Morning Report: Huge drop in consumer sentiment

Vital Statistics:

 LastChange
S&P futures4,4594.2
Oil (WTI)69.14-0.05
10 year government bond yield 1.35%
30 year fixed rate mortgage 3.09%

Stocks are flattish as we end up the week on this Friday the 13th. Bonds and MBS are up small.

Rocket reported earnings after the close yesterday. Volume in the second quarter fell from $105B in Q1 to $84B in Q2. Gain on sale margins were slammed hard sequentially, falling from 3.74% to 2.78%. The company is guiding for Q3 volume to resemble Q2, and gain on sale margins are expected to be in the 2.7% – 3% range. It looks like perhaps the margin compression is over, or at least taking a breather. FWIW, Matt Ishbia said on United Wholesale’s Q1 call that he expected Q2 to be the bottom for margins and for them to rebound into the end of the year. So perhaps some of the pressure will ease up. Rocket is up a buck and change in early trading.

Import prices are up 0.3% MOM and 12% YOY. Export prices are up 1.3% MOM and 17% YOY. China just partially shut down the world’s third largest port after an employee had a positive Delta COVID test. Shipping prices are already up 220% this year, so the inflation story will get another temporary boost.

It looks like the red-hot housing market is beginning to cool off, according to Redfin. “For the first time in over a year, homebuyers don’t need to feel rushed,” said Redfin Chief Economist Daryl Fairweather. “Although the market still feels tight and competitive, the number of homes for sale keeps creeping up as more homes are listed. Those home sellers are adjusting their price expectations or seeing their homes sit on the market. There could be even more listings coming on the market as mortgage forbearance ends and homeowners with missed payments decide to sell. And mortgage rates remain near all-time lows with no signs of an increase on the horizon.”

Consumer sentiment got whacked this month, according to the University of Michigan’s Consumer Sentiment Survey. The index fell from 81.2 in July to 70.2. This is the sixth largest drop in the index’s history, and is actually below the April 2020 low of 71.8.

As a general rule, consumer sentiment surveys often turn out to be nothing more than a reflection of gasoline prices, however this reading is probably due more to renewed COVID fears.

The drop was broad across all demographics and included both drops in consumers’ current situation and their expectations.

The 10 year yield fell about 4 basis points on the news. I suspect the expected rip-roaring 2H recovery that the Street and the media has been cheerleading for is not going to be in the cards.

Author: Brent Nyitray

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

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