Wow, green numbers 2 days in a row. We are going to get spoiled
MBS up 13 bps on the open. Improved 8 while writing morning post
Bonds were modestly weaker overnight, but had held inside yesterday’s range. Jobless Claims coming under 200k certainly doesn’t help, but it is likely the inflation implications courtesy of the PCE component (of the GDP data) that had the bigger impact.
Jobless Claims = 192 vs 200 f’cast [195 prev]
GDP rose 3.2% at an annual rate in prior quarter, BEA said
GDP Core PCE Price Index = +4.3 vs 3.9 f’cast/prev
Personal consumption rose 1.4% in 4Q after rising 2.3% prior quarter
Fourth quarter GDP rose 2.7%, in the second revision. Third quarter growth was revised upward to 3.2%. Growth was driven primarily by inventory growth. Services spending rose, driven by housing and health care. Government spending was revised upward as well. Personal consumption expenditures were revised downward from 2% to 1.4%. The PCE price index was also revised upward by 0.5% to 3.7%. Excluding food and energy, the index rose 0.4% to 4.3%.
Needless to say, not good news on the inflation front, however we are talking about data that was far in the past at this point. The FOMC minutes shed some further light on the comments from Loretta Mester and James Bullard last week. “A few participants stated that they favored raising the target range for the federal funds rate 50 basis points at this meeting or that they could have supported raising the target by that amount. The participants favoring a 50 basis point increase noted that a larger increase would more quickly bring the target range close to the levels they believed would achieve a sufficiently restrictive stance, taking into account their views of the risks to achieving price stability in a timely way.”
Several analytical financial models say that Fed Funds should be at 8% if you want to kill inflation.
The total value of US residential real estate fell by 4.9% (or about $2.3 trillion) from its June peak, according to data from Redfin.
Luxury homebuilder Toll Brothers announced earnings after the close yesterday. Earnings per share rose, while revenues were up 4%. The cancellation rate was surprisingly low at only 14%. Gross margins rose, so there is no evidence of price-cutting or promotional activity in the luxury home space. Via Brent Nyitray
At the end of 2022, 9.3% of subprime borrowers, those with FICO scores below 660, were 30 days or more behind on their car payments. This is the highest rate since 2010. In addition to being squeezed financially, it’s partly because used car prices are falling, and when used car prices peaked some dealers sold vehicles that were in very bad condition, making nonpayment financially very advantageous and appealing. Via Econ70.com
More pain in the commercial real estate sector (particularly office buildings): Columbia Property Trust (owned by PIMCO) defaulted on $1.8 billion in mortgage notes on office buildings in New York City, Boston, and San Francisco. We are also seeing defaults on mortgages for shopping malls. The commercial real estate sector’s pain is being driven by rising short term rates (anyone who has floating rates is feeling the pain) and also a sea-change in office work. Note that S.L. Green keeps hitting new occupancy lows.
Wells Fargo laid off hundreds of mortgage bankers this week.