Morning Report: Trade fears ease

Vital Statistics:

Stocks are higher this morning on overseas strength. Bonds and MBS are flat.

The upcoming week should be relatively uneventful. Fed Head Jerome Powell heads to Capitol Hill for his Humphrey-Hawkins testimony, where Democrats will try and get him to say that income inequality is the number one problem in the economy, while Republicans will try and get him to say that raising taxes and regulation is bad for the economy. We will also get GDP on Thursday. It looks like the jobs report won’t be out this week.

Trump is considering an extension of the March 1 deadline for a trade agreement with China. On March 1, tariffs were set to increase on a number of number of Chinese goods. While this doesn’t take the trade threat off the table with respect to the markets, it does help calm things down. Note that the news was treated with gusto overseas – the Shangai Composite was up 5.6%.

Existing home sales fell 1.2% in January according to NAR. On an annual basis, they are down 8.5%. The seasonally-adjusted annual rate of 4.94 million is the lowest since November 2015. The median existing sales price rose only 2.8% to 247,800, which is much lower than we have been seeing in the home price indices like CoreLogic, Case-Shiller or FHFA. While home price appreciation is definitely slowing, this number probably speaks more to type of home being sold – more sales at the lower price points. Inventory is rising – hitting 1.59 million units. however that represents only a 3.9 month supply at current sales levels, which is well below what is considered a balanced market of 6 – 6.5 months.

December durable goods orders rose 1.2%, while November was revised upward to 1%. This report contains only December data, as Census catches up after the January government shutdown. New orders for non-defense capital goods (a good proxy for business capital expenditures) increased 3.7%.  In other economic data, initial jobless claims fell to 216k, while the index of leading economic indicators fell to -0.1%. The Philly Fed manufacturing index fell as well. In response to recent data, the Atlanta Fed GDP tracking model has taken down its Q4 estimate to 1.4%

TIAA bank is getting out of the retail bricks and mortar business and is selling their retail mortgage ops to US Bank to focus 100% on consumer direct and correspondent.

M&T Bank just bought a $13 billion MSR portfolio. This is a surprising move given that the capital treatment for MSRs (how much regulatory capital they are required to set aside) is more than the value of the MSRs themselves. Of course regulatory capital issues don’t necessarily determine investment decisions by themselves, but this is an interesting move.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical View all posts by Brent Nyitray