Morning Report: Jerome Powell says it is time to retire the term “transitory.”

Vital Statistics:

  Last Change
S&P futures 4,621 58.2
Oil (WTI) 67.52 2.28
10 year government bond yield   1.48%
30 year fixed rate mortgage   3.27%

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

Jerome Powell sounded hawkish at yesterday’s Senate Banking Committee testimony, saying it is time to retire the word “transitory” to describe inflation. The Fed is expected to make a decision regarding a faster tapering at the mid-December FOMC meeting, which will be largely determined by the severity of Omicron.

The Fed Funds futures increased the probability of further rate hikes, and are pricing in 3 hikes in 2022, with the first one expected at the June meeting.

The new conforming loan limits are out, with the new level at 647,200. The high balance limit rises to $970,800.

ADP estimated that there were 534,000 jobs added in November. This is exactly what the Street is looking for in Friday’s jobs report.

“The labor market recovery continued to power through its challenges last month,” said Nela Richardson, chief economist, ADP. “November’s job gains bring the three month average to 543,000 monthly jobs added, a modest uptick from the job pace earlier this year. Job gains have eclipsed 15 million since the recovery began, though 5 million jobs short of pre-pandemic levels. Service providers, which are more vulnerable to the pandemic, have dominated job gains this year. It’s too early to tell if the Omicron variant could potentially slow the jobs recovery in coming months.”

Mortgage applications fell 7.2% last week as purchases rose 5% and refis fell 15%. “Mortgage rates rose for the third week in a row, reducing the refinance incentive for many borrowers,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Over the past three weeks, rates are up 15 basis points and refinance activity has declined over 18 percent. Despite higher mortgage rates, purchase applications had a strong week, mostly driven by a 6 percent increase in conventional loan applications. Conventional loans tend to be larger than government loans, and this was evident in the average loan amount, which increased to $414,700 –the highest since February 2021. As home-price appreciation continues at a double-digit pace, buyers of newer, pricier homes continue to dominate purchase activity, while the share of first-time buyer activity remains depressed.”

The ISM Manufacturing Index came in at 61.1, an increase of 0.3 from October. “The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment, with some indications of slight labor and supplier delivery improvement. All segments of the manufacturing economy are impacted by record-long raw materials and capital equipment lead times, continued shortages of critical lowest-tier materials, high commodity prices and difficulties in transporting products. Coronavirus pandemic-related global issues — worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain problems — continue to limit manufacturing growth potential. However, panel sentiment remains strongly optimistic, with 10 positive growth comments for every cautious comment. “

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