The end of the quarter is upon us so those month-end and quarter-end rebalancing trades may drive some volatility today but it’s been a sharply rangebound fixed income market for almost all of September. October will have the added heat of the election campaign in its home stretch and while that’s likely to up the volatility quotient we don’t think it shakes the market out of the six-month long range trade. For now, investors are contemplating little to no fiscal stimulus 2.0, and combined with virus case counts that spring higher just when they look to be heading lower, has equities battling to retain some end-of- month gains. Finally, in this week's podcast, we feature a conversation between Jill Castilla and Chris Nichols on leading your bank through these uncertain times. Jill is President and CEO of Citizens Bank of Edmond, Oklahoma and has been named “Community Banker of the Year” by American Banker, along with numerous other awards. Chris Nichols is Director of Capital Markets for CenterState Bank with 30+ years of banking experience. The itunes link can be found here and the Spotify link here.
While we wait for September jobs report on Friday, the ADP Employment Change Report was released this morning and it found 749 thousand new private sector jobs beating the 649 thousand expectation and better than the upwardly revised 481 thousand the prior month. The Friday payrolls report is expected to print 850 thousand job which seems impressive but that would still leave nearly 11 million unemployed out of the 21 million that lost jobs back in March and April.
While the employment situation remains challenging for millions, consumer confidence confounded expectations in September by bouncing back above 100 with a 101.8 print, easily beating the 90.0 consensus forecast and the 86.3 reading in August. It was the biggest monthly jump in 17 years. While still a long way from the pre-pandemic readings (see above graph) the September bounce is notable, especially with jobless claims plateauing and unemployment still well over 8%. Consumer expectations also moved smartly higher to 104.0 versus 86.6 the prior month. That’s the highest level since February and bodes well for additional consumer spending in the fourth quarter.
YoY Home Price Gains Boosting Consumer Confidence Too
We mentioned the rebound in consumer confidence and obviously one of the factors driving the rebound is the red-hot housing market and the continued gains in home price appreciation. While the rebound in equities has been credited for a boost in confidence, many more own houses and the appreciation that has been accumulating is no doubt making homeowners feel better about things.
The latest report to reflect this is the S&P CoreLogic CS 20-City Home Price Appreciation Report for July. The year-over-year gain was 3.95% beating the 3.60% expectation and the 3.46% result in June. The monthly gain was a strong 0.55% print, well ahead of the 0.10% expectation and the unchanged reading in June. The 0.55% reading was the highest since February 2018. As long as rates remain near all-time low levels, and inventory also remains near historic low levels, future gains in home prices remain a near certainty. The good news is, as the graph depicts, we’re not close to the double-digit gains experienced during the housing bubble more than a decade ago, so the slow but steady gains of this recovery can continue along for quite some time.
Agency Indications — FNMA / FHLMC Callable Rates
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