The Daily Tearsheet

Vital Statistics:

Stocks are higher this morning after comments from Trump supported Jerome Powell and signaled lower tariffs might be ahead with China. Bonds and MBS are up.

Donald Trump soothed markets yesterday with a statement that he wasn’t planning to fire Jerome Powell. In addition, he discussed Chinese tariff levels: “that 145% tariffs on China are “very high.” “It won’t be that high,” Trump said. “It will come down substantially.” Treasury Secretary Scott Bessent also predicted a deal can be reached with China. Stocks rallied as bargain-hunters scooped up tech stocks and the 10 year bond yield fell.

The bond market reaction to Trump reminds me of James Carville and Bill Clinton in 1993 when Bill Clinton wanted to stimulate the economy but the bond market rebelled and interest rates rose. Bob Woodward’s book The Agenda characterized Bill Clinton’s reaction: ‘You mean to tell me that the success of the program and my reelection hinges on the Federal Reserve and a bunch of ——- bond traders?’ he responded in a half-whisper.”

As Clinton advisor James Carville once said: “I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.”

I suspect Donald Trump may have just learned the same lesson. The bond market always bats last.

Mortgage applications fell 12.7% last week as turmoil in the bond market kept borrowers on the sidelines. Purchases fell 6.6% while refis dropped 20.7%. “Overall mortgage application activity declined last week, as rates increased to their highest level in two months. The 30-year fixed rate rose for the second straight week to 6.9 percent, an almost 30-basis-point increase over two weeks,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “These higher rates drove a 20 percent drop in refinance applications, especially for higher balance loans, with the average loan size falling substantially. The refinance share of applications at 37.3 percent was the lowest since January. Similar to the previous week, economic uncertainty and rate volatility impacted prospective homebuyers as we saw a 7 percent decline in purchase applications. Both conventional and government purchase activity fell relative to the week before, but the overall level of purchase applications was still 6 percent higher than a year ago.”

Tools for Mortgage Originators

Are you a mortgage originator with a bookkeeper, but no financial analyst? Are you doing without an annual budget because you don’t have the time / resources to develop one? Are you considering an acquisition, and want an in-depth analysis of the potential synergies and impact on the bottom line? Perhaps you have some projects that need to be done, but you can’t justify a full-time hire.

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Homebuilder Pulte reported better than expected earnings of $2.57 which was a decline of 11% on an apples-to-apples basis. Revenues fell slightly, so the drop in earnings was mainly due to margin compression. “As the quarter progressed, buyers responded favorably to interest rate declines, but consumers remain caught between a strong desire for homeownership and the affordability challenges of high selling prices and monthly payments that are stretched,” added Marshall. “Given the structural shortage of housing, we remain constructive on long-term housing demand, and are adapting to the short-term impacts on consumer demand resulting from greater economic and financial uncertainty. PulteGroup’s balanced operating model, disciplined underwriting and financial strength position us well to navigate the increasingly dynamic environment and deliver value for our stakeholders.”

New orders declined about 7% on a per-unit basis as affordability challenges limited customer demand. The cancellation rate increased from 10% to 11%. Once other tidbit on the conference call about tariffs: “Our guide on gross margin assumes incentives remain elevated, at the elevated levels experienced in the first quarter. Further gross margins in the back half of the year, reflect the estimated impact of tariffs that have been imposed, which are expected to increase our house cost, by an estimated 1% of average selling price.”

FWIW, a 1% hit in ASPs is not that big of an impact. Pulte’s ASP is around $507k, so we are talking about roughly $5,000 in impact. The NAHB saw a $9,000 impact on average. Regardless, tariffs probably aren’t going to impact house prices – if anything they will probably get swallowed up in lower gross margins since the builders don’t seem to have much pricing power these days with stretched affordability. Bottom line: I don’t see tariffs moving the needle on shelter inflation.

PennyMac reported earnings yesterday. Origination volume came in at $28.9 billion, which was up 33% on a year-over-year basis. That said, production income fell as gain on sale margins compressed and fee income declined. The MSR portfolio also took a valuation hit. PFSI is valuing its current MSR portfolio at 5.3x.

Vital Statistics:

Stocks are higher this morning on no real news. Bonds and MBS are up small.

Just as the tariff hubbub is dying down, a new front has opened with the long-simmering feud between Trump and Jerome Powell becoming more and more vocal. While Trump cannot legally fire the Fed Chairman, he is apparently looking into ways to accomplish it. In the meantime, Trump has been taking to Truth Social to denigrate Powell as a “loser” and “Mr. Too Late.”

The bond market had an allergic reaction to growing conflict yesterday, with the 10 year bond yield increasing 12 basis points while stocks and the dollar fell in sympathy. There is a sense that foreign investors are paring back their US dollar holdings as a “sell US” trade is going on. Given the lack of liquidity in China and capital controls, the US dollar will remain the reserve currency and Treasuries will remain safe haven assets regardless in spite of the actions of the Administration.

The Fed Funds futures see a limited chance of a rate cut at the May meeting, but an almost 70% chance of a rate cut in June. Perhaps Trump will take a June rate cut as a win and move on to something else. Perhaps he thinks the Vatican could use his input for the next Pope.

Meanwhile, Chicago Fed President Austan Goolsbee defended Fed independence on CNBC. “The long-run expectations that the Fed would get inflation back down to the 2% target were critically important. Fed independence is critically important for that,” Goolsbee said on CNBC’s “Squawk Box.”

“When there is interference over the long run, it’s going to mean higher inflation, it’s going to mean worse growth and higher unemployment, because there’s just going to be a little less willingness to step up and do the hard things when the moment is tough.”

The Index of Leading Economic Indicators declined by 0.7% in March, as uncertainty over tariffs weighed on sentiment. The big negative contributions in the present situation was the S&P 500 sell-off, weak new orders from the ISM surveys, and consumer sentiment.

“The US LEI for March pointed to slowing economic activity ahead,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “March’s decline was concentrated among three components that weakened amid soaring economic uncertainty ahead of pending tariff announcements: 1) consumer expectations dropped further, 2) stock prices recorded their largest monthly decline since September 2022, and 3) new orders in manufacturing softened. That said, the data does not suggest that a recession has begun or is about to start. Still, the Conference Board downwardly revised our US GDP growth forecast for 2025 to 1.6%, which is somewhat below the economy’s potential. The slower projected growth rate reflects the impact of deepening trade wars, which may result in higher inflation, supply chain disruptions, less investing and spending, and a weaker labor market.”

Western Alliance reported earnings last night, which were in line with expectations and re-affirmed most of its 2025 guidance. Non-performing assets and charge-offs declined. Mortgage volume grew 25% YOY to $12 billion. Gain on sale margin contracted to 19 basis points from 21 in Q4 and 29 a year ago.

Vital Statistics:

Stocks are lower this morning on no real news. Bonds and MBS are down. The move up in yields doesn’t seem to be driven by anything specific, just general malaise.

The week ahead will have a lot of housing data, with new home sales, existing home sales and home prices. We will also get durable goods orders and consumer sentiment. We will also have quite a bit of Fed speakers.

The median home sale price rose 2.6% for the past month, according to data from Redfin. Inventory is increasing, but homebuyers are being cautious. “A lot of buyers, especially first-timers, are backing off because they’re nervous about a potential recession,” said Venus Martinez, a Redfin Premier agent in Los Angeles. “Some house hunters are hanging out on the sidelines because they’re hopeful mortgage rates will come down soon. The buyers who are still active, typically those who need to move, are picky and unwilling to pay over asking price. And those buyers have the right strategy: Many of today’s sellers are willing to negotiate the price down.”

Housing starts rose 1.9% YOY to a seasonally adjusted annual rate of 1.32 million. This was well below the Street forecast of 1.42 million. Building permits surprised to the upside, rising to 1.49 million.

Tools for Mortgage Originators

Are you a mortgage originator with a bookkeeper, but no financial analyst? Are you doing without an annual budget because you don’t have the time / resources to develop one? Are you considering an acquisition, and want an in-depth analysis of the potential synergies and impact on the bottom line? Perhaps you have some projects that need to be done, but you can’t justify a full-time hire.

I am a consultant who has extensive experience in capital markets, secondary marketing, FP&A, budgeting, and servicing. If you think you might have a need, let’s set up a discovery call. 

Please reach out to brent@thedailytearsheet.com

Vital Statistics:

Stocks are higher this morning as earnings continue to come in. Bonds and MBS are flat.

Jerome Powell spoke in Chicago yesterday. Here are his prepared remarks. Some of the highlights:

Looking forward, the new Administration is in the process of implementing substantial policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation. Those policies are still evolving, and their effects on the economy remain highly uncertain. As we learn more, we will continue to update our assessment. The level of the tariff increases announced so far is significantly larger than anticipated. The same is likely to be true of the economic effects, which will include higher inflation and slower growth. Both survey- and market-based measures of near-term inflation expectations have moved up significantly, with survey participants pointing to tariffs. Survey measures of longer-term inflation expectations, for the most part, appear to remain well anchored; market-based breakevens continue to run close to 2 percent.

Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem. As we act to meet that obligation, we will balance our maximum-‑employment and price-stability mandates, keeping in mind that, without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans. We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension. If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close.

The Fed Funds futures moved a bit more dovish, with the December futures now seeing 4 rate cuts this year. While a May cut is given a small chance, we have a 2:1 chance of a rate cut in June.

The Fed has said that they are comfortable with the level of unemployment, and any increase would be unwelcome. IMO the body language is that if unemployment starts heading towards 5%, and inflation increases marginally then they will get more aggressive cutting rates.

The neutral rate (r-star) is in the 3% – 3.5% range. So if they need to stimulate the economy, we are probably looking at a Fed Funds rate with a 2 handle. Unemployment is generally more uncomfortable than inflation. Don’t forget that inflation in the 1990s averaged around 2.8%, and I think most people remember that as a pretty comfortable time, economically. There is nothing magic about a 2% inflation target.

Meanwhile, Trump took to social media and chastised Powell for not cutting rates more aggressively. “Powell’s termination cannot come fast enough!” the post read. Trump said Powell “is always TOO LATE AND WRONG” and should be cutting interest rates alongside other central banks.

Treasury Secretary Scott Bessent tried to smooth things over, saying that the Fed’s independence is a “jewel box that has got to be preserved.” Trump, like most politicians, prefers lower rates to higher rates. Powell’s term ends in May of next year, and it will be interesting to see who Trump chooses to replace him.

Homebuilder sentiment improved slightly in March, according to the NAHB Housing Market Index. “Policy uncertainty is having a negative impact on home builders, making it difficult for them to accurately price homes and make critical business decisions,” said NAHB Chief Economist Robert Dietz. “The April HMI data indicates that the tariff cost effect is already taking hold, with the majority of builders reporting cost increases on building materials due to tariffs.”

About 60% of respondents said that their suppliers had either increased prices or announced price increases for their products. The NAHB estimated that this increases costs by 6.3% or $10,900. Not sure about that math though.

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Industrial Production fell 0.3% MOM in March, according to the Federal Reserve. Manufacturing output increased 0.3%. Capacity Utilization decreased from 78% to 77.8%.

Vital Statistics:

Stocks are lower after Nvidia said it would take a $5 billion charge against earnings for licensing fees. Bonds and MBS are up.

Mortgage applications fell 8.5% last week as purchases declined 4.9% and refis fell 12.4%. “Mortgage rates moved 20 basis points higher last week, abruptly slowing the pace of mortgage application activity with refinance volume dropping 12 percent and purchase volume falling 5 percent for the week. Purchase volume remains almost 13 percent above last year’s level, but economic uncertainty and the volatility in rates is likely to make at least some prospective buyers more hesitant to move forward with a purchase,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “One notable change last week was the full percentage point increase in the ARM share. Given the jump in rates, more borrowers are opting for the lower initial rates that come with an ARM, with initial fixed rates closer to 6 percent in our survey last week. The ARM share at 9.6 percent was the highest since November 2023, and this reflects the share of units. On a dollar basis, almost a quarter of the application volume last week was for ARMs, as borrowers with larger loans are even more likely to opt for an ARM.”

Retail sales rose 1.4% MOM in March, in line with Street expectations. Ex-vehicles and gas sales rose 0.8%, better then street expectations. February sales were revised upward as well.

On an annual basis, sales rose 4.6%. Since retail sales are not adjusted for price changes, if you subtract inflation, sales rose on an inflation-adjusted basis. The big question is what is driving the increase. One interpretation is that consumers are stocking up on goods before tariff-driven price changes take effect. The other interpretation is the economy isn’t in as bad of shape as the consensus thinks.

If you believe the consumer sentiment numbers, then you would probably go with the first interpretation: desperate consumers are spending up front to beat the price increases. On the other hand, if you look at the latest jobs report, the economy isn’t as bad as feared.

The conventional wisdom is the first interpretation: “Net, net, these are simply blow out numbers on March retail sales where the rush is on like this is one gigantic clearance sale,” said Chris Rupkey, chief economist at FWDBONDS. “Consumers are expecting sharply higher prices the next year and are clearing the store shelves and picking up bargains while they can.”

We have a lot of conflicting economic data out there, so it is tough to draw a definitive conclusion about what is going on out there. I suspect there is a divergence between people who consume a lot of mainstream media and those that do not.

The Atlanta Fed’s GDP Now model is scheduled to be updated today. The current estimate (from April 9) is -2.4% growth in Q1. Given this sales number, estimate is probably low. I suspect the Atlanta Fed knows something is off with their model given that they have introduced a second GDP estimate based off of gold flows which is much less dire.

US Bank reported better-than-expected Q1 earnings of $1.03 per share, a 32% increase from a year ago. Provisions for credit losses declined on both a quarterly and annual basis. Mortgage origination volume fell 8% YOY to $6.6 billion.

Vital Statistics:

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

Markets seem to be settling down after the pause in tariffs. The past week has been tumultuous as mortgage banks go from dealing with float down requests to a huge uptick in rates. Bond market volatility is still elevated, however it has (hopefully) peaked, and a combination of gradually lower rates and declining MBS spreads will translate into lower mortgage rates.

The MOVE Index is a measure of bond market volatility, which drives MBS spreads:

There is a lot of ink being spilled in the business press about Trump’s tariffs causing Treasuries to no longer enjoy safe haven status. I think this is a remote risk, because some asset has to replace Treasuries that has similar price stability and liquidity. German Bunds UK Gilts, and Japanese government bonds are much, much less liquid than Treasuries, and these economies have their own issues to deal with. China has capital controls, which makes the yuan a non-starter, and the only other options are crypto (which is way more volatile than bonds) or gold, which has the same problem.

Bill Gross used to call the US dollar the cleanest dirty shirt in the bunch, and that means the US dollar is the reserve currency by default. Trump’s tariffs, while inconvenient, will do nothing to change that.

Bank of America reported first quarter earnings that beat expectations. EPS rose 18%, while net interest income rose 1%. Provisions for credit losses were flat on a year-over-year basis, however they did increase 15% on a quarterly basis. Mortgage origination volume was $1.86 billion, an increase of 10% on a YOY basis.

CEO Brian Moynihan said: Our business clients have been performing well; and consumers have shown resilience, continuing to spend and maintaining healthy credit quality. Though we potentially face a changing economy in the future, we believe the disciplined investments we have made for high-quality growth, our diverse set of businesses, and the team’s relentless focus on Responsible Growth will remain a source of strength.”

So notwithstanding the consumer confidence numbers, it doesn’t appear to be changing behavior.

Fed Governor Chris Waller said that he expected any inflation from tariffs to be “transitory,” fully acknowledging that loaded term. “I can hear the howls already that this must be a mistake given what happened in 2021 and 2022. But just because it didn’t work out once does not mean you should never think that way again,” Waller said in remarks for a policy speech in St. Louis that compared his inflation view to the controversial “tush push” football play.

“Yes, I am saying that I expect that elevated inflation would be temporary, and ‘temporary’ is another word for transitory,’” he said. “Despite the fact that the last surge of inflation beginning in 2021 lasted longer than I and other policymakers initially expected, my best judgment is that higher inflation from tariffs will be temporary.”

The inflationary impact of tariffs will be hard to determine up front, simply because foreign sellers may cut prices to keep market share, deals may be cut with in the interim, and Americans might substitute products made in the US (or in countries with lower tariffs) for more expensive goods. Falling commodity prices (especially energy) are helping things.

Note import prices in March fell 0.1% MOM and 0.9% YOY.

Tools for Mortgage Originators

Are you a mortgage originator with a bookkeeper, but no financial analyst? Are you doing without an annual budget because you don’t have the time / resources to develop one? Are you considering an acquisition, and want an in-depth analysis of the potential synergies and impact on the bottom line? Perhaps you have some projects that need to be done, but you can’t justify a full-time hire.

I am a consultant who has extensive experience in capital markets, secondary marketing, FP&A, budgeting, and servicing. If you think you might have a need, let’s set up a discovery call. 

Please reach out to brent@thedailytearsheet.com

Vital Statistics:

Stock futures are higher this morning after Trump relaxed some tariffs on smartphones over the weekend. Bonds and MBS are up.

We will have a shortened week with the markets closed on Friday. We will get some housing data with housing starts and the NAHB Housing Market index. We will also get industrial production and retail sales.

Consumer sentiment fell again, according to the University of Michigan Consumer Sentiment Survey. Tariffs (or at least the fear of them) are the main driver. The survey period covered the entire tariff tantrum, but ended before the partial delay.

Sentiment has fallen about 30% since December 2024. Most of the fall in sentiment is being driven by expectations for the future, not current financial conditions. In other words, consumers may have a job, but feel less secure about that job going forward. The number of people expecting unemployment to rise hit the highest level since 2009.

Inflationary expectations increased markedly again, with the year-ahead inflation expectation rising to 6.7%, which is the highest reading since 1981. This is strange given that March CPI inflation was actually negative, but I think the move in the stock market, along with the media reaction was a big driver.

The Atlanta Fed GDPNow model sees Q1 GDP growth at -2.4%.

Vital Statistics:

Stocks are flattish as we round out a tumultuous week. Bonds and MBS are down.

The 10 year bond yield continues to climb, albeit at a slower pace. We are looking at a 4.44% yield pre-open. MBS will continue to be weak as long as the 10 year struggles to find a level. A big driver of MBS pricing in bond market volatility, given the optionality that is embedded in a mortgage. Volatility is a huge component in option valuation, so when bond markets are volatile, MBS pricing relative to Treasuries (i.e. MBS spreads) will be higher.

Bond market volatility has spiked, according to the MOVE Index, which is sort of like a VIX for bonds:

Until the MOVE Index comes back to normal levels, expect MBS spreads to remain wide (or high). We will get a good look at spreads when AGNC Investment (a mortgage REIT that focuses on agency MBS) reports earnings in a couple of weeks.

Inflation at the wholesale level declined 0.4% MOM compared to an expectation of a 0.2% increase. On a YOY basis, wholesale inflation rose 2.7% versus expectations of a 3.4% increase. Ex-food and energy, wholesale inflation fell 0.1% MOM and rose 3.3% YOY, again below expectations.

JP Morgan reported earnings of $5.07 per share and revenues of $43.3 billion, which beat analyst expectations. Provisions for credit losses rose 76% on a YOY basis to $3.3 billion. JP Morgan CEO Jamie Dimon said: “The economy is facing considerable turbulence (including geopolitics), with the potential positives of tax reform and deregulation and the potential negatives of tariffs and “trade wars,” ongoing sticky inflation, high fiscal deficits and still rather high asset prices and volatility. As always, we hope for the best but prepare the Firm for a wide range of scenarios.”

Vital Statistics:

Stocks are lower as markets continue to digest the pause in tariffs. Bonds and MBS are up.

CPI inflation fell 0.1% MOM, which was well below expectations. On a year over year basis, inflation fell 2.4%, which was below the 2.6% forecast. If you strip out food and energy, inflation rose 0.1% versus a 0.3% forecast and rose 2.8% versus a 3.0% Street expectation. In normal times, this would be a cause for stock futures to rally and bonds yields to fall, but these are not normal times.

Stocks rallied yesterday as Trump suspended some of the tariffs for 90 days in order to reach agreements with some of our trading partners who have expressed interest in making a deal. This caused a massive whipsaw in the stock market, sending the S&P 500 up almost 10% and the NASDAQ up 12%. We did not see much of a reaction in the bond market, however.

Ex Bill Clinton advisor James Carville one quipped: “I used to think that if there was reincarnation, I wanted to come back as the President or the Pope or as a 400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.”

I think the bond market was the catalyst for this, not the stock market. The 10 year bond yield hit 4.5% in the Tuesday night Asian session, and that began to cause some issues in the plumbing of the bond market. There were rumors of Japanese dumping of US Treasuries overnight, although there was no corresponding movement in the US / JPY spot rate.

The Wall Street Journal had a story about another factor in the bond market rout: leveraged hedge fund bets blowing up. Hedge funds have put on positions in long Treasuries / short swaps in anticipation of a regulatory change in bank capital requirements which would increase demand for long-term Treasuries. Margin calls are forcing these funds to unwind these trades. The basis trade, where a fund buys Treasuries and shorts futures against it is another trade that is being unwound. If everyone is rushing for the exits all at once, it can create dislocations.

I think this is a pause for Trump to get some agreements with our trading partners on the page and then begin to isolate China.

Finally, we did have a good 10 year auction in the afternoon which gave players a sense of relief.

The FOMC minutes were released yesterday, although the tariff news overshadowed the release. Here were some of the highlights:

In their discussion of inflation developments, participants noted that inflation had eased significantly over the past two years but remained somewhat elevated relative to the Committee’s 2 percent longer-run goal. Some participants observed that inflation data over the first two months of this year were higher than they had expected. Among the major subcategories of prices, housing services inflation had continued to moderate, consistent with the past slowing in market rents, but inflation in core non housing services remained high, especially in nonmarket services

With regard to the outlook for inflation, participants judged that inflation was likely to be boosted this year by the effects of higher tariffs, although significant uncertainty surrounded the magnitude and persistence of such effects. Several participants noted that the announced or planned tariff increases were larger and broader than many of their business contacts had expected. Several participants also noted that their contacts were already reporting increases in costs, possibly in anticipation of rising tariffs, or that their contacts had indicated willingness to pass on to consumers higher input costs that would arise from potential tariff increases. A couple of participants highlighted factors that might limit the inflationary effects of tariffs, noting that many households had depleted the excess savings they had accumulated during the pandemic and were less likely to accept additional price increases, or that stricter immigration policies might reduce demand for rental and affordable housing and alleviate upward pressures on housing inflation. A couple of participants noted that the continued balance in the labor market suggested that labor market conditions were unlikely to be a source of inflationary pressure.

Tools for Mortgage Originators

Are you a mortgage originator with a bookkeeper, but no financial analyst? Are you doing without an annual budget because you don’t have the time / resources to develop one? Are you considering an acquisition, and want an in-depth analysis of the potential synergies and impact on the bottom line? Perhaps you have some projects that need to be done, but you can’t justify a full-time hire.

I am a consultant who has extensive experience in capital markets, secondary marketing, FP&A, budgeting, and servicing. If you think you might have a need, let’s set up a discovery call. 

Please reach out to brent@thedailytearsheet.com

Vital Statistics:

Stocks are lower this morning as increased tariffs kick in. Bonds and MBS are down.

It looks like the rally in bonds in the early days of the stock market sell-off was just a flight to safety trade. Now that stocks are stabilizing we are seeing that money flow out of bonds. It sounds like investors are “selling duration” which means they are selling long-term bonds and putting the money in cash or cash equivalents. In addition, hedge funds are almost certainly de-leveraging, which will put pressure on risk assets.

This effect will almost certainly play out in mortgage backed securities at least in the short term. Any sort of pain will also potentially affect non-QM as well.

Team Trump’s phone is supposedly ringing off the hook from countries eager to cut a deal on tariffs. In order to calm down the markets and get control of the situation, he needs to take yes for an answer and announce some deals. If this goes on much further, Congress is going to lose patience and pass legislation to take back control of tariffs (which is should do as a matter of general principles).

What is the Fed to do? The Fed has to be worried about how this is impacting the daily functioning of markets. There are all sorts of indicators that only someone who spends their day in front of a Bloomberg terminal will notice, but if the functioning of repo markets, F/X derivatives or other markets begins to sputter, the Fed will be forced to act. I expect the first move would be an end to quantitative tightening, but rate cuts could be on the table.

Trump’s tariffs are an exogenous shock to they system, similar to Brexit, COVID and the 2008 financial crisis. The Fed’s typical playbook is to flood the system with liquidity and deal with any inflationary fallout later.

By the way, we will get the FOMC minutes from the March meeting later today. Seems like something from another time.

Home prices rose 4.7% YOY according to the Clear Capital Home Data Index, a repeat-sales home price index that focuses on price per square foot. The Northeast performed the best on a YoY basis, increasing 7.2% YoY and 0.2% QoQ. The top Northeast metropolitan statistical area (MSA) was the New York City metro area where prices rose 1.3% QoQ and 8.4% YoY. Rochester, NY rose 0.8% QoQ and 11.2% YoY, and Providence rose 1.1% QoQ and 9.1% YoY. No Northeast MSAs hit the bottom 15. 

The Midwest was the next best performing region on a year-over-year basis, where prices rose 0.2% month-over-month and 6.5% year-over-year. Cincinnati was the top Midwestern MSA where prices rose 1.6% QoQ and 7.6% YoY. Columbus, OH was next at 1.4% QoQ and 6.6% YoY. Interestingly, Dayton, OH was one of the worst performers in the Midwest on a QoQ basis where prices fell 0.6% QoQ but rose 6.8% YoY. Minneapolis also struggled where prices fell 0.6% QoQ and rose 3.3% YoY. 

The West was the third best performing region, where prices rose 0.3% QoQ and 3.8% YoY. The best performing MSA was San Jose, CA where prices rose 1.7% QoQ and 6.5% YoY. The Los Angeles MSA was the next best performer where prices rose 1.2% QoQ and 6.2% YoY. Las Vegas was third, where prices rose 1.2% QoQ and 6.2% YoY. The worst Western MSA was Sacramento, CA where prices fell 0.7% QoQ and increased 1.6% YoY. 

The South was the worst-performing MSA where prices fell 0.3% QoQ and rose 2.7% YoY. Richmond, VA was the top performer in the South, where prices rose 2.1% QoQ and 7.0% YoY. Charlotte, NC was the next best area, where prices rose 0.9% QoQ and 3.1% YoY. The worst-performing MSA was Tampa, FL where prices fell 1.9% QoQ and 2.2% YoY. Memphis, TN also struggled, where prices fell 1.2% QoQ and 0.1% YoY. 

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Mortgage applications rose 20% last week as purchases increased 9% and refis rose 35%.