The markets were waiting for some goods news during the Covid-19 pandemic (although I am certain that Dr. Fauci (nee Strangelove) will produce some dire forecast about new swine viruses to rattle confidence). The good news is … Non Farm payrolls jumped +4.8 million in June.
And the number of working Americans rose for the second straight month and the unemployment rate dropped to 11.1% in June.
As a result of the decrease in the unemployment rate, the Taylor Rule (Rudebusch variation) now calls for a Fed Funds rate of -7.07%.
Federal Reserve officials had “many questions” about the benefits of yield-curve control when they discussed its pros and cons during their meeting in early June.
“Many participants remarked that, as long as the committee’s forward guidance remained credible on its own, it was not clear that there would be a need for the committee to reinforce its forward guidance with the adoption of a YCT policy,” minutes published Wednesday of the June 9-10 Federal Open Market Committee meeting showed. YCT refers to yield caps or targets.
Here is today’s Treasury yield curve versus the yield curve on December 1, 2005. Looks more like wholesale panic to me.
Pfizer seems to have a vaccine that works and United Airlines is scheduling more flights (not that I can fly anymore). And more good news …
(Bloomberg) — A closely watched measure of U.S. manufacturing jumped in June to the highest in more than a year, signaling the resumption of growth as pandemic-related lockdowns ended.
The Institute for Supply Management said Wednesday that its gauge jumped by 9.5 points, the most since August 1980, to 52.6 last month. Readings above 50 indicate that manufacturing is expanding, and the latest figure exceeded the 49.8 median projection of economists in a Bloomberg survey. More factories reported growth in orders and production.
The data mark a turnaround from just two months earlier when the factory gauge tumbled to an 11-year low as states closed most non-essential businesses to help contain the coronavirus. At the same time, the level of manufacturing activity, like much of the rest of economy, will probably remain below pre-pandemic levels for some time.
“In the field of monetary and credit policy, precautionary action to prevent inflationary excesses is bound to have some onerous effects— if it did not, it would be ineffective and futile. Those who have the task of making such policy don’t expect you to applaud. The Federal Reserve, as one writer put it after the recent increase in the discount rate, is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.”
William McChesney Martin, Speech to Investment Bankers Association of New York, October 1955
As of June 23, As of June 23, 4.68 million homeowners are in forbearance plans, representing 8.8% of all active mortgages, up from 8.7% last week. Together, they represent just over $1 trillion in unpaid principal ($1,025B)., up from 8.7% last week. Together, they represent just over $1 trillion in unpaid principal ($1,025B).
Fannie Mae and Freddie Mac lead in terms of loans in forbearance.
What is forbearance you ask? Forbearance is when your mortgage servicer or lender allows you to temporarily pay your mortgage at a lower payment or pause paying your mortgage. You will have to pay the payment reduction or the paused payments back later.
New home sales rose 16.6% MoM in May, a pleasant surprise for the US economy. This is nearly the exact opposite of yesterday’s existing home sales plunge of nearly 10% MoM in May.
(Bloomberg) – Prashant Gopal – New home sales in the U.S. rose more than expected in May, with record-low mortgage rates pulling buyers back into a housing market that froze up during the pandemic.
Purchases of single-family houses climbed 16.6% to a 676,000 annualized pace, government data showed Tuesday. The median forecast based on a Bloomberg Survey of economists was for 640,000.
Homebuilders are welcoming buyers back after social-distancing rules across much of the U.S. kept them on the sidelines in March and April. A growing share of buyers are opting for new homes because existing home listings are in short supply. Record-low interest rates have made the properties affordable to a larger share of buyers.
With the Taylor Rule at -11%, will The Fed venture into negative nominal rates?