Yesterday the Fed left interest rates in place.  Ironically, this puts upward pressure on mortgage bonds.  The 10 Year has risen to 2.36% this morning, the highest in a month.  The Fed commented that although GDP for the first quarter was only 0.7%, they have reason to believe that the second quarter will produce a 4.3% expansion rate.  That would net the growth for the year above the 2.0% target rate, and poise the economy for the two further rate hikes promised.

Tomorrow is the Jobs Report.  Like the expectation on GDP, last month’s measly 98,000 is anticipated to flourish to 180,000 new jobs created this month.  The Unemployment Rate is also expected to drop to 4.6%.  See you tomorrow!     

The markets are eagerly awaiting any details about the tax reform that Treasury Secretary called the “largest in U.S. history”.  It is anticipated that the Trump-spawned plan will help small businesses like the many run by Trump’s hard core buddy Jesse James (pictured here).  Secretary Mnuchin said that the goal of reduced regulation will lift the GDP to 3%.  Stocks and Bonds are positively poised this morning and set to spring when the announcement hits in a few hours. 

Snail’s Pace

The final reading of the second quarter Gross Domestic Product for the U.S. comes in at a 1.4% growth rate.  That’s higher than initial measurements and also higher than expectations.  The Fed still wants to see that number in the 2.0-2.5% range.  Improvement is improvement, even if the going seems slow.

On the other hand, Pending Home Sales declined 2.4% since last month, where a 1.0% increase was anticipated.  Cooler weather and scanty inventory are hampering sales

Missed Expectations?

There is currently a likelihood of 30% that the Federal Open Market Committee will raise interest rates at their June meeting. But the Fed is figuring in a 2.9% GDP forecast for the second quarter of this year, which won’t be published until after the June FOMC meeting.  The second reading of the 1st quarter was just published this morning registering 0.8% domestic growth.  Will we see a 2.1% pickup over the next 33 days?  As of next week, the 2nd quarter will be 2/3 of the way over and I am not feeling it so far.  But I am also writing this column as the last thing I do before heading down to Lake Powell for a week, so unlike the presidents of the 12 Federal Reserve Banks and their well-versed companions, my finger isn’t exactly on the pulse of the U.S. gross domestic product calculation right now.  Other than I know that we just spent a small fortune on new life vests and a few coolers full of food.  Nevertheless, I wouldn’t place any money on a 30% bet.

Happy Summer Vacation!  For some reason I feel like I need to go back to Target…

Breakout

For the fourth month in a row, New Home Sales rise faster than expected. This month’s 619,000 newly constructed homes is 119% of what analysts predicted.  Jobless Claims (first unemployment check requests) dropped 2.5%, and Durable Goods Orders shot up from 1.9% last month to 3.4% this month.  Stocks are down and bonds are up, though quite modestly.  Tomorrow brings another reading of the first quarter GDP.  The last consensus was a 0.5% increase and the expectations are that tomorrow will show a 0.9% spike.  Perhaps the additional data since the previous poll will facilitate that much-searched-for bump in perceived economic activity.  Any surprises one way or the other in GDP will most likely cause a breakout in the Bond market (hence the Breakout picture).  We’ll see tomorrow.

A Good Friday to You

Spring is in the air and the financial markets are closed today for Good Friday.  The only news out this morning is the final Gross Domestic Product reading from the 4th quarter of 2015 coming in at 1.4%, and bringing the final GDP for the 2015 calendar year to an expansion of 2.4%

Weak GDP

Bonds have taken a 100 point beating over the last two days; this equates to having to pay an extra 1% in fees to get the same interest rate as you could have last Friday for free.  Even a weak Q1 GDP reading hasn’t done much to curb the price decrease this morning.  Q4 GDP for 2014 showed a growth of 2.2% and today’s first assessment of the 1st quarter was expected to show just under half that with a gain of 1.0%.  Instead what we saw was 1/10 of the previous gain at 0.2%.  What should have been a big boon to bond pricing and lower interest rates has had the opposite effect due to fear of the Fed raising interest rates.  The Federal Open Market Committee wraps up their two day session this afternoon and the likelihood of an announcement of a rate hike after seven years at 0% is zero percent.

Recipe for Low Rates

Yesterday I touched on Retail Sales not showing any growth in July, and yet over the same period consumer debt has increased.  This chart illustrates that first point of Sales have tapering off over the last four months.  This morning the news is focused on Europe’s stagnant economy (France GDP is 0% and Germany actually contracted 0.2% in Q2).  The recipe for disaster is compounded by the region’s massive overhanging debt and questionable ability to repay.  Glad we don’t have those problems here in America.

At any rate, despite the Federal Reserve continuing to sell off their holdings of mortgage backed securities, interest rates look to be staying low for awhile.

GDP a Bust

Fickle? Unpredictable?  Uneducated?  Looking for words to describe the market’s reaction to a negative GDP reading for the first quarter of 2014.  Gross Domestic Product is the mack daddy of economic reports because it says encompasses about every other report’s reach.  Under normal circumstances you’d see stocks and rates plummet on news that our economy actually contracted  over the last three months.  Today, the inverse is true. Why?  Is certainly is not because Pending Home Sales also contracted from 3.4% in March to only 0.4% in April.  Crazy stuff.