Morning Report: Holiday sales looking strong

Vital Statistics:

 

Last Change
S&P futures 2945 -6.25
Oil (WTI) 53.63 0.84
10 year government bond yield 1.54%
30 year fixed rate mortgage 3.84%

 

Stocks are slightly lower on trade concerns and weak European data. Bonds and MBS are flat.

 

The upcoming week should be relatively quiet, with only inflation data and a slew of Fed-speak. Since increasing inflation is no longer front and center of the Fed’s concerns, the CPI and PPI should be non-events. We will also get the minutes from the September FOMC meeting on Wednesday.

 

Interesting stat on how long it takes to build a home in different geographic areas. The Mid-Atlantic region (which contains red-tape heavyweights like NY and NJ) is the longest at 10.5 months. The West Coast is right up there as well, at 9.9 months. The Southeast has the shortest timeline at 6.6 months.

 

new construction times

 

IPOs have been a treacherous investment over the past few years, as the venture capitalists and early entry investors have been reaping the rewards, at least for some of the biggest names (Uber, Lyft, Slack). We Work recently pulled its IPO as investors balked at the corporate governance issues and cash burn. While not all IPOs have been disasters, historically they have popped about 20% on the first day of trading. Not any more.

 

The National Retail Federation sees holiday sales at 3.8% – 4.2%, citing trade concerns over holiday spending. This is the low side of the holiday forecasts, which are coming in closer to 5%. The last 5 years have been around 3.7%, so the forecast is for something between “above average” and “great.” Since consumption is about 70% of the economy, we could be looking at better GDP numbers heading into the end of the year, which would put pressure on the Fed to slow down their pace of rate cuts.

Advertisements

Morning Report: Consumer inflation remains muted

Vital Statistics:

 

Last Change
S&P futures 2787 2
Eurostoxx index 372.85 -1
Oil (WTI) 57.27 0.47
10 year government bond yield 2.65%
30 year fixed rate mortgage 4.32%

 

Stocks are higher with a general “risk-on” feel to the tape. Bonds and MBS are down.

 

Lael Brainard speaks this morning and then the Fed enters its quiet period ahead of next week’s FOMC meeting.

 

Consumer inflation rose 0.4% MOM in February. Ex-food and energy, the index rose 0.4% and is up 2.1% YOY. Inflation remains under control, which should give the Fed the leeway to hold the line on rates next week. Falling energy prices at the end of 2018 helped keep the index under control, and we are seeing evidence that medical costs are finally stabilizing. Medical goods fell 1% MOM and services were flat. Stabilizing medical costs should translate into stable health insurance costs, which leaves more room for wage increases.

 

medical cpi

 

Retail Sales in January rose 0.2%, a touch higher than expectations. Those looking for a big rebound after December’s anemic numbers were disappointed. Given the strong consumption numbers in Q4 GDP, the holiday shopping season remains a bit of a mystery. The government shutdown is a possible explanation, and while it certainly hit the shops at Tyson’s Corner, the rest of the nation was unaffected. Note that the Fed’s consumer credit report showed that revolving credit increased only 1.1% in December and 2.9% in January, both well below run rates we have seen in the months leading up to it

 

Nancy Pelosi doesn’t support impeaching Trump. This is probably a tacit admission that the Mueller report isn’t going to contain anything we don’t already know.

 

Small business optimism rebounded in February. Earnings trends fell as many contractors were temporarily sidelined due to the government shutdown. Employment trends also slipped, probably for the same reason. Plans for expansion rose, however they are still below levels we saw in 2017-2018, which were extremely strong. Actual hires were the highest in years, and small business still finds a shortage of qualified workers. I am curious as to whether the “shortage of qualified workers” means (a) nobody around knows how to do the job, (b) nobody around knows how to do the job and can pass a drug test, or (c) nobody around that knows how to do the job will accept what I am willing to pay.