The major news of the week, from a market perspective, will be the keynote address by Fed Chair Powell to the virtual Jackson Hole Economic Policy Symposium of central bankers. He’s expected to discuss the Fed’s new Monetary Policy Framework. While the framework hasn’t been formally released, expect Powell to disclose a few nuggets to allow markets a little peak as to what will be released possibly in September. Most of the rumored changes are in regards to inflation targeting and possibly moving to an average inflation rate approach such that time spent below the 2% target would be offset by time above before rate hikes are deployed. The thinking at the Fed has evolved to the point most believe the last couple rate-hiking episodes were probably too much too soon, squelching the ability for inflation to reach the 2% target. Thus, the Fed may be shifting to a let-it-run-hot policy before hiking. We’ll be waiting to see what Powell has to say on the matter tomorrow. Finally, in this week's podcast, we sat down with three panelists to discuss the ways banks are automating and simplifying the online account opening process. Our guests were Kranthi Palreddy from Terafina, Ruth Erickson from Bank of Hawaii, and Shirley Fiano from CenterState. The itunes link can be found here and the Spotify link here.
It’s no secret that housing is on fire and in practically every segment of the market. Last week it was existing home sales, housing starts and permits all beating expectations for July and the rebound in June. Now it’s new home sales’ turn to shine and shine they did. While it represents only 10% of the housing market two things make this report particularly compelling. First, it’s based on contract signings and not closings so it’s a more timely read on the housing market than the closing-based reports (like existing home sales). Second, with new homes you have all the components that go into a home’s construction so it has a broader economic impact than the sale of an existing home (which is primarily just the commission on the sale).
In any event, the July data indicated another unexpectedly strong showing with a 13.9% month-over-month gain to an annual pace of 901,000 from 791,000 in June, and that was a +15.1% improvement from May. What’s more, this is the highest annual pace since December 2006 and far better than anticipated but consistent with the recent housing numbers. The flight to the suburbs and record low mortgage rates are certainly stoking the fire.
August Consumer Confidence Takes a Hit
I know we’ve posted consumer confidence numbers to the point of overkill but the August release from yesterday did paint a slightly disturbing picture, especially with fiscal stimulus starting fade in most quarters. The August reading was 84.8 versus 91.7 in July and missed the pre-release expectation of 93.0. So, a slight improvement from July to August was expected but instead we had a decided turn lower. The 84.8 level is actually lower than the April plunge to 85.7 from March’s 118.8 reading. Meanwhile, consumer expectations didn’t fair well either. The August reading was 85.2 versus July’s 88.9 and is the lowest reading dating back to July 2016. Thus, while housing continues to roll on other sectors that depend on consumer consumption looking a little more suspect, especially if the slide in confidence continues through the Fall.
Agency Indications — FNMA / FHLMC Callable Rates
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