Morning Report: GDP comes in stronger than expected

Vital Statistics:

 

Last Change
S&P futures 2691 21.65
Eurostoxx index 356.69 4.38
Oil (WTI) 67.32 -0.28
10 year government bond yield 3.10%
30 year fixed rate mortgage 4.93%

 

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

 

The 10% retracement level in the S&P 500 held on Friday and bond yields were around 3.08 when sitting at that level. As usual, MBS lagged the moves in the bond markets, waiting for confirmation.

 

The first estimate for third quarter GDP came in at 3.5%, which was higher than the 3.3% Street estimate. Consumption was strong, but investment growth came in weaker than previous quarters. The biggest hit to GDP came from trade, which subtracted an estimated 1.8 percentage points from the number as exports fell, while imports were largely unaffected by tariffs. As usual, housing was a weak spot.

 

Housing economist Robert Shiller notes that housing is weak, however he believes we aren’t looking at another huge slowdown. Housing never fully recovered from the bubble, and inventory is tight. While prices have recouped the losses from the bubble years, we are nowhere near bubble territory.

 

We do have some data this week, with productivity and costs, personal incomes and outlays and the jobs report on Friday. That said, bonds seem to be reacting to the movements in the stock market these days, so it is hard to say these will be market-moving reports.

 

Credit card companies are beginning to restrict credit, or at least pull back the reins a little. Capital One’s CEO believes “the economy is almost too good to be true,” and is beginning to lower credit limits. Credit card issuers are usually the first to react to a tightening in credit, so this bears watching.

Author: Brent Nyitray

Why do you need new bands? Everyone knows rock attained perfection in 1974. It's a scientific fact. - Homer Simpson

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