Morning Report: Economic growth is picking up in April

Vital Statistics:

S&P futures4,155 3.0
Oil (WTI)78.17 0.79
10 year government bond yield 3.52%
30 year fixed rate mortgage 6.47%

Stocks are lower this morning as earnings continue to come in. Bonds and MBS are up small.

The economy is accelerating again, according to the Flash Composite PMI report from S&P Global. “The latest survey adds to signs that business activity has regained growth momentum after contracting over the seven months to January. The latest reading is indicative of GDP growing at an annualized rate of just over 2%. Growth is also reassuringly broad-based, led by services thanks to a post-pandemic shift in spending away from goods, though goods producers are also reporting signs of demand picking up again. Jobs growth has accelerated alongside the resurgence of demand, aided by reports of vacancies being more easily filled, reflecting improved supply of candidates and higher wages. However, the upturn in demand has also been accompanied by a rekindling of price pressures. Average prices charged for goods and services rose in April at the sharpest rate since September of last year, the rate of inflation having now accelerated for three successive months. This increase helps explain why core inflation has proven stubbornly elevated at 5.6% and points to a possible upturn – or at least some stickiness – in consumer price inflation.”

The national delinquency rate fell below 3% for the first time, according to the latest info from Black Knight. There is generally a seasonal aspect to this as DQs fall in March due to tax refunds. Foreclosure starts and rates increased however we are still well below pre-pandemic levels. I suspect that mortgage forbearance is still playing a part in distorting the numbers.

The Fed is re-thinking its decision to loosen the stress test requirements for banks with under $250 billion in assets. Under the relaxed rules, only the bigger banks were required to add unrealized gains / losses to their portfolio of available for sale securities. The Feds think this might have allowed Silicon Valley Bank to hide its problems. That said, Silicon Valley Bank wasn’t hedging the interest rate risk on its portfolio and that was the issue. The rule change might have tipped off regulators and the markets that something was wrong a bit earlier but the bank would still have failed.

Despite the decrease in median home prices in NAR’s Existing Home Sales report, asking prices are still up about 2.5% on a year-over-year basis. That said, any positive pricing momentum in the real estate market seems to be fading as affordability constraints remain an issue.

Active inventory continues to rise, with the number of homes for sale increasing 49% on a year-over-year basis.


Author: Brent Nyitray

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

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