Morning Report - Parsing the FOMC statement

Vital Statistics:

	Last	Change	Percent
S&P Futures	1997.5	5.9	0.30%
Eurostoxx Index	3354.1	-4.9	-0.15%
Oil (WTI)	44.58	0.1	0.29%
LIBOR	0.253	-0.004	-1.37%
US Dollar Index (DXY)	94.61	0.147	0.16%
10 Year Govt Bond Yield	1.74%	0.02%
Current Coupon Ginnie Mae TBA	103.5	0.4
Current Coupon Fannie Mae TBA	103	-0.1
BankRate 30 Year Fixed Rate Mortgage	3.83

Stocks are higher after yesterday's bloodbath. Bonds and MBS are down.

Germany's inflation rate turned negative in January for the first time in 5 years. QE is coming just in time. The German Bund yields 35.3 basis points, or about 6 basis points more than the Japanese Government Bond. It is amazing to think a country that didn't experience a massive real estate bubble has interest rates that low. 

Initial Jobless Claims fell back below 300k. Looks like the usual post-seasonal layoffs are done. The Bloomberg Consumer Comfort index rose last week to 47.3.

Pending Home Sales fell 3.7% month-over-month in December. They are up 8.5% year over year. 

The general take on the FOMC statement was hawkish, at least the way they characterized the economy. They said the economy was improving at a "solid pace" with "strong job gains." Quite the change after a half decade worth of terms like "subdued," "modest" and "moderate." Actually the only weak spot was housing, where the recovery remains "slow." One change from December involved the acknowledgement of overseas economic issues. "International developments" will now help shape monetary policy. I think bonds keyed off that statement. If Europe is indeed heading for a recession with rates already at the zero bound, then the Fed may choose to stand pat in June, or only make a symbolic increase to get off of the zero bound. 

Speaking of the Fed, Bill Gross thinks the Fed is moving this year, and delves into some of the unintended consequences of ZIRP. The biggest problem with ZIRP is that it skews the risk / reward of investment - the upside is limited by low rates, but the downside is the same as ever before. This encourages people to keep their money in the mattress. Money quote: "Capitalism depends on hope - rational hope that an investor gets his or her money back with an attractive return. Without it, capitalism morphs and breaks down at the margin. The global economy in January of 2015 is at just that point with its zero percent interest rates." This is why Bill thinks the Fed moves this year, even though European weakness gives them the perfect excuse not to. 

PulteGroup reported better than expected earnings and revenues. Orders were up 1% in units and 2% in dollars. Average selling prices are down 10 basis points on a YOY basis. Management comments on the state of the housing market:

"We are optimistic heading into 2015 as buyer sentiment began improving in late November supporting stronger traffic and signup levels throughout December and into January. We believe the positive factors of an improving economy with declining energy costs, rising employment, lower mortgage rates and related fees, beneficial long-term demographic trends and a generally healthy supply of inventory, will continue to support a slow and sustained housing recovery."

The stock is up about 150 basis points this morning.