Investors Look to Next Week

We mentioned at the start of the week to expect some listless, uninspired, rangebound trading given the dearth of economic data, and no Fed speak, and that’s about what we got. The 10-year Treasury opened the week yielding 1.58% and we open Friday trading around 1.55%. So, just another week in April where the bits of economic data we received were strong, as usual, but ignored by Treasury investors. Next week could bring something different. We get the FOMC meeting on Wednesday, and first quarter GDP on Thursday with the week rounded out with durable goods orders, and consumer confidence. Look also for first quarter earnings from big tech and their guidance to provide some additional market color.  So at least some first-tier data to chew on with a Fed meeting thrown in for good measure. As for the meeting, don’t expect much change in tone from March and no change in policy. If you are looking for a possible date for them to begin discussing tapering QE  purchases we still have August and the Jackson Hole symposium as a possible opening for the discussion which will itself be a multi-month process before actual tapering begins. And by tapering we mean just tamping down the dollars being invested. The balance sheet will still be growing. See, this is all going to take awhile.

 


Lack of Inventory Limits Existing Home Sales in March

The residential housing market has been one of the economic bright spots ever since we emerged from the initial wave of lockdowns but limited inventory is starting to have an impact on sales levels. Closings in March of existing homes, which is about 90% of the housing market, decreased 3.7% from February to an annualized 6.01 million homes sold versus 6.24 million the prior month. Bloomberg consensus was for 6.11 million annualized so a slight miss and the lowest sales total in seven months.

 

We had mentioned on Wednesday that price appreciation due to a lack of inventory and higher input costs was starting to approach rates last seen in the height of the housing bubble that led to the Great Financial Crisis. Well, we’ve eclipsed that now as the median selling price for March jumped 17.2% from a year ago to $329,100, the highest on record dating back to 1999. And it’s more a lack of supply that’s holding back sales activity and not price levels so expect to see even more price gains in the months ahead. There were 1.07 million homes for sale in March, down more than 28% from a year earlier.  At the current pace, it would take 2.1 months to sell all the homes. Realtors see anything below five months of supply as a tight market. On average, properties remained on the market for a record-low 18 days in March.

 

Leading Index Points to Continued Economic Strength

One the rationales given for the recent Treasury market rally in the face of an endless string of strong economic reports is that with fiscal stimulus pumping the economy now, growth in the second half of the year is not likely to be as strong. Another piece supporting the rally is the trend in virus cases and vaccinations. With an eruption in cases in some global areas, namely India and Brazil, and with vaccination rates here starting to trend down with just 33.7% of the population inoculated it has raised some doubt about how quickly we get to herd immunity. All that being said, the latest Leading Index gain of 1.3% in March still points to future strength in the economy rather than any sign of imminent slowing. Some of the sectors that contributed to the Index’s gains include: Average Workweek (+0.13%), Jobless Claims (+0.35%), ISM New Orders (+0.26%), and Interest Rate Spreads (+0.17%). That doesn’t look like an economy about to lose momentum anytime soon.

 


Consumers Piling Into RV’s Again

One of our favorite indicators of discretionary spending demand is the monthly shipments of recreational vehicles which gives you a feel for the level of sales occurring with these large discretionary purchases. When people feel confident about their economic prospects and about life in general sales head higher. Part of the increase lately is no doubt a change in travel plans inspired by the pandemic away from crowded airports to the relative isolation of an RV but the increase in shipments is still undoubtedly good for the industry and speaks to the mood of the populace. They are willing to spend, and wanting to get out of the house. That pretty much sums up how a lot of us are feeling at the present time.

 


Market Rates

Treasury Curve Today Chg Last Wk. LIBOR Rates Today Chg Last Wk. FF/Prime Rate Swap Rates Rate
3 Month 0.02% +0.01% 1 Mo LIBOR 0.11% Unchanged FF Target Rate 0.00%-0.25% 3 Year 0.459%
6 Month 0.03% -0.01% 3 Mo LIBOR 0.17% -0.01% Prime Rate 3.25% 5 Year 0.897%
2 Year 0.15% -0.01% 6 Mo LIBOR 0.22% Unchanged IOER 0.10% 10 Year 1.552%
10 Year 1.55% -0.01% 12 Mo LIBOR 0.28% -0.01% SOFR 0.01%

 

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Published: 04/22/21 Author: Thomas R. Fitzgerald