All Things in Moderation

Vital Statistics:

Stocks are higher this morning as global sovereign yields continue to fall. Bonds and MBS are up.

Global sovereign yields are lower after good inflation data in the UK. The UK Gilt is down 12 basis points, while German Bunds are trading back below 2%. The end-of-year bond rally globally has been impressive.

Mortgage Applications fell 1.5% last week as purchases fell 1% and refis fell 2%. On an annual basis, purchase activity was down 18% while refi activity was up 18%. “With the positive news about the drop in inflation, and the FOMC projections proclaiming a pivot towards rate cuts, the 30-year fixed mortgage rate reached its lowest level since June 2023, declining to 6.83 percent,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “At least as of last week, borrowers’ response to this rate move was rather tepid. VA refinance applications jumped 18 percent for the week, but otherwise, both refinance and purchase applications showed small declines.”

Refinance activity rose to almost 40% of total applications, while the average mortgage rate fell from 7.07% to 6.83%.

Consumer confidence increased in December, according to the Conference Board. “December’s increase in consumer confidence reflected more positive ratings of current business conditions and job availability, as well as less pessimistic views of business, labor market, and personal income prospects over the next six months,” said Dana Peterson, Chief Economist at The Conference Board. “While December’s renewed optimism was seen across all ages and household income levels, the gains were largest among householders aged 35-54 and households with income levels of $125,000 and above. December’s write-in responses revealed the top issue affecting consumers remains rising prices in general, while politics, interest rates, and global conflicts all saw downticks as top concerns. Consumers’ Perceived Likelihood of a US Recession over the Next 12 Months abated in December to the lowest level seen this year—though two-thirds still perceive a downturn is possible in 2024.”

These consumer confidence indices are highly influenced by gasoline prices, which have been falling. There also remains a sizeable gap between expectations and present conditions (i.e. now). In other words, people’s economic situation at the moment is better than they think the future will be.

Existing Home sales rose 0.8% in November, ending a 5 month decline. Sales rose to a seasonally-adjusted annual pace of 3.82 million units, which is still 7.3% lower than a year ago. This number reflects the fact that mortgage rates spiked in September and October.

“The latest weakness in existing home sales still reflects the buyer bidding process in most of October when mortgage rates were at a two-decade high before the actual closings in November,” said NAR Chief Economist Lawrence Yun. “A marked turn can be expected as mortgage rates have plunged in recent weeks.”

Inventory remains light, with only 3.5 month’s worth at the current pace. This is a function of high mortgage rates and the lock-in effect. As rates move lower, this issue should become less of a concern. The median home price rose 4% YOY to $387.600. The first time homebuyer share rose to 31% from 28% a month before.

US economic bellwether FedEx is down 10% this morning after posting weak earnings and guidance. The company said it expects declining revenues this year after guiding for a flat top line. “In the remainder of [fiscal] 2024, we expect revenue will continue to be pressured by volatile macroeconomic conditions, negatively affecting customer demand for our services across our transportation companies,” FedEx said in a filing. Its fiscal year ends May 31.

This doesn’t bode well for consumption or investment going forward.

Filed under: Economy |