Morning Report - Bank earnings pile in

Vital Statistics:

	Last	Change	Percent
S&P Futures	2081.3	-5.2	-0.25%
Eurostoxx Index	3787.3	-41.4	-1.08%
Oil (WTI)	52.62	0.7	1.37%
LIBOR	0.277	0.001	0.40%
US Dollar Index (DXY)	98.75	-0.737	-0.74%
10 Year Govt Bond Yield	1.86%	-0.06%
Current Coupon Ginnie Mae TBA	103.4	0.0
Current Coupon Fannie Mae TBA	102.6	0.3
BankRate 30 Year Fixed Rate Mortgage	3.76

Markets are lower this morning as bank earnings pile in. Bonds and MBS are up on the back of a strong bond market rally in Europe.

Retail Sales came in weaker than expected, although some of that is due to falling commodity prices (especially gasoline). The headline number was +0.9% versus +1.1% expected. The control group, which strips out some of the more volatile components increased .3%.

Wells reported that originations increased to $49 billion in Q1 versus $44 billion in Q4. Margins expanded, with gain on sale margins increasing from 1.80% to 2.06%. Given that mortgage banking is so seasonal, it is surprising Wells reports quarter over quarter comparisons. J.P. Morgan reported first quarter originations were up 7% QOQ and up 45% YOY. MSR valuations got hit - their MSR book is valued at 2.53x versus 2.8x at the end of the year and 2.86x last year. 

Inflation remains muted at the wholesale level, with the Producer Price Index coming in at .2% month-over-month and falling 0.8% year over year. While the Fed prefers to look at Personal Consumption Expenditure Inflation instead of CPI / PPI, markets still pay attention. This is the other reason why bond yields are so much lower this morning.

Things are still somewhat "meh" for small business, according to the National Federation of Independent Business. The NFIB attributes some of the weakness to the weather. 

We haven't talked about European bond yields in a while, but they continue to fall, which is keeping a bid under Treasuries. The German Bund (their 10 year bond) yields 13.7 basis points. The Swiss 10 year yields negative 12.4 basis points. Yes, it will cost you money to lend to the Swiss government for 10 years. How about the PIIGS (remember them? Portugal, Ireland, Italy, Greece, and Spain) The Irish 10 year yields 68.3 basis points. The US 10 year yield is higher than all but one of the erstwhile PIIGS - Greece. 

Bubbles, bubbles everywhere, but especially in Asia. where the Chinese real estate bubble is beginning to deflate, and the Chinese economy begins to slow. Asian stocks are ignoring this however - the Nikkei 225 is up 43% over the past year, while the Hang Seng is up almost 11% in the first two weeks of April. While these markets are still well below their all-time highs, and no one is suggesting stock market bubbles, the Asian markets look frothy. China's real estate bubble is epic and as it bursts, China will export deflation around the world. Yet another reason for the Fed to sit on their hands. 

But we don't have any bubbles in the US, right? Well, according to Bill Ackman, we do. The student loan debt market is about $1.3 trillion all in, and about 9% is in default. As he points out, there is almost no way that gets repaid. He sees some administration doing a mass debt forgiveness.