Morning Report: Retail Sales disappoint

Vital Statistics:

	Last	Change
S&P futures	3408	12.6
Oil (WTI)	39.33	0.46
10 year government bond yield		0.67%
30 year fixed rate mortgage		2.94%

Stocks are higher this morning as we await the Fed announcement at 2:00 pm. Bonds and MBS are up

The Fed is expected to maintain rates at 0%, however the action will be in the projection materials. Most market-watchers expect the Fed to keep rates at this level until 2023. In June, the Fed was predicting unemployment would end 2020 at 9.3%, and we are already well below that. They were also predicting GDP would fall 6.5% this year. What would make stocks happy? Big upward revisions in the economic predictions, along with a commitment to hold rates at 0% through 2022.

Retail Sales came in a little below expectations, rising 0.6%. Ex-vehicles and gasoline, they rose 0.7%. The control group, which also excludes building materials fell 0.2%. Note that lumber is on a tear these days.

The retail sales numbers don’t bode well for the holiday shopping season, as back-to-school is often a good predictor. One other interesting data point: the banks have been reporting credit card delinquency rates are actually falling, which means people are paying down debt and not spending. I am guessing less entertainment spending is driving this, however it is something to keep an eye on.

Mortgage Applications fell 2.5% last week as purchases fell 1% and refis fell 4%. The week did contain an adjustment for the Labor Day holiday, so that could be introducing some noise into the numbers. “Mortgage rates held steady last week, and the 30-year fixed rate – at 3.07 percent – has now stayed near the 3 percent mark for the past two months,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “A 5 percent decline in conventional refinances pulled the overall index lower, but activity was still 30 percent higher than last year. With the flurry of refinance activity reported over the past several months, demand may be slowing as remaining borrowers in the market potentially wait for another sizeable drop in rates.”