Morning Report: Dovish FOMC minutes

Vital Statistics:

 

Last Change
S&P futures 2835.25 -22.4
Oil (WTI) 60.47 -0.95
10 year government bond yield 2.36%
30 year fixed rate mortgage 4.41%

 

Stocks are lower this morning on trade fears and European elections. Bonds and MBS are up.

 

The minutes from the April FOMC meeting were released yesterday, and the Fed continues to adjust its sails to the messages from the market. The bond market took the minutes to be dovish, and bond yields dropped after they were released. The quote that investors focused on:

 

“Members observed that a patient approach to determining future adjustments to the target range for the federal funds rate would likely remain appropriate for some
time, especially in an environment of moderate economic growth and muted inflation pressures, even if global economic and financial conditions continued to improve.”

 

That statement (even if global economic and financial conditions continued to improve) is an all-clear signal to the bond market that positive economic data is no longer a threat. Given the background of creeping Eurosclerosis and a trade dispute, the highs for interest rates are probably in, and strategists are already talking about an insurance rate cut.

 

Talk of a rate cut is probably premature however. The data just don’t support it, and with the jawboning out of the White House the Fed is going to resist cutting rates if only to prove they are independent. That said, the circumstances required to justify a rate hike are even more unlikely.

 

Troubles in the luxury end of the real estate market? Not so fast. McMansion builder Toll reported earnings yesterday that exceeded street expectations, and Toll CEO Doug Yearley noted that the Spring Selling Season, which had been a bit of a disappointment, has finally woken up. “We are encouraged by the improvement in demand as the quarter progressed.  FY 2019’s April contracts surpassed FY 2018’s April on both a gross and per-community basis.  Although the Spring selling season bloomed late, it built momentum.  We view this as a positive sign for the overall health of the new home market.”

 

Initial Jobless Claims ticked up to 215,000 last week, while the Markit purchasing managers’ index decreased in April.

 

New home sales ticked down in April, falling to a seasonally adjusted annual pace of 673,000. That said, March’s numbers were revised upwards to 732,000. The median home price was more or less flat YOY at $326,400 and the inventory of 332,000 units represents a 5.9 month supply.

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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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