Good Morning on this best day of the week, Wednesday,
Day two of a big employment data week is underway.
ADP payrolls were anemic at 145k on expectations of 220k. This is a follow up to yesterday’s Jolts report which showed that job openings are down almost 20% from their highs. The 10-yr down to 3.28% today 😊. Tomorrow, we get unemployment claims and then Friday, the biggest report of the month, the BLS jobs report. That will be the market mover.
Right now, signs are pointing to a weak jobs report.
Markets are expecting 240k new jobs on the heels of January’s 500k and February’s 300k print. Both blew markets up and until the banking meltdown, had everyone including the Fed, planning for several more rate hikes. Today’s futures market shows only a 35% chance of another Fed rate hike in May. Come Friday, that number will move abruptly one way or the other. It is clear that with last week’s PCE data and this week’s employment data, the economy is slowing which is what the Fed wants. I do think Friday’s report is going to be weak, but I don’t gamble, so better to consider locking now and floating down on good news.
Where is the inventory?
New listings were down 20% year over year in March, according to Realtor.com, and total inventory was about half of what it was in March 2019, pre-pandemic. How does the market function without inventory and for the naysayers, how will prices deflate when demand outpaces supply?
Some good insight on not only how money flows (in this case from banks to money markets which end up at the Federal Reserve reverse repo window but also what it means to the economy when this happens.
Look at the second chart below…
Banks are under pressure from depositors’ embrace of money-market funds, pushing a popular Federal Reserve-sponsored financing program into the spotlight. Money-market fund assets are increasing at a record clip. Much of that cash is making its way to the Fed’s overnight reverse repurchase facility, which borrows from money funds and other firms in exchange for securities such as Treasurys and then returns the money the next day. The program, known on Wall Street as reverse repo, allows financial firms and others to earn interest on large cash balances. But some analysts contend it also is effectively draining funds from the banking system, where it otherwise could be invested or lent out. As of Tuesday, $2.2 trillion sat in the Fed’s reverse repo facility, paying a 4.8% annualized rate.
That is well above the rates on offer at most banks.
Banks are under pressure from depositors’ embrace of money-market funds, pushing a popular Federal Reserve-sponsored financing program into the spotlight. Money-market fund assets are increasing at a record clip. Much of that cash is making its way to the Fed’s overnight reverse repurchase facility, which borrows from money funds and other firms in exchange for securities such as Treasurys and then returns the money the next day. The program, known on Wall Street as reverse repo, allows financial firms and others to earn interest on large cash balances. But some analysts contend it also is effectively draining funds from the banking system, where it otherwise could be invested or lent out. As of Tuesday, $2.2 trillion sat in the Fed’s reverse repo facility, paying a 4.8% annualized rate. That is well above the rates on offer at most banks.
Bank deposits have fallen $363 billion to $17.3 trillion since the beginning of March, Fed data show. Assets in money-market funds have risen $304 billion to a record $5.2 trillion, according to Investment Company Institute data.
Rising interest rates are taking the air out of bubbly property valuations, with apartment prices down 21% in a year.
Sales of rental apartment buildings are falling at the fastest rate since the subprime-mortgage crisis, a sign that higher interest rates, regional banking turmoil and slowing rent growth are undercutting demand for these buildings. Investors purchased $14 billion of apartment buildings in the first quarter of 2023, according to a preliminary report by data firm CoStar Group. That represents a 74% decline in sales from the same quarter a year earlier and would be the largest annual sales decline for any quarter going back to a 77% drop in the first quarter of 2009. Sales have plummeted because the math for buying an apartment building makes a lot less sense now. The cost to finance building purchases has jumped alongside the fast rise in interest rates. Rents are running flat, or are even declining in some major metro areas, after record increases. A upheaval in banking is also making it more difficult to buy buildings, investors and analysts said, as more lending institutions pull back or lend only at high rates.
Other CRE problems are a brewing as well.
Please remain safe and stay healthy, make today great!
