Markets turn focus to Fed and durable goods orders

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Published Date 2/26/2018

Mortgage rates started nicely this morning but drifted back this afternoon. The 10 yr moved below its uptrend line for the first time since the beginning of the year declining to 2.84% then lost momentum when it ran into resistance at its 20 day moving average. Not surprising with Jerome Powell scheduled to testify at the House Financial Services Committee tomorrow, then at the Senate on Thursday. How will the new Fed chair phrase his answers and comments compared to those of Janet Yellen?

Jan new home sales thought to have declined 4.0% dropped 7.8%; Dec was revised better to 643K units from 625K originally reported, and Nov revised up by 20K. The monthly supply increased to 2.4% to 301K units. On a sales basis, supply jumped above 6 months to 6.1 months vs 5.5 and 4.9 months in the two prior months. The South region, the strongest, declined 14.2%. Yr/yr sales down 1.0%. Prices declined to $323K down 1.4%, yr/yr prices +2.5%. It wasn’t good, but it is January, and the increase in rates along with the typically nasty weather offset the increases in starts and permits that bode better in the months ahead.

In another less noticed report this morning; the Chicago Fed National Activity Index. The index was thought to be at 0.20 from 0.14 (revised from 0.27) in Dec. This report helps highlight two of the most important features of the early 2018 economy: strength in employment and softness in consumer spending. The employment component was the strongest contributor to the index, at 0.09, followed by sales, orders & inventories at 0.07. Consumption & housing, reflecting weakness in the former that offset strength in the latter. Not a first tier data report but adds to a slightly weaker national activity.

Tomorrow the headline is Jerome Powell’s testimony, but Jan durable goods orders at 8:30 AM ET carry weight (expected -2.0% overall but when auto and truck sales are extracted orders expected +0.4%). At 9:00 the Dec Case/Shiller 20 city housing price index expected +6.3% yr/yr; also the Dec FHFA housing price index expected +0.5% m/m. At 10:00 Feb, consumer confidence index, expected at 126 from 125.4 in Jan.

Stock indexes had a good day; some of the news services writing that the stock market is benefiting from the new view that interest rates won’t increase much. Grabbing at straws with that reasoning. The bond market had become a little too frothy, and a pullback has been likely. Today, however, the 10 yr opened at 2.84% down three bps from Friday and down from 2.95% last week, but it didn’t hold. The 10 now at 2.86% -1 bp and MBS prices +11 bp at 9:30 down 2 bps at 4:00 pm. Let’s hear what Powell has to say tomorrow and Thursday.

Buffett this morning talked about buying back stock in lieu of added investments. That triggered the lemmings; a lot of talks this afternoon debating businesses buying back stock instead of investing and spending. Buy-backs generally a precursor that in the past has led to more equity market declines.

This Week’s Calendar:

Monday,

10:00 am January new home sales (expected -4.0% at 600K; as reported 593K, December revised from 625K to 643K; -7.8% from the revision on December)

Tuesday,

8:30 am January durable goods orders (-2.0%, ex transportation +0.4%)

January US trade deficit (-$71.3B)

9:00 am December Case/Shiller 20 city home price index (yr/yr +6.3%)

Dec FHFA housing price index (m/m +0.5%)

10:00 am Feb Consumer confidence index (126.0 from 125.4 in Jan)

Jerome Powell testifies to the House Financial Services Committee,

Wednesday,

7:00 am weekly MBA mortgage applications

8:30 am Preliminary Q4 GDP (+2.5%. down from 2.6% on the advance report; Price deflator 2.4%)

9:45 am Feb Chicago purchasing managers index (65.0 from 65.7 in Jan)

10:00 am Jan pending home sales (+0.5%)

Thursday,

8:30 am weekly jobless claims +8K to 230K)

January personal income and spending (income +0.3%, spending +0.2; PCE +0.4%, core PCE +0.3%; yr/yr +1.7%, core yr/yr +1.5%)

10:00 am February ISM manufacturing index (58.6 from 59.1 in Jan)

Jan construction spending (+0.3%)

10:00 am Jerome Powell testifies at the Senate Banking Committee

Friday,

10:00 am University of Michigan final February consumer sentiment index (995 from 99.9 at mid-month)

Source: TBWS

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