All Things in Moderation

Vital Statistics:

	Last	Change
S&P futures	4,609	-42.2
Oil (WTI)	82.42	0.23
10 year government bond yield		1.71%
30 year fixed rate mortgage		3.61%

Stocks are lower this morning as earnings season kicks off. Bonds and MBS are up small.

Retail Sales fell 1.9% MOM in December, according to the Census Bureau. Sales were up big compared to a year ago. For the full year, retail sales were up 19.3% compared to 2020. Gas stations and food / drinking places were big drivers of the annual increases.

Industrial Production fell 0.1% MOM in December, while manufacturing production fell 0.3%. These numbers came in well below expectations. Capacity Utilization slipped to 76.5%.

Bank earnings are rolling in. JP Morgan reported record annual earnings, however Q4 numbers were down compared to a year ago. Mortgage originations increased 30% YOY, and were up compared to Q3. Net income was bolstered by investment banking revenue as well as reserve releases. The stock is down a few percent pre-open.

Wells Fargo reported quarterly earnings more than doubled compared to the 4th quarter of 2020. Home lending earnings fell 8% QOQ and YOY, driven by lower volumes and lower gain on sale margins. Volumes were down 11% YOY. The stock is up about a percent this morning.

Lael Brainard signaled a March rate hike in her testimony in front of Congress yesterday. The Fed “has projected several rate hikes over the course of the year. We will be in a position to do that … as soon as our purchases are terminated.” The Fed should be done with its QE adjustments in March, so presumably this means a March hike is on the table.

Consumer sentiment is slipping, according to the University of Michigan Consumer Sentiment Survey. Inflation is a big driver:

When asked to assess their finances, 33% reported being worse off financially than a year earlier, just above the April 2020 shutdown low of 32%, the worst reading since 2014. Twice as many households with incomes in the bottom third as in the top third reported worsening finances (40% vs. 20%). Inflationary erosion of living standards was the main explanation offered by these consumers. The importance of inflation in determining their future financial prospects was dominated by how consumers judged their future inflation-adjusted incomes (see the chart). Nearly half of all consumers (48%) anticipated that the inflation rate would outdistance income increases to produce real income declines. Just 17% anticipated real income gains in 2022.

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