Morning Report - Economic data dump and the FOMC

Vital Statistics:

	Last	Change	Percent
S&P Futures	2090.8	-8.2	-0.39%
Eurostoxx Index	3632.6	15.5	0.43%
Oil (WTI)	59.16	0.6	0.99%
LIBOR	0.278	-0.001	-0.30%
US Dollar Index (DXY)	95.09	-0.124	-0.13%
10 Year Govt Bond Yield	2.10%	0.06%
Current Coupon Ginnie Mae TBA	102.7	0.0
Current Coupon Fannie Mae TBA	101.5	-0.3
BankRate 30 Year Fixed Rate Mortgage	3.86

Stocks are lower this morning on no real news. Bonds and MBS are down as European bonds continue to sell off.

European bonds have been selling off as fast money gets caught on the wrong side of the boat. This is pushing up Treasury yields, which should be moving down based on some of the economic data lately. 

There is a lot of economic data this morning. Initial Jobless Claims fell to 262,000, the lowest reading in 15 years. The ISM Milwaukee index fell to 48.08. The Bloomberg Consumer Comfort Index fell to 44.7 and the Chicago Purchasing Manager Index rose to 52.3.

The Employment Cost Index rose .7% in Q1. Wages and Salaries increased .7%, while benefits increased .6%. On an annualized basis, wages and salaries were up 2.6%, while benefits were up 2.7%. This is a big jump from the fourth quarter reading of 2.1%, and the average over the past few years of around 2%. One data point does not make a trend, but economically this is encouraging - wage growth has been a long time coming. 

Personal Income was flat in March, however compensation was up .2%. Personal spending rose to 0.4%, and the savings rate dipped slightly to 5.3%. The savings rate has been trending upward however, as people use some of the added income to pay off debt. The increase in spending is an encouraging data point. 

Inflation remains low, using the Fed's preferred inflation measure, personal consumption expenditures. On a year-over-year basis, the core number is up 1.3%, well below their 2% target. Given the weak Q1 GDP number and the weak inflation numbers, I find it hard to imagine the Fed moving in June. 

The FOMC statement was pretty bland, and we didn't see much of a reaction. The slowdown was attributed largely to "transitory factors." On rate hikes: "The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term." Given unemployment is back at normal levels, they are probably looking at wage growth as their key metric. 

The Bernank is now an advisor to PIMCO, as well as Citadel. Bond managers will be like: "Hey Ben, can you take Janet's temperature on a June rate hike?"

Household formation increased at an annual rate of 1.5 million in Q1, even as the homeownership rate dipped. This is good news for landlords, however it isn't spilling over to residential construction yet, with housing starts still mired about 70% of normalcy.