Morning Report: Consumer confidence falls on weakening labor outlook

Posted on September 25, 2024 by Brent Nyitray

Vital Statistics:

Stocks are flat this morning on no real news. Bonds and MBS are flat as well.

Home prices hit a new record, according to the Case-Shiller Home Price Index. Prices rose 5.0% year-over-year in July, a deceleration from the 5.5% recorded in June. New York City led the charge, followed by Las Vegas and Los Angeles. “We continue to observe outperformance in most low-price tiers in the market on a three- and five-year horizon,” Luke continued. “The low-price tier of Tampa was the best performing market nationally with five-year performance of 88%. The New York market was the best market annually, posting a gain of 8.9%. New York’s low-tier index, which include home values up to $533,000, helped drive that growth with 10.8% annual gains. Over five years, markets such as New York and Atlanta saw low-price-tiered indices outperforming their market by as much as 20% and 18%, respectively. The relative outperformance of low-price-tiered indices has both benefited first-time homebuyers as well as made it more difficult for those looking for a starter home. The opposite is happening in California, which has the most expensive high-price tiers in the nation, all well over $1 million. The rich are getting richer in San Diego, Los Angeles, and San Francisco where their high-price-tiered indices outperformed on a one- and three-year basis.”

Consumer confidence declined in September, according to the Conference Board. “Consumer confidence dropped in September to near the bottom of the narrow range that has prevailed over the past two years,” said Dana M. Peterson, Chief Economist at The Conference Board. “September’s decline was the largest since August 2021 and all five components of the Index deteriorated. Consumers’ assessments of current business conditions turned negative while views of the current labor market situation softened further. Consumers were also more pessimistic about future labor market conditions and less positive about future business conditions and future income.

The Present Situation Index has moved down markedly over the summer and continues to fall. Inflationary expectations remained elevated at 5.2%.

Mortgage applications rose 11% last week as purchases rose 1.4% and refis rose 20%. “Mortgage applications increased to their highest level since July 2022, boosted by a 20 percent increase in refinance applications after a large increase the prior week. The 30-year fixed rate decreased for the eighth straight week to 6.13 percent, while the FHA rate decreased to 5.99 percent, breaking the psychologically important 6 percent level,” Joel Kan, MBA’s Vice President and Deputy Chief Economist. “As a result of lower rates, week-over-week gains for both conventional and government refinance applications increased sharply. The refinance share of applications is now at 55.7 percent, and while the level of refinance activity is still modest compared to prior refi waves, they now account for the majority of applications, given the seasonal slowdown in purchase activity.”

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Morning Report: Retail sales rise

Posted on September 17, 2024 by Brent Nyitray

Vital Statistics:

Stocks are higher this morning as the Fed begins its meeting. Bonds and MBS are up.

Retail Sales rose 0.1% MOM in August, according to the Census Bureau. This was better than the -0.3% expectation. July retail sales were revised upward by 0.1% to 1.1%. On a year-over-year basis, they rose 2.1%. Since these numbers are not adjusted for inflation, retail sales actually fell slightly YOY on an inflation-adjusted basis.

If you strip out vehicles and gasoline, retail sales rose 0.2% MOM and 3.3% YOY. This was a touch above inflation. Overall, it looks like the consumer remains in decent shape as we head into the back-to-school and holiday shopping seasons.

The Fed begins their FOMC meeting today. The Fed Funds futures have been more volatile than I can remember before a Fed meeting. The current handicapping has a 2/3 chance of a 50 basis point cut and a 1/3 chance of 25.

CNBC’s survey of money managers is leaning 86% towards a 25 basis point cut, FWIW. “We believe that the equivalent of eight cuts in six meetings is more than what will happen,″ John Donaldson, director of fixed income, Haverford Trust Co. wrote in response to the survey. “That forecast is more in line with a hard landing than a soft landing.”

Barry Knapp from Ironsides Macroeconomics says, “We suspect the FOMC will either under-promise or under-deliver, perhaps both.”

The December futures are still predicting a total 125 basis points in cuts this year.

Home prices rose 0.5% MOM in August, according to research from Redfin. On a year-over-year basis, they rose 6.7%. “Prices kept creeping up during this unusually slow summer for home sales as mortgage rates came down and supply remained stubbornly low,” said Redfin Senior Economist Sheharyar Bokhari. “If mortgage rates fall further this fall—and we expect they will—price growth will likely pick up as more prospective homebuyers come off the sidelines .”

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Morning Report: Awaiting inflation data this week

Posted on September 9, 2024 by Brent Nyitray

Vital Statistics:

Stocks are higher this morning after getting roughed up last week. Bonds and MBS are down.

The week ahead will be dominated by inflation data with the consumer price index on Wednesday and the producer price index on Thursday. We are in the quiet period ahead of the FOMC meeting next week, so there won’t be any Fed speakers.

Fed Governor Christopher Waller said that the “time has come” to begin cutting rates. “If the data supports cuts at consecutive meetings, then I believe it will be appropriate to cut at consecutive meetings,” Waller said in remarks prepared for delivery at the University of Notre Dame. “If the data suggests the need for larger cuts, then I will support that as well. I was a big advocate of front-loading rate hikes when inflation accelerated in 2022, and I will be an advocate of front-loading rate cuts if that is appropriate.”

New York Fed President John Williams also supports cutting rates: “It is now appropriate to dial down the degree of restrictiveness in the stance of policy by reducing the target range for the federal funds rate,” Williams said, in a speech prepared for delivery to the Council on Foreign Relations.

The base case for next week continues to be 25 basis points. Right now, the Fed Funds futures see a 75% chance of a 25 basis point cut and a 25% chance of a 50 basis point cut. The jobs report showed the labor market is softening, but not deteriorating which means the Fed doesn’t need to move with alacrity.

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