Morning Report: Dovish Fed-Speak

Vital Statistics:

S&P futures4,170-2.5
Oil (WTI)82.46-0.41
10 year government bond yield 3.53%
30 year fixed rate mortgage 6.28%

Stocks are lower this morning after the retail sales number came in lower than expectations. Bonds and MBS are down.

Retail sales fell 1% MOM in March, according to the Census Bureau. On a year-over-year basis, sales were up 2.9%. Note that these numbers are not adjusted for inflation, so sales fell YOY on an inflation-adjusted basis. January and February sales numbers were revised downward. If you strip out vehicles and gasoline, retail sales fell 0.3% MOM.

JP Morgan reported first quarter earnings this morning. Book value rose 9%, while average deposits fell 8%. In home lending, JPM originated $5.7 billion compared to $6.7 billion in Q4 and $24.7 billion a year ago. CEO Jamie Dimon summarized the current situation as follows:

The U.S. economy continues to be on generally healthy footings —consumers are still spending and have strong balance sheets, and businesses are in good shape. However, the storm clouds that we have been monitoring for the past year remain on the horizon, and the banking industry turmoil adds to these risks. The banking situation is distinct from 2008 as it has involved far fewer financial players and fewer issues that need to be resolved, but financial conditions will likely tighten as lenders become more conservative, and we do not know if this will slow consumer spending. We also continue to monitor for potentially higher inflation for longer (and thus higher interest rates), the inflationary impact of continued fiscal stimulus, the unprecedented quantitative tightening, and geopolitical tensions including relations with China and the unpredictable war in Ukraine

Provisions for loan losses grew. The stock is up about 6% pre-open. Separately, Wells and Citi also reported stronger-than-expected earnings.

Industrial Production rose 0.5% in March, while manufacturing production fell 0.5%. Capacity utilization rose to 79.8%. Meanwhile, import and export prices both fell.

Chicago Fed President Austan Goolsbee spoke on CNBC this morning and made some dovish comments. “There is no way you can look at current conditions around the U.S. and not think that some mild recession is on the table as a possibility,” Goolsbee said, in an interview on CNBC.   “What I am looking at quite clearly coming into the next FOMC meeting is what’s happening on credit…how much of a credit crunch is there,” he said. “Let’s be mindful that we’ve raised a lot. It takes time for that to work its way through the system,” Goolsbee said. “If you add financial stress on top of that, let’s not be too aggressive.

Consumer sentiment rose in April, according to the University of Michigan Consumer Sentiment Survey. “Consumer sentiment was essentially unchanged this month, inching up less than two index points from March. Sentiment is now about 3% below a year ago but 27% above the all-time low from last June. Rising sentiment for lower-income consumers was offset by declines among those with higher incomes. While consumers have noted the easing of inflation among durable goods and cars, they still expect high inflation to persist, at least in the short run. On net, consumers did not perceive material changes in the economic environment in April.”

Year ahead inflationary expectations rose from 3.6% to 4.6%, which is not good if you want the Fed to slow down. That said the UM survey’s inflations expectations tend to be volatile. Longer-run expectations were flat at 2.9%.


Author: Brent Nyitray

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

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