Tag: consumer sentiment

Morning Report: Jobs week

Vital Statistics:

Stocks are lower this morning on no real news. Bonds and MBS are flat.

Jerome Powell is speaking at 1:00 pm today.

The week ahead will be dominated by the jobs report on Friday, however we will get ISM data and a lot of Fed speakers. The Street is looking for payroll growth to slow and for the unemployment rate to be steady at 4.2%.

Consumer sentiment improved in September, according to the University of Michigan Consumer Sentiment Survey. “Consumer sentiment extended its early-month climb, ultimately rising more than 3% above August. This increase was seen across all education groups and political affiliations. Furthermore, all five index components gained, led by a 6% surge in one-year business expectations. The expectations index is now 13% above a year ago and reflects greater optimism across a broad swath of the population. While sentiment remains below its historical average in part due to frustration over high prices, consumers are fully aware that inflation has continued to slow. Sentiment appears to be building some momentum as consumers’ expectations for the economy brighten. At the same time, many consumers continue to report that their expectations hinge on the results of the upcoming election. Relative to August, consumers across political parties are increasingly expecting a Harris presidency, though about two-thirds of Republicans still expect Trump to win.”

A harbinger of slower economic growth ahead? Jeep maker Stellantis delivered lower guidance as the auto industry struggles with slower demand. “Deterioration in the global industry backdrop reflects a lower 2024 market forecast than at the beginning of the period, while competitive dynamics have intensified due to both rising industry supply, as well as increased Chinese competition,” Stellantis said in a statement Monday.

The stock is down 14% in European trading.

Morning Report: Fed at Jackson Hole this week

Vital Statistics:

 

Last Change
S&P futures 2923 32.5
Oil (WTI) 55.32 0.44
10 year government bond yield 1.61%
30 year fixed rate mortgage 3.78%

 

Stocks are higher on optimism of a trade deal with China. Bonds and MBS are down.

 

The upcoming week will be dominated by Fed-speak as they head to Jackson Hole. Economic data will be sparse, with leading economic indicators, and new home sales the only potential market-moving numbers. Jerome Powell is scheduled to speak on Friday where he is pretty much expected to hint at another rate cut at the September meeting. Note the Fed funds futures are pricing in a 93% chance of a 25 basis point cut, and a 7% chance of a 50 basis point cut.

 

fed funds futures

 

Homebuilder KB Home notes that consumer confidence took a hit in August, and this translates into lower home sales more than interest rates do. “I’ve always maintained over the years that consumer confidence means more than rates to the home buying decision,” said Jeff Mezger, CEO of Los Angeles, CA-based KB Home. “We’ve had some great years where interest rates were 8, 9,10%—because people find a way when they feel confident about the future.” Of course interest rates were way higher during the 80s and 90s and people still bought homes. Nominal wage growth was higher too. Further, he talks about why housing starts are weak: “Frankly, as an industry, that’s what is holding us back from getting to normalized levels,” said Mezger. “We’re only going to invest and build if we can get a return, and it’s difficult to find the combination of land, the cost to produce, the fee structure in that city and then what you can sell a home for based on the incomes in that submarket. So that is the challenge.” So, it is land, labor, and regulations that are the issue. Income growth might be what ends up squaring the circle.

 

Speaking of sentiment, the University of Michigan preliminary survey showed that confidence has dropped. Trade concerns and Fed policy increased fears of a recession, which translated into the numbers.

 

The Administration is set to introduce a new rule to codify lending discrimination and move away from the disparate impact standard that began during the Obama Administration. It appears that lenders will have protection if they use ” – third party systems” – i.e. algorithms – to make lending decisions. The actual guidance (from a leaked memo) is supposedly here.  While they don’t mention any algorithms by name, they are probably proposing that if you use DU or LP for lending decisions, you will have safe harbor from lending discrimination charges. If it turns out that DU or LP are biased, that is on the provider of these algorithms, not the lender. All of this is in response to a disparate impact lawsuit (Texas vs. Inclusive Communities), which allowed disparate impact theory to be used, however it did institute some restrictions on its use. The updated guidance from HUD will be to align current policy with that decision.