Morning Report: JP Morgan is calling for 7.3% growth in 2021

Vital Statistics:

S&P futures389218.4
Oil (WTI)64.420.46
10 year government bond yield 1.55%
30 year fixed rate mortgage 3.19%

Stocks are higher this morning after yesterday’s bond rally. Bonds and MBS are down a touch.

The big event today will be the 10-year bond auction at 1:00 PM. Yesterday’s 3 year auction went well, and stock investors will be focused keenly on the bid-to-cover ratio for today. With tech stock valuations stretched, a rise in rates can pull down valuations quite a bit.

Inflation remains largely unchanged, with the Consumer Price Index rising 0.4% MOM and 1.7% YOY. Ex-food and energy, inflation rose 0.1% MOM and 1.3% YOY. The Fed prefers to focus on the PCE inflation index, but suffice it to say the inflation scare has yet to be included in the numbers.

Mortgage Applications fell 1.3% last week as purchases increased 7% and refis fell 5%. The 30-year fixed mortgage rate climbed to 3.26 percent last week, which is the highest since last July and up 40 basis points since the start of 2021,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Signs of faster economic growth, an improving job market  and increased vaccine distribution are pushing rates higher.”

JP Morgan was out with a note yesterday predicting that the US economy would grow 7.3% this year. That would be the fastest rate of growth since the end of the Korean War. As of the December FOMC meeting, the Fed was predicting 4.2% GDP growth. 7.3% seems quite aggressive to me, but maybe it happens. We will need to see massive job creation for this to play out, and with something like 1/3 of small businesses failing over the last year, this seems like a heavy lift. I suspect the big banks feel pressure to cheerlead the economy, and that is part of the equation as well.

The mortgage credit availability index remained depressed in February. “Credit availability in February was unchanged from January, remaining close to its lowest level since 2014,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The housing market is in strong shape heading into the spring, with robust growth in purchase applications, home sales, and new residential construction. Government credit supply has increased in five of the past six months, albeit in small increments, but remains tight by historical standards. This adds another obstacle for many aspiring first-time buyers who are already navigating supply and affordability constraints.”  

Fannie Mae’s Home Purchase Sentiment Index fell 16% YOY despite the improving economy. “As we expected, the HPSI remained relatively flat in February, but underlying data indicate growing job-related optimism among consumers, especially among lower-income and renter groups,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “With the growing likelihood that lockdown restrictions will continue easing as vaccination efforts ramp up, and with warmer weather on the horizon and another round of fiscal stimulus pending, these two segments of consumers may have good reason to feel more positive about the labor market. This optimism appears to be well-placed, too, given Friday’s jobs report from the Bureau of Labor Statistics, which showed the strongest net gain in payroll employment since October, although the unemployment rate remains quite high by historical standards. However, other components of the index remain well below pre-pandemic levels, so we believe there may still be room for improvement in housing and economic attitudes in the coming months, depending in part on the future path of mortgage rates.”

The National Multifamily Housing Council reported that 80.4% of apartment renters paid rent as of March 6, which is a 4.1% decrease from February. While Texas wasn’t mentioned, I wonder if the ice storm is playing a part here. While Washington is focused squarely on the side of renters, landlords are struggling.


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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