UMBS are flat on the open.
Treasury yields moved lower in late trading Yesterday as investors looked ahead to the latest round of Fed Minutes. The recent data has shifted market expectations to a 99% chance that the Fed will leave rates unchanged at their December meeting. Questions are now starting to bubble up about when the Fed may start cutting rates. Investors are gaining hope that this could be a transition point toward lower rates.
Stocks lost steam after a rally that put the market on pace for its best month since July 2022, with traders awaiting the Federal Reserve minutes and Nvidia Corp.’s results. Hedge funds are holding their most concentrated wagers on US equities than any time in the past 22 years, according to data from Goldman Sachs Group Inc. The data paints a picture of a market that’s quickly regaining its enthusiasm for profitable
and stable tech stocks as economic growth weakens at the end of the Fed’s campaign to raise interest rates.
The auction of 20 year bonds went off without a hitch yesterday, which put some starch in the bond market, with yields pushing towards 4.4%. The bid-to-cover ratio was 2.58, a bit stronger than average.
Existing home sales fell 4.1% in October, according to NAR. The median home price rose 3.4% to $391,800. Multiple offers, however, are still occurring, especially on starter and mid-priced homes, even as price concessions are happening in the upper end of the market.
The Index of Leading Economic Indicators slipped in October, according to the Conference Board. The US LEI trajectory remained negative, and its six- and twelve-month growth rates also held in negative territory in October. Among the leading indicators, deteriorating consumers’ expectations for business conditions, lower ISM® Index of New Orders, falling equities, and tighter credit conditions drove the index’s most recent decline.
Lowe’s is down pre-market after releasing earnings. Comparable sales were down 7.4%. Best Buy reported that comp sales fell 6.9% in the third quarter and revenues fell 7.8%. When retailers use terms like “deal-focused” and “promotions” they mean price cuts. Good news for inflation, but bad news for the economy overall. When Wal Mart, Target, Lowes, Home Depot, and Best Buy are all warning about flagging consumer demand, that is a pretty strong leading indicator that the economic data are about to turn downward.
We got Fed Minutes
BFW 11/21 19:00 *FED MINUTES: ALL ON FOMC AGREE TO `PROCEED CAREFULLY’ ON RATES
BFW 11/21 19:00 *ALL ON FOMC SAW RATES REMAINING RESTRICTIVE FOR SOME TIME
BFW 11/21 19:00 *FED SEES FURTHER TIGHTENING IF INFLATION PROGRESS INSUFFICIENT
BN 11/21 19:00 *MOST FED OFFICIALS SAW UPSIDE RISKS TO INFLATION
BN 11/21 19:00 *A FEW FED OFFICIALS: RUNOFF COULD CONTINUE AFTER RATE CUTS
BN 11/21 19:00 *MANY FED OFFICIALS SAW DOWNSIDE RISKS TO GROWTH
BN 11/21 19:00 *FED: PERSISTENT FIN. CONDITIONS CHANGES WOULD IMPACT POLICY
BN 11/21 19:00 *FED RELEASES MINUTES OF OCT. 31-NOV. 1 FOMC MEETING
The bond market continues mostly adhering to expectations for narrower trading ranges and less directional movement against the backdrop of a holiday-shortened week without any major market movers. But wait! What about the Fed Minutes? Wouldn’t this classify as at least a POTENTIALLY major market mover? At times in the past, sure, but at present, not so much. We were comfortable asserting as much even before the Minutes came out and now that they’re in the rearview, their insignificance is clear. The market has clearly shifted gears into holiday mode with light volume and liquidity greasing the skids for random volatility without any fundamental justification.
MBS ended the day down 22 bps. Ginnie Mae bonds were about the same.
The office commercial real estate market is getting worse. The Wall Street Journal reported this morning that only 1 out of 3 expiring mortgages for securitized office buildings was paid in full. This is worse than the 2008-2009 crisis. Most of these maturing mortgages simply can’t be rolled over because the underlying collateral is shot.
Case in point: Deutsche Bank paid $500 million for an office property in Manhattan about a decade ago. The property is currently worth between $150 million and $200 million. The building is 30% occupied and anchor tenant Bank of America just let its lease expire. The highest and best use of the building is probably residential or mixed, but that will require some capital expenditures. Not only that, but we have a glut of multi-family under construction, so it isn’t clear how great of an option that is.
Former OpenAI CEO Sam Altman has been hired to lead Microsoft’s new advanced in-house AI research unit alongside former OpenAI President Greg Brockman. The move follows a tumultuous weekend, which saw investors unsuccessfully try to reinstate Altman after his abrupt dismissal by OpenAI’s board of directors Friday. More than 700 of roughly 770 OpenAI employees have demanded the resignation of the board, threatening to join Altman at Microsoft. The board cited Altman’s alleged lack of transparency as grounds for dismissal.