Vital Statistics:
| Last | Change | |
| S&P futures | 4,154 | -3.0 |
| Oil (WTI) | 77.44 | -0.43 |
| 10 year government bond yield | 3.53% | |
| 30 year fixed rate mortgage | 6.50% |
Stocks are flattish this morning as earnings continue to come in. Bonds and MBS are down.
The week ahead will have a lot of economic data including house prices, new home sales, GDP and Personal Incomes / Outlays. The Personal Incomes / Outlays report on Friday will contain the Personal Consumption Expenditures index, which is the Fed’s preferred measure of inflation. There won’t be any Fed-speak as we are in the quiet period ahead of next week’s FOMC meeting.
The Fed Funds futures are pricing in a 90% chance of a 25 basis point hike next week. The June futures see a 25% chance for another 25 basis point hike, and the futures start pricing in rate cuts by the end of the year.
The market sees first quarter GDP at 2%. The Atlanta Fed’s GDP Now Index sees Q1 GDP at 2.5%. The Chicago Fed National Activity Index showed the economy growing at a below trend pace in March, similar to February.
Hedge Funds are short Treasuries across the board, with CFTC data showing a record short position in the 10 year Treasuries. This would appear to be a bet that the Fed will keep hiking rates well above the market’s forecast of 5%. That said, if rates kind of stall out here, we could see a short covering rally this summer. We will get a read on MBS spreads tonight when mortgage REIT AGNC Investment reports its earnings.
I spent some time on earnings reports in this week’s Weekly Tearsheet on Substack. Check it out and please consider subscribing.
Is commercial real estate the next shoe to drop in the banking sector? Some market watchers think the commercial real estate market is in for some rough sledding, especially the office market. The office market in particular is struggling as remote work is reducing demand for space. The vacancy rate for office reached 12.9%, which was worse than anytime during the Great Recession.
This is in some ways a replay of the 1970s, when people fled the cities to the suburbs and companies relocated operations. In other words, this is a secular change, not a cyclical one. Lower interest rates might not make all that much of a difference.
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