Morning Report - Awaiting the FOMC minutes

Vital Statistics:

	Last	Change	Percent
S&P Futures	2071.3	3.5	0.17%
Eurostoxx Index	3759.0	-9.8	-0.26%
Oil (WTI)	52.55	-1.4	-2.65%
LIBOR	0.274	0.003	1.11%
US Dollar Index (DXY)	97.38	-0.450	-0.46%
10 Year Govt Bond Yield	1.88%	0.00%
Current Coupon Ginnie Mae TBA	103.2	0.1
Current Coupon Fannie Mae TBA	102.5	0.1
BankRate 30 Year Fixed Rate Mortgage	3.77

Markets are higher this morning as we await the FOMC minutes. Bonds and MBS are up small. 

Earnings season kicks off this afternoon with the traditional report from Alcoa. The deluge of releases begins next week with the banks reporting. 

The FOMC minutes will be released around 2:00 pm. The markets will be focusing on the discussion around the removal of the word "patient" and will also want to see if the Fed believes that the Q1 weakness was transitory or not. The "weather" excuse has worn out its welcome given that the March data (payrolls especially) came in weaker than expected. The Street has been backing away from their forecast of a June rate hike, and Goldman has it as a toss-up between September and December. 

The elephant in the room will be the Fed's massive bond portfolio. The Fed owns $4.2 trillion worth of Treasuries and MBS. They have already said they do not plan to sell their MBS holdings, but Treasuries are more interesting. As of now, all maturing proceeds are being re-invested back in the market. Next year, about $216 billion will come due, which is about 5 months worth of peak QE buying. 

The other big concern at the Fed is the shape of the yield curve. They generally prefer a steeper, upward sloping yield curve. The fear is that an increase in short term rates would make the dollar so attractive that foreign money piles into Treasuries, making the yield curve flatter. 

Mortgage Applications increased .4% last week, which is impressive because it was a short week. Purchases were up 6.8% while refis were down 3.3%. Purchases are the highest they have been since early 2013, which bodes well for the spring selling season. That said, we are still way below normalcy, and you would have to go back to 1997 to see similar levels pre-bubble. 

The weakness in oil prices is driving M&A activity in the oil patch, and the latest one is a big European tie-up with Shell buying the UK's BG Group Plc for about $70 billion. The last time oil fell to these levels (excluding the crisis days), we saw a number of huge mergers, with Exxon buying Mobil, Conoco buying Philips, and British Petroleum buying Amoco.