Morning Report: Two new Fed nominees, weak payroll growth.

Posted on July 3, 2019 by Brent Nyitray

Vital Statistics:

 

Last Change
S&P futures 2986.25 6.4
Oil (WTI) 56.75 0.9
10 year government bond yield 1.96%
30 year fixed rate mortgage 4.06%

 

Stocks are higher this morning as we are approaching detente in the US-China trade spat. Bonds and MBS are higher.

 

Bonds are rallying globally, with the German Bund yield hitting a record low of -39 basis points. Ex-IMF Chair Christine Lagarde is in the running to replace Mario Draghi as the head of the ECB. She is considered to be more of a politician, so the markets are interpreting her nomination to be bond-bullish. US rates will be influenced by overseas bond markets, so that means lower rates here at least at the margin.

 

Christopher Waller and Judy Shelton are the latest Trump picks to join the Federal Reserve Board. Judy Shelton has been vocal in criticizing the Fed’s practice of paying interest on excess reserves, and has questioned the effectiveness of the current regime of floating exchange rates versus the gold standard and the gold exchange standards of yesteryear. While there is a 0% chance we go back to some sort of hard-asset backed currency, between the serial bubbles of the past 40 years and the hyper-inflation of the 1970s, the economic record of post-Bretton Woods era (basically from when Nixon closed the gold window) has been mixed.

 

Construction spending fell 0.8% MOM and 2.3% YOY in May. Residential construction continues to be an issue, falling 0.6% MOM and 11.2% YOY.

 

Manufacturing expanded in June, according to the ISM Manufacturing report. That said, it decelerated compared to May. Tariffs remain the largest concern. New Orders were flat, while employment and production increased.

 

Mortgage Applications were more or less flat last week, as purchases increased 1% and refis fell 1%. Mortgage rates were unchanged-to-slightly lower, depending on the product. We have left the tightening-driven doldrums of 2016-2018 and approaching more normal levels. Here is the MBA Mortgage Index going back 20 years to give some perspective:

 

MBA application index

 

Private payrolls increased by 102,000, according to the ADP Employment Report. This is the second weak-ish reading in a row. Jobs were created in education and health as well as professional and business, while the construction sector lost jobs. Note the Street is looking for 160,000 new payrolls in Friday’s jobs report. Separately, initial jobless claims fell to 221k last week. You can see the drop-off in hiring in the ADP chart below:

 

ADP report

 

 

Filed under: Economy, Morning Report |

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25 Responses

  1. Brent Nyitray, on July 3, 2019 at 11:28 am said:

    Reality check for those that think we would be able to run 100% on solar and wind if we only prevented Exxon from lobbying….

    https://www.manhattan-institute.org/green-energy-revolution-near-impossible

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    • Kevin S. Willis, on July 4, 2019 at 9:23 am said:

      That’s too much reading for the Green New Deal folks. They elected AOC to lead, not to read!

      The article doesn’t discuss greenish technologies like nuclear and hydroelectric. Presumably because Green New Dealers don’t want to dam rivers or risk China Syndromes. But it’s kind of obvious wind and solar alone aren’t going to begin to replace hydrocarbons. At least not until we build a Dyson sphere around the sun. And that would be an expensive project.

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    • jnc4p, on July 3, 2019 at 12:21 pm said:

      Left unsaid is how a private Facebook group is intimidating and harassing members of Congress if they and the larger public can’t see the posts and until the ProPublica piece were in fact unaware of it’s existence.

      Having said that, I suspect most of what’s in there is grounds for termination for the people who posted the more offensive memes.

      Liked by 1 person

      Reply
  3. jnc4p, on July 3, 2019 at 1:12 pm said:

    Vox runs their evergreen July 4th piece:

    https://www.vox.com/2015/7/2/8884885/american-revolution-mistake

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  4. Let the mutherfuker burn!, on July 3, 2019 at 1:15 pm said:

    Talk about fake news, this thing is barely a large balloon let alone a blimp. Seriously, it underwhelms. I can’t believe Soros or Steyer won’t pop for a real Baby Trump dirigible.

    https://m.dailykos.com/stories/1869078

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    • Kevin S. Willis, on July 4, 2019 at 8:47 am said:

      What’s it about for Nike? Exactly? Is Kaepernick running Nike now? Are they going to pull any product he doesn’t approve of? I get Colin needs to remain relevant but I’m not sure where Nike is going with this.

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      • Brent Nyitray, on July 4, 2019 at 9:49 am said:

        Nike is just outside Portland. The entire company is probably completely of the same mindset.

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        • jnc4p, on July 5, 2019 at 8:38 am said:

          Nike had a major leadership shakeup I believe due to gender discrimination lawsuits.

          See also:

          https://www.bloomberg.com/news/articles/2018-08-30/nike-gets-tripped-up-while-trying-to-change-its-culture

          We’ll see how much the new commitment to wokeness impacts their profitability.

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        • Kevin S. Willis, on July 5, 2019 at 10:44 am said:

          It’s one thing to become internally woke–people will put up with a lot for a paycheck, although it may negatively impact morale and get folks to leave for better opportunities over time.

          But it’s another to go full-woke when interfacing with the consumer. That will end up hitting you in your market share. And while I think the original Kaepernick shoe kerfuffle was a blip, when they start pulling shoes that reflect patriotism, or masculinism, or able-ism–all of which can certainly happen–I feel like you’re going to alienate the majority of your consumers.

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        • Brent Nyitray, on July 5, 2019 at 11:16 am said:

          I think it speaks to the strength of the labor market that companies do this as a way to keep their workforces happy….

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        • Let the mutherfuker burn!, on July 5, 2019 at 12:56 pm said:

          I think it’s more that management is in a media bubble.

          Liked by 1 person

        • jnc4p, on July 5, 2019 at 11:02 am said:

          Never go full woke.

          Liked by 1 person

        • Kevin S. Willis, on July 5, 2019 at 11:29 pm said:

          Never go full woke

          Yeah. It’s weird that big companies are embracing things so alienating and potentially controversial with their customers. I mean, it may be fine, and maybe they just don’t see anything controversial about pissing on America now, but you’d think they’d at least be cautious about public mega-wokeness.

          You’d think they’d just want to ignore things like Kaepernick’s complaint but … eh, brave new world.

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        • Brent Nyitray, on July 6, 2019 at 4:05 pm said:

          They clearly fear the SJW mob more than their conservative customers… the CEO of Dick’s is happy with appeasing the mob even though it hurt sales and ptofitability

          Liked by 1 person

  8. jnc4p, on July 5, 2019 at 3:41 pm said:

    Some good news:

    “Scientists say they found a cure for HIV in some mice. Humans could be next.

    By Hannah Knowles
    July 4 at 3:19 PM

    Researchers say they have removed HIV from the DNA of mice, an achievement the scientists say could be an early step toward an elusive cure for humans.”

    https://www.washingtonpost.com/health/2019/07/04/scientists-say-they-found-cure-hiv-mice-humans-could-be-next/

    Liked by 1 person

    Reply
  9. Let the mutherfuker burn!, on July 5, 2019 at 5:56 pm said:

    Goddamn! McConnell or someone on his staff has serious troll game.

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  11. Kevin S. Willis, on July 7, 2019 at 10:47 pm said:

    I wish they would, but they won’t.

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