All Things in Moderation

Vital Statistics:

	Last	Change
S&P futures	4,247	2.8
Oil (WTI)	71.62	0.74
10 year government bond yield		1.50%
30 year fixed rate mortgage		3.14%

Stocks are flattish after a disappointing retail sales number. Bonds and MBS are down small.

The Fed starts its two-day meeting today. The announcement will be tomorrow at 2:00 PM. Bond yields have been slowly declining over the past week or two ahead of the meeting.

Retail Sales fell 1.3% in May. Ex-autos and gas, they fell 0.8%. These numbers were well below Street expectations. On a year-over-year basis, they are up smartly, but this is due to comparisons versus lockdowns. Since consumption is something like 70% of GDP, I find it strange to see the high GDP estimates given this backdrop.

As an aside, regarding retail sales etc, I was at the New England Mortgage Expo which was held at Mohegan Sun, a massive casino complex in Connecticut. The Expo usually has something like 2,000 people attending. If I had to venture a guess, I would say a few hundred attended. The other thing I noticed was the casinos were deserted. The vast majority of the blackjack tables were empty, with no dealers and no gamblers. Very few people playing slots. I heard that the casinos were having a horrible time finding workers as well.

Delinquencies fell to the lowest rate in a year, according to CoreLogic. 4.9% of mortgages were 30 days down. The foreclosure inventory rate was 0.3%, but that number is being held down artificially by the foreclosure moratorium. The eviction moratorium expires at the end of June. The CFPB supposedly plans to extend the foreclosure moratorium until the end of the year.

Inflation at the wholesale level rose 0.8% month-over-month and 6.6% year-over-year. Ex-food, energy, and trade services prices rose 0.7%. Raw material prices are behind the increases. That said, additional supply is coming on line, which should ease the pressure. Note that lumber is down about 40% from its peak a month ago.

The Fannie Mae Mortgage Lender Sentiment Survey shows that lenders expect profit margins to contract. “Despite elevated optimism toward the U.S. economy, lenders show a cautious outlook for their mortgage business,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “This quarter, the largest net percentage of lenders in the survey’s seven-year history are expecting a decrease in their profit margin outlook. This is the third quarterly decline from the lender profitability highs of 2020. Those who expected a lower profit margin continued to cite competition from other lenders and market trend changes as the primary reasons. Lenders reported a significant refinance demand decline over the past three months and expect the decline to continue, with their refinance demand growth expectations reaching the lowest level seen since Q4 2018. With the shift from refinance to purchase business, some lenders commented that purchase transactions are harder to complete and have lower margin.”

Industrial production rose 0.8% in May, while manufacturing production rose 0.9%. Capacity Utilization rose to 75.2%.

Filed under: Economy, Morning Report |