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Morning Report: Rates moving higher


Vital Statistics:

Stocks are flattish as bond yields continue to march higher. Bond and MBS are down, with the 10 year at the highest level since 2008

Zhongrong, a trust company partially owned by one of China’s biggest asset managers (Zhongzhi Enterprise Group) has missed about a dozen debt payments, triggering rare protests in Beijing. The problems at Zhongzhi triggered a regulatory investigation last May over its finances. The asset manager supposedly has about 11% of its assets in the property sector which is probably completely illiquid. The economic rebound from China’s post-COVID re-opening is looking played out.

The FOMC minutes showed that the staff’s estimates of economic growth improved between the June and July meetings, with the staff no longer seeing a recession:

The economic forecast prepared by the staff for the July FOMC meeting was stronger than the June projection. Since the emergence of stress in the banking sector in mid-March, indicators of spending and real activity had come in stronger than anticipated; as a result, the staff no longer judged that the economy would enter a mild recession toward the end of the year. However, the staff continued to expect that real GDP growth in 2024 and 2025 would run below their estimate of potential output growth, leading to a small increase in the unemployment rate relative to its current level….The staff continued to judge that the risks to the baseline projection for real activity were tilted to the downside. Risks to the staff’s baseline inflation forecast were seen as skewed to the upside

Both the staff and the participants characterized economic growth as “moderate” which seems about right. A couple voting members favored maintaining rates, but did not dissent.

Interestingly, the latest Atlanta Fed GDP Now estimate has Q3 GDP coming in at 5.8%, based on yesterday’s housing starts and industrial production numbers.

The housing starts number was nothing special, around 1.5 million units on an annualized basis. Industrial production was up 1% compared to a month ago, aided by a bump in utilities which is weather-driven. On a YOY basis, industrial production was down 0.2%. I’m not sure what the Atlanta Fed sees in these numbers, but the economy does not feel like it pushing a 6% growth rate.

S&P 500 ($SPY) Slices Through 50-day MA Support. What’s Next For Stocks? [video]

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