Morning Report: Housing starts were flat in March

Vital Statistics:

S&P futures4,197 21.5
Oil (WTI)80.59-0.25
10 year government bond yield 3.58%
30 year fixed rate mortgage 6.48%

Stocks are higher as earnings come in. Bonds and MBS are down.

Stocks continue to rise despite rising rates. Despite the good CPI numbers, the Fed Funds futures are solidly predicting a 25 basis point hike in May.

Housing starts fell 0.8% MOM and 17% YOY to a seasonally adjusted annual rate of 1.42 million. Building permits fell 8.8% MOM and 24.8% YOY to 1.41 million. Single family starts rose while multi-family fell.

Multi-family completions came in at 484k. While housing starts overall have been tepid, multi-family completions has been hovering around 35 year highs. With additional apartment supply coming onto the market, we should see a better balance of housing supply and demand.

Bank of America reported first quarter earnings that came in above expectations. Deposits fell about 3%, and remained above $1 trillion. Mortgage origination fell 25% QOQ to $3.9 billion. This was down 76% from a year ago. Net interest income rose 25%. The stock is up about 2% pre-open.

Bank of America provisioned $931 billion for credit losses, but charge-offs remain below pre-pandemic levels.

Goldman reported disappointing earnings driven by lower trading revenue. The stock is down about 3% pre-open.

The Silicon Valley Bank situation might be more widely representative than people think, at least according to a new paper that analyzes the use of interest rate swaps at banks. The most interesting takeaway: Banks with the most fragile funding – i.e., those with highest uninsured leverage — sold or reduced their hedges during the monetary tightening. This allowed them to record accounting profits but exposed them to further rate increases. These actions are reminiscent of classic gambling for resurrection: if interest rates had decreased, equity would have reaped the profits, but if rates increased, then debtors and the FDIC would absorb the losses.

The regional banks will start reporting in the next few days, and it will be interesting to see if this is in fact true.

Economic bellwether Prologis reported better than expected earnings this morning. Prologis operates logistics facilities and its results say a lot about consumer demand and manufacturing. “Demand remains healthy, despite some moderating in terms of decision-making. Given the macroenvironment, we continue to operate our business with a degree of caution.”


Author: Brent Nyitray

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

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