Stocks are lower as we await the FOMC decision at 2:00. Bonds and MBS are flat.
The Fed is expected to hold rates steady at 2:00 pm but keep open the possibility of another rate hike at the December meeting. That said, there is the possibility they could consider the big run up in the 10 year to be a substitute for another rate hike.
The economy added 113,000 jobs in October, according to the ADP Employment Report. Annual pay rose 5.7%. “No single industry dominated hiring this month, and big post-pandemic pay increases seem to be behind us,” said Nela Richardson, chief economist, ADP. “In all, October’s numbers paint a well rounded jobs picture. And while the labor market has slowed, it’s still enough to support strong consumer spending.” The 113,000 increase was lower than the Street expectation of 145k. Note the street is looking for an increase of 183k in Friday’s jobs report.
Separately, job openings were flat at 9.6 million, according to the JOLTs report. The quits rate was flat at 2.3%.
Mortgage applications fell 2.1% last week as purchases fell 1.4% and refis fell 3.5%. “Mortgage applications declined for the third straight week as mortgage rates remained elevated, with all rates around 30 basis points higher than they were a month ago. The 30-year fixed rate dipped slightly to 7.86 percent but remained close to 23-year highs and has been above the 7-percent level since early August 2023,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The impact of higher rates continued to be felt across both purchase and refinance markets. Purchase applications decreased to their lowest level since 1995 and refinance applications to the lowest level since January 2023. Applications for government loans saw much larger weekly declines than conventional, with government purchase applications down 3 percent and refinances down 9 percent.”
Homebuilder Meritage Homes reported Q3 earnings that fell 16% YOY. Closings were up 3% YOY while orders were up 50%. “Homebuying demand held steady in the third quarter of 2023 despite the elevated interest rate environment, as we continued to offer a full range of incentives to help buyers solve for a monthly payment. We believe housing market demand will remain steady in the near future and we expect to continue to invest in land inventory and steadily increase our community count over the next year or two.” Like most builders, Meritage is offering incentives on the mortgage to keep average selling prices high.
The manufacturing economy contracted further in October, according to the ISM Manufacturing Survey. “The Manufacturing PMI® registered 46.7 percent in October, 2.3 percentage points lower than the 49 percent recorded in September. The overall economy dropped back into contraction after one month of weak expansion preceded by nine months of contraction and a 30-month period of expansion before that. “Demand remains soft, but production execution is stable compared to September as panelists’ companies continue to manage outputs, material inputs and — more aggressively — labor costs. Suppliers continue to have capacity. Seventy-five percent of manufacturing gross domestic product (GDP) contracted in October, up from 71 percent in September. More importantly, the share of sector GDP registering a composite PMI® calculation at or below 45 percent — a good barometer of overall manufacturing weakness — was 37 percent in October, compared to 6 percent in September and 15 percent in August. Three of the top seven industries by contribution to manufacturing GDP fell into this category,” says Fiore.
Multivariate core inflation rose 2.9% in September, according to the New York Fed. This was a 0.3 ppt increase from August’s upwardly-revised 2.6%. Housing and services ex-housing were the big drivers.
A Missouri jury delivered a $1.8 billion verdict against the National Association of Realtors and several real estate companies for conspiring to drive up commission costs. The plaintiffs called the commissions “a market-shaping and distorting rule that has severe anticompetitive effects.” We are seeing real estate stocks like Zillow, Compass, Re/Max and Redfin get tossed aside this morning.
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