Vital Statistics:
Stocks are higher this morning as we await earnings from market darling Nvidia. Bonds and MBS are flat.
Consumer confidence rebounded in May after the 90 day pause on tariffs, according to the Conference Board. The reading was well above Street expectations. About half of the responses were collected after the pause. “Consumer confidence improved in May after five consecutive months of decline,” said Stephanie Guichard, Senior Economist, Global Indicators at The Conference Board. “The rebound was already visible before the May 12 US-China trade deal but gained momentum afterwards. The monthly improvement was largely driven by consumer expectations as all three components of the Expectations Index—business conditions, employment prospects, and future income—rose from their April lows. Consumers were less pessimistic about business conditions and job availability over the next six months and regained optimism about future income prospects. Consumers’ assessments of the present situation also improved. However, while consumers were more positive about current business conditions than last month, their appraisal of current job availability weakened for the fifth consecutive month.”
The WSJ also has an article about the improvement in sentiment for stock investors. While the on-again-off-again tariff drama has frayed investor nerves, they are getting used to the chaos. Trump is sending the message to trade counterparties that the countries that any deal will get worse over time. This is directly a shot at the EU and China, who have different reasons for dragging out this game of musical chairs. While both the EU and China have their reasons for obstinacy (EU because of ideology, China because of internal politics), the US can outlast both countries. For a historical comparison, think of Ronald Reagan’s defense spending breaking the USSR.
If investors are becoming more sanguine about tariffs, maybe the Fed should take a cue.
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Mortgage applications fell 1.2% last week as purchases rose 3% and refis fell 7%. “Mortgage rates reached its highest level since January, following higher Treasury yields. Additional market volatility has added to the increase, keeping the mortgage-Treasury spread wider than it was earlier this year. The 30-year fixed rate increased to 6.98 percent, its third consecutive weekly increase,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “As a result of these higher rates, applications activity decreased, driven by a 7 percent decline in refinance applications. Conventional refinances were down 6 percent, and VA refinances dropped 16 percent. Purchase applications were up over the week and continue to run ahead of last year’s pace as increased housing inventory in many markets has been supporting some transaction volume, despite the economic uncertainty.”
Home prices rose 3.4% in March, according to the S&P Corelogic Case Shiller Index. After seasonal adjustment, prices actually fell on a MOM basis. New York had the highest gain of 8% while Tampa fell 2.2%. Other MSAs like Cleveland and Chicago joined the hip-to-be-square group of MSAs getting their day in the sun after lagging the rest of the US post-2008.
Home price growth was front-loaded in the first half of the past year, which points to lower shelter inflation going forward. Affordability issues will probably prevent further price appreciation, and supply will remain limited as the rate lock-in effect persists.
