Morning Report: The Atlanta Fed sees 9.3% GDP growth in the second quarter.

Vital Statistics:

S&P futures4,2370.8
Oil (WTI)71.570.64
10 year government bond yield 1.47%
30 year fixed rate mortgage 3.12%

Stocks are flat as we head into Fed week. Bonds and MBS are up.

Aside from the FOMC meeting (which will also include a fresh set of projections), we will also get some important economic data with retail sales, the producer price index, and housing starts.

The Street is looking for the Fed’s dot plot to show rates increasing in 2023, and to start discussing tapering of MBS purchases later this year.

The MBA sent a letter to the Biden Administration calling for an end to the nationwide eviction moratorium when it expires on June 30. “As the pandemic comes under better control, we look forward to working with the Administration to end unsustainable nationwide federal restrictions on property operations, implement workable solutions for renters facing housing instability and help the country recover,” the coalition said.

The Atlanta Fed’s GDP Now forecast sees 9.3% GDP growth for the second quarter. Note that this forecast excludes some of the COVID-19 related effects and assumptions.

Pending home sales are slowing, according to Redfin. “While the market has not come to a full stop, we are seeing signs of yielding,” said Westchester County, NY Redfin real estate agent Candice Smith. “Buyers are winning bidding wars with offers that are $60,000 or less over asking prices; just a month ago in similar situations they had to go $100,000 or more over asking. Bidding wars are still the norm, but the number of competing offers have been cut in half from around 17 to about eight. Homebuyers still need to be strategically creative when submitting their highest and best offer, which involves methods like offering to cover an appraisal gap upfront, dropping the appraisal or mortgage contingency altogether or adding escalation clauses.”

You can see several indicators of demand cooling off in the chart below.

Mortgage REIT AGNC Investment reported a 6.5% drop in book value in the month of May. I don’t think MBS pricing got hit that hard, but that is a surprising report.


Author: Brent Nyitray

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

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