Morning Report: Fed day

ital Statistics:

 

Last Change
S&P futures 3286 8.25
Oil (WTI) 53.98 0.22
10 year government bond yield 1.62%
30 year fixed rate mortgage 3.71%

 

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

 

The Fed is set to announce its decision at 2:00 pm this afternoon. No changes in rate policy are expected, however there might be some news regarding the balance sheet and overnight rates. It probably won’t be market-moving, but just be aware.

 

Mortgage applications rose 7.2% last week as purchases rose 5% and refis rose 8%. “Mortgage applications continued their strong start to the year, as borrowers acted on the drop in mortgage rates last week. Rates were driven lower by investors’ increased concern about the economic impact from China’s coronavirus outbreak, in addition to existing concerns over trade and other geopolitical risks,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “With the 30-year fixed rate at its lowest level since November 2016, refinances jumped 7.5 percent. Purchase applications grew 2 percent and were 17 percent higher than the same week last year. Thanks to low rates and the healthy job market, purchase activity continues to run stronger than in 2019.” Note that there was an adjustment due to the Martin Luther King holiday.

 

Pulte reported better than expected earnings yesterday. Revenues were flat, but the 33% increase in new order stood out.  “As demonstrated by our 33% increase in orders, the recovery in housing demand that began earlier this year gained momentum through the fourth quarter as we realized strong sales across all buyer groups,” said Company President and CEO Ryan Marshall. “Strong demand for new homes is benefiting from favorable market dynamics including improved affordability in part due to low mortgage rates, high employment and consumer confidence, and a generally balanced inventory of new homes,” added Marshall. The stock was up about 5% yesterday.

 

Consumer confidence perked up in January, according to the Conference Board. “Consumer confidence increased in January, following a moderate advance in December, driven primarily by a more positive assessment of the current job market and increased optimism about future job prospects,” said Lynn Franco, Senior Director, Economic Indicators, at The Conference Board. “Optimism about the labor market should continue to support confidence in the short-term and, as a result, consumers will continue driving growth and prevent the economy from slowing in early 2020.”

 

Strong consumer confidence, better homebuilding numbers and low rates mean that 2020 could be better than people are thinking for the mortgage industry. CNBC polls show that growth is expected to be 2% next year. Seems low if December’s housing starts weren’t a fluke, and judging by what we are hearing from the builders, it might not be. Those hoping for a recession will be encouraged by the inverting yield curve, but in this age of central bank intervention the signal doesn’t carry the weight it used to.