Good Tuesday AM,

Bonds on a roll

Equities pulling way back as the market digests the impact of the First Republic Bank’s seizure and the Jolts report came in lower than expected (a nice picture of the trajectory of job openings is below, look at that downward slope. Not many companies are hiring). The 10-yr is back to 3.44% today and back below that Fibonacci line in the sand. Mortgage bonds are plus 33bps as I am typing.

Concern for credit tightening, commercial loans going bad, and how this will impact other (mostly regional) banks (and then of course the broader economy) is giving the banking sector indigestion and taking investor along with it. Many regional banks are on sale today with stock prices down 20% or more. Risk off today. Be careful as tomorrow is Fed Day, and we will hear what the Fed’s plans are for us. Unfortunately, I do expect a .25 rate hike tomorrow. The next words after that announcement though will be the real driver for us. If the Fed confirms the labor market and inflation rate are both softening and trending back to normal (which would then of course raise the question of why hike rates at all), bonds will rally. If the Fed is wishy washy on it, well, we could be back some pain.

Tough to float into any Fed meeting and I see tomorrow being volatile.

Adding more volatility to the market is that we are on a runaway train rapidly approaching the debt ceiling which will quickly become problematic as we hit the wall if not resolved before June 1 (when the treasury is saying we will run out of credit). Lots of rhetoric to come about how this funding is for bills which have already been committed to and not for future bills (which is largely true however, we have heard that argument each time the debt ceiling is breached). Despite a nonnegotiable tone (which I interpret as he is very willing to negotiate), President Biden has invited congressional leaders for a May 9 meeting at the White House.

News out which I think we all intuitively know (so is it really news if everyone knows it).

Home builders are enjoying stronger-than-expected business this spring. New single-family home sales are bouncing back with supply tight in the existing-home market. Active listings in March stood at roughly half of where they were four years earlier, according to Realtor.com, in part because higher mortgage rates made many homeowners reluctant to sell and give up their current low rates. That low inventory has put home builders in a good spot. Newly built homes made up about one-third of single-family homes for sale in March, up from a historical norm of 10% to 20%, Nicole Friedman reports.

Finally, this was an interesting piece from Bloomberg. Keep in mind that both the jolts report and the quits component came in weaker than expected.

I mentioned this yesterday in here, but in reading through some of the corporate earnings calls last week, a number of companies suggested that labor conditions have eased significantly in some way. This is, of course, in the category of “things the Fed wants to see.” Whether that’s good for the economy more broadly is a separate question. Speaking of labor market data, today we get the March JOLTS report. Given how much Powell has been talking about the number of job openings (relative to available workers), this measure has become a market mover. So watch for that, when it comes out at 10 AM. ET. Expectations are for 9.73 million job openings, down a bit from the 9.99 million openings in February. That being said, I’m more interested in seeing what happens with the Quit Rate. With a job opening, you still can’t be entirely sure how intensely a company is seeking to actually fill that opening. When an employee quits a job, that’s a substantive thing that happens. And historically, the quit rate goes up when the economy is good, because people feel less pressure to hold onto their employment. In fact, a chart of the Quit Rate has long matched the trajectory of the Consumer Confidence survey’s question about the public’s perception of the labor market. Both have come down a bit, but both quits and labor market confidence are still at very strong levels. Quits in particular are still way above pre-pandemic levels.

Here’s the latest look at the two lines:

Obviously, this Friday’s Jobs Report is going to be the main course of the week data-wise. But today should be a nice appetizer.

Please remain safe and stay healthy.