Morning Report: Bonds selling off again

Vital Statistics:

  Last Change
S&P futures 4,436 -11.2
Oil (WTI) 74.25 1.29
10 year government bond yield   1.50%
30 year fixed rate mortgage   3.18%

Stocks are lower as we round out the third quarter. Bonds and MBS are down.

 

The upcoming week won’t have much in the way of market-moving data, however we will have a lot of Fed-Speak. We will get plenty of real estate data, with pending home sales, Case-Shiller and FHFA. Although Friday is October 1, the jobs report will come out next week.

 

The bond market is back in sell-off mode, and there wasn’t too much in the way of US news to drive it – the FOMC statement was a nonevent, and everyone pretty much knew that tapering was slated to begin this year. The sell-off seems to be global, and German yields have risen over the past few days by 13 basis points to negative 0.2%. Angela Merkel is not going to run again, and it looks like Germany is going to be run by the left.

We are seeing commodity shortages all over Europe, especially in the energy markets. Natural gas prices in Europe are up 150% over the past 6 months. Gas prices in the US are up over 100% over the same period. The US is exporting liquefied natural gas to Europe, but that should increase prices over here. With gas prices so high, people can expect to see big increases in electricity bills this winter.

 

There is a lot going on legislatively this week between the infrastructure bill, the 3.5 trillion stimulus bill and the debt ceiling. The infrastructure bill is probably fine, the stimmie bill is going to have to go on a diet, and there is plenty of jawboning over the debt ceiling. Democrats want Republican fingerprints on the debt ceiling bill, but Republicans are resisting.

 

Durable goods orders rose 1.8% last month, which was well above the Street consensus forecast. Ex-transportation they rose 0.2%. Core Capital Goods orders rose 0.5%, which was above expectations as well.

The increase in core capital goods is a good proxy for business capital spending. CAPEX spending has been depressed for a while, however I suspect that the current labor shortage is driving the increase. While labor availability can come and go, technology is always there, getting cheaper and better. This is the fatal flaw in the logic of engineering a labor shortage.

 

Democrats are looking at a 20-year FHA loan that will be subsidized enough that the payments will be the same as a 30 year FHA. It will be called the LIFT program, for Low Income First Time Homebuyers. The idea is that it will go to first generation, first time homebuyers who make more than 120% of the area median income. Separately, they are looking at more down-payment assistance programs. Former MBA head Dave Stevens said: “In Congress right now, and I would guess the White House, they would like to see both Maxine Waters down payment assistance bill and this one make its way to the reconciliation process,” added Stevens. “If you could get a modest amount of dollars for both Chairwoman Waters’ piece of legislation as well as for the LIFT bill, you get some really good dollars targeted for first time homebuyers.”

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