All Things in Moderation

Vital Statistics:

Stocks are lower this morning after yesterday’s rally. Bonds and MBS are up.

The G7 Finance Ministers and central bankers are held a conference call this morning to discuss the recent moves in the markets. While it is a long shot, do not discount the possibility of a intra-meeting rate cut. You could see a coordinated rate cut come out of this, possibly this week. Low probability event, but it isn’t zero.

Yesterday’s market rally was probably due to last week’s “too far, too fast” reaction in the markets. The rally was primarily driven by an expectation that global central banks will lower rates in a coordinated effort to support the economy. That said, how much of an effect will interest rates have? If you are worried about going out and getting sick, i don’t see how 25 basis points on the Fed Funds rate is going to change your behavior. At the margin, it could help businesses which have stretched supply lines, I guess. But cutting interest rates by 100 basis points over the next year in reaction to 105 cases of a disease in the US seems to be going overboard. It would also leave them out of ammo the next time we get a recession.

The ISM Manufacturing Index showed manufacturing barely expanded in February. Coronavirus issues are causing supply chain problems and the 737 Max groundings were also cited.

Construction spending rose 1.8% MOM and 6.8% in January, according to the Census Bureau. Residential Construction spending rose 2.1% MOM and 9% YOY. Coronavirus issues probably won’t affect the housing market much – fixtures are probably the biggest possibility. Luxury properties on the West Coast will be vulnerable as well as many owners are Chinese.

For all the handwringing about home affordability, telecommuting is providing a solution. “The job market is very tight and employers want to hold on to people, so companies are much more willing now to allow workers to move,” said Redfin chief economist Daryl Fairweather. “Plus, technology has enabled employers to let staff work remotely in a cost-efficient and productive manner.”

I am currently at the Lender’s One conference, and have heard from many originators that getting and retaining talent is difficult in this market. Many are paying up, and quite a few are looking at older workers as a solution. If this is happening in other industries besides the mortgage industry, that vast reservoir of over-50 labor that got created in the aftermath of the Great Recession might come on line, which would be fantastic for the economy.

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