion market overseas is huge.

          But that’s not who the ad is directed at.

          Like

        • Michigoose, on January 4, 2019 at 9:21 pm said:

          Gotcha. Thanks, Brent!

          Like

    • ScottC, on January 4, 2019 at 2:57 pm said:

      Brent:

      companies pretend to care about social justice to market to millennials who pretend to hate capitalism.

      That”s good.

      Like

      Reply
  2. jnc4p, on January 4, 2019 at 3:30 pm said:

    Opps. Maybe giving the government so much power wasn’t such a good idea.

    “Unknown to most Americans, a parallel legal regime allows the president to sidestep many of the constraints that normally apply. The moment the president declares a “national emergency”—a decision that is entirely within his discretion—more than 100 special provisions become available to him. While many of these tee up reasonable responses to genuine emergencies, some appear dangerously suited to a leader bent on amassing or retaining power. For instance, the president can, with the flick of his pen, activate laws allowing him to shut down many kinds of electronic communications inside the United States or freeze Americans’ bank accounts. Other powers are available even without a declaration of emergency, including laws that allow the president to deploy troops inside the country to subdue domestic unrest.”

    https://www.theatlantic.com/magazine/archive/2019/01/presidential-emergency-powers/576418/

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