Morning Report: Brainard and Powell visit Biden

Posted on November 8, 2021 by Brent Nyitray

Vital Statistics:

  Last Change
S&P futures 4,702 12.2
Oil (WTI) 81.52 0.63
10 year government bond yield   1.48%
30 year fixed rate mortgage   3.17%

Stocks are higher this morning on no real news. Bonds and MBS are up.

 

The upcoming week will be relatively data-light as is typical in the week after the jobs report. We will get inflation data with the Producer Price Index tomorrow and the Consumer Price index on Wednesday.

Jerome Powell will be speaking today and tomorrow at Jackson Hole. Note that the bond market will be closed on Thursday for Veteran’s Day.

 

Fannie and Freddie made $5.3 billion from the adverse market fee. The proceeds from the fee are expected to partially cover the losses Fan and Fred are eating from the foreclosure moratorium. The FHFA anticipates that the moratorium will cost the GSEs between $7 and $8 billion over the next couple of years.

 

Chinese high-yield bondholders have lost about a third on their investment this year as the property developers begin to default on their debt. FYI, the Chinese stock market is flattish on the year. As a general rule, when the bond market and the stock market disagree on the future the bond market usually has it right.

Chinese media claims that Evergrande has made all of its interest payments. It looks like offshore investors have not received a November 6 interest payment.

 

Rocket reported that it originated $88 billion in the third quarter. This was an increase from the second quarter, and roughly flat on a YOY basis. Gain on sale margins rose from 2.8% in the second quarter to 3.05% in the third. I guess they see the market getting more competitive in the fourth quarter. Guidance for gain on sale margins are expected to come in between 2.65% and 2.95%.

 

Jerome Powell and Lael Brainard met with Joe Biden presumably to discuss who will lead the Fed when Powell term expires soon. Brainard is viewed as more dovish than Powell. Whoever gets the nod might end up being the G William Miller of this generation. Miller was nominated by Jimmy Carter to run the Fed in 1978, and lasted a little over a year before getting kicked upstairs to run Treasury.

During this time period, the inflation rate rose from about 6.5% in March of 1978 to almost 12% in August of 1979 when he was replaced. Below is a chart of the last inflation cycle, which pretty much lasted from 1965 to 1980.

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