Vital Statistics:
Stocks are lower after Nvidia said it would take a $5 billion charge against earnings for licensing fees. Bonds and MBS are up.
Mortgage applications fell 8.5% last week as purchases declined 4.9% and refis fell 12.4%. “Mortgage rates moved 20 basis points higher last week, abruptly slowing the pace of mortgage application activity with refinance volume dropping 12 percent and purchase volume falling 5 percent for the week. Purchase volume remains almost 13 percent above last year’s level, but economic uncertainty and the volatility in rates is likely to make at least some prospective buyers more hesitant to move forward with a purchase,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “One notable change last week was the full percentage point increase in the ARM share. Given the jump in rates, more borrowers are opting for the lower initial rates that come with an ARM, with initial fixed rates closer to 6 percent in our survey last week. The ARM share at 9.6 percent was the highest since November 2023, and this reflects the share of units. On a dollar basis, almost a quarter of the application volume last week was for ARMs, as borrowers with larger loans are even more likely to opt for an ARM.”
Retail sales rose 1.4% MOM in March, in line with Street expectations. Ex-vehicles and gas sales rose 0.8%, better then street expectations. February sales were revised upward as well.
On an annual basis, sales rose 4.6%. Since retail sales are not adjusted for price changes, if you subtract inflation, sales rose on an inflation-adjusted basis. The big question is what is driving the increase. One interpretation is that consumers are stocking up on goods before tariff-driven price changes take effect. The other interpretation is the economy isn’t in as bad of shape as the consensus thinks.
If you believe the consumer sentiment numbers, then you would probably go with the first interpretation: desperate consumers are spending up front to beat the price increases. On the other hand, if you look at the latest jobs report, the economy isn’t as bad as feared.
The conventional wisdom is the first interpretation: “Net, net, these are simply blow out numbers on March retail sales where the rush is on like this is one gigantic clearance sale,” said Chris Rupkey, chief economist at FWDBONDS. “Consumers are expecting sharply higher prices the next year and are clearing the store shelves and picking up bargains while they can.”
We have a lot of conflicting economic data out there, so it is tough to draw a definitive conclusion about what is going on out there. I suspect there is a divergence between people who consume a lot of mainstream media and those that do not.
The Atlanta Fed’s GDP Now model is scheduled to be updated today. The current estimate (from April 9) is -2.4% growth in Q1. Given this sales number, estimate is probably low. I suspect the Atlanta Fed knows something is off with their model given that they have introduced a second GDP estimate based off of gold flows which is much less dire.
US Bank reported better-than-expected Q1 earnings of $1.03 per share, a 32% increase from a year ago. Provisions for credit losses declined on both a quarterly and annual basis. Mortgage origination volume fell 8% YOY to $6.6 billion.
