Morning Report - First quarter GDP comes in negative

Vital Statistics:

	Last	Change	Percent
S&P Futures	2117.4	-4.3	-0.20%
Eurostoxx Index	3614.9	-35.8	-0.98%
Oil (WTI)	57.94	0.3	0.45%
LIBOR	0.284	-0.002	-0.82%
US Dollar Index (DXY)	96.94	-0.022	-0.02%
10 Year Govt Bond Yield	2.11%	-0.02%
Current Coupon Ginnie Mae TBA	102.2	0.0
Current Coupon Fannie Mae TBA	101.3	0.1
BankRate 30 Year Fixed Rate Mortgage	3.92

Stocks are lower after first quarter GDP was revised downward. Bonds and MBS are up.

The second revision to first quarter GDP came in at -0.7%, a little better than expected. The port strike and a harsh winter are affecting the results somewhat, so take the number with a grain of salt. There are also questions regarding the seasonal adjustments BEA puts on GDP data - the first quarter has been unusually weak the past two years. 

Personal consumption came in at +1.8%, a small drop from the first revision and a touch lower than expected. The headline inflation number was negative, however the core was up 0.8%. Inflation is still running below the Fed's target of 2%. 

In other economic data, the University of Michigan Consumer Sentiment survey improved in May to 90.7 from 88.6. The Chicago Purchasing Manager Index fell.

Wall Street is a young person's game for the most part - by the time you are in your 30s you are old and if you are in your 40s, you are a senior citizen. Right now, Wall Street is staffed with people who have never seen a rate hike. I keep saying it, but the stock market is assigning a 100% probability that the Fed can raise rates without anyone blowing up. The last 3 times rates rose, we blew up the MBS market, the stock market and the residential real estate market. And we have a sovereign debt bubble on our hands right now. 

Morning Report - Pending Home Sales hits a 9 year high.

Vital Statistics:

	Last	Change	Percent
S&P Futures	2117.1	-3.8	-0.18%
Eurostoxx Index	3658.5	-24.3	-0.66%
Oil (WTI)	57.02	-0.5	-0.85%
LIBOR	0.286	0.001	0.47%
US Dollar Index (DXY)	97.43	0.062	0.06%
10 Year Govt Bond Yield	2.14%	0.01%
Current Coupon Ginnie Mae TBA	102.2	0.1
Current Coupon Fannie Mae TBA	101.1	0.0
BankRate 30 Year Fixed Rate Mortgage	3.94

Stocks are lower this morning on overseas weakness. Bonds and MBS are flat.

Pending Home Sales rose 3.4% in April, and reached their highest level in 9 years, according to the NAR. Good news for originators focused on the purchase business. After a weak start to the year, sales in the Northeast and the Midwest picked up smartly. Sales in the West were almost flat. NAR expects to see existing home sales come in at 5.24 million in 2015, and the median house price to rise 6.7%. This is ALL inventory-driven, and these increases are vulnerable if wage inflation doesn't pick up soon. The ratio of the median house price to median income has topped 4x and is already well above its historical norm of 3.15x - 3.55x. At the height of the bubble, the ratio hit 4.8x. 

Initial Jobless Claims came in at 282k, the 12th straight week below 300k. A 300k level in initial jobless claims is usually associated with strong economies. People who have jobs are definitely not losing them, however the long-term unemployed and the involuntarily employed part-time are still trying to return. I still think you won't see meaningful moves out of the Fed until we start seeing wage inflation, and that has been slow to materialize.

The Bloomberg Consumer Comfort Index fell to 40.9 from 42.4 in the prior week. This is a 5 month low. The view of the state of the economy has fallen markedly over the past 5 weeks, however people's personal financial situation has not changed. Consumers are still more reluctant to spend money, which is a result of their perception of the economy. Note that we will get the second revision to GDP tomorrow, and the Street is forecasting that Q1 GDP contracted by 0.8%. 

Debt talks with Greece appear to be going nowhere still. The ECB is worried about contagion if a deal is not reached quickly. “In the absence of a quick agreement on structural implementation needs, the risk of an upward adjustment of the risk premia demanded on vulnerable euro-area sovereigns could materialize,” the ECB said in its twice-yearly Financial Stability Review published Thursday in Frankfurt. What this means is that you could see the yields on the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) go one direction, while yields on Northern European debt move the other way. That said, you have to put this in perspective. The US 10-year yields 2.14% and the dollar is strengthening. The Italian 10 year yields 1.85%. Spain yields 1.82%. Ireland 1.2%, Portugal 2.52%. All in the context of Euro weakness. The yields on PIIGS debt is being artificially held down by central bank activity, and the fear is that they could begin to reflect economic reality. 

Morning Report: The Bernank is sanguine on China

Vital Statistics:

	Last	Change	Percent
S&P Futures	2106.9	2.0	0.10%
Eurostoxx Index	3638.4	19.1	0.53%
Oil (WTI)	57.54	-0.5	-0.84%
LIBOR	0.285	0.003	0.89%
US Dollar Index (DXY)	97.68	0.377	0.39%
10 Year Govt Bond Yield	2.15%	0.01%
Current Coupon Ginnie Mae TBA	102	-0.1
Current Coupon Fannie Mae TBA	101	-0.1
BankRate 30 Year Fixed Rate Mortgage	3.92

Markets are flattish as Greek talks plod along in a directionless fashion. Bonds and MBS are flat.

Mortgage Applications fell for the fifth week in a row, according to the MBA. Rates rose last week so that isn't a surprise. Purchases were up 1.2% while refis fell 3.9%. 

Luxury homebuilder Toll Brothers reported this morning with EPS of 37 cents a share better than the Street estimate of 35 cents, however it looks like the beat was due to a lower-than-expected tax rate. Revenues were light as deliveries declined 1% in dollars and 2% in units. Net signed contracts rose 25% in dollars and average selling prices for net signed contracts increased 13% to $826,000. California demand is "very strong" as well as Texas and NYC. The rental business continues to grow. Overall, the high end of the market continues to perform very well. 

Was Elmer Fudd correct about adjustable rate mortgages? Seemed ill advised at the time, right ahead of a rate hike - seriously, with perfect clairvoyance he told people to take out ARMs before rates went up. Well, it required a bursting of the real estate bubble to make it work out. That said, if people move often, ARMs may in fact make sense. 

The Bernank doesn't think China will have a hard landing. Given their real estate bubble, and the fact that their stock market has doubled over the past year, I find that wildly optimistic. It seems like countries that experience decades of fast growth tend to have hard landings (the US in the Great Depression, Japan now). Bull markets are a natural breeding ground for dumb debt-financed investments. Maybe the government wonks that run China's economy can manage it through heavy-handed intervention in the markets, but it hasn't been done before. 

The Feds are on the trail of massive corruption at FIFA. You mean to tell me there might be some jiggery-pokery going on in soccer?

Venezuela has found a solution to its toilet paper shortage. Make the Bolivar note worth less than toilet paper. 

Morning Report - Home Prices continue to rise, FAQ on Greece

Vital Statistics:

	Last	Change	Percent
S&P Futures	2117.9	-6.7	-0.32%
Eurostoxx Index	3649.2	-6.3	-0.17%
Oil (WTI)	58.59	-1.1	-1.89%
LIBOR	0.285	0.003	0.89%
US Dollar Index (DXY)	97.09	1.073	1.12%
10 Year Govt Bond Yield	2.20%	-0.01%
Current Coupon Ginnie Mae TBA	101.8	0.1
Current Coupon Fannie Mae TBA	100.8	0.0
BankRate 30 Year Fixed Rate Mortgage	3.9

Stocks are down after Spanish elections over the weekend showed a move to the left. Euro bond yields are again going different directions, with the Greek, Spanish, and Portuguese bond yields increasing, and the Northern European yields falling. US Treasuries are getting pushed lower as well.

We have a ton of economic data this morning. Durable Goods fell 0.5% in April, however when you strip out defense and transportation, they were up 0.8% and March's -0.4% reading was revised upward to 1.0%. Capital Goods ex defense and transportation is considered to be a proxy for business capital expenditures, which has been more or less in maintenance mode since the financial crisis. We would need to see numbers around +1.5% - +2.0% to say that business is beginning to build out for expansion. 

New Home Sales rose to 517k from 484k in April. Given the strong housing starts numbers last week (highest since November 2007), we might be seeing a decent 2015 after all for the homebuilders and the real estate sector in general. Given the persistent shortage of available real estate (NAR has it at 5.4 months), I find it surprising it has taken this long. 

Home Prices continue to rise, according to Case-Shiller and the FHFA House Price Index. The FHFA index is up .3% in March and up 1.3% for the first quarter. This index is now within a couple percentage points of the January 2006 peak. The Case-Shiller index is up 0.95% for March and up 5% annually. The big gainers were San Francisco (up double digits again) and Denver. I suspect there is a lot of foreign money looking for a home in the big cities and that is affecting the Case-Shiller indices. The FHFA Index is narrower than Case-Shiller - it only looks at houses with a conforming mortgage, so it excludes a lot of the high end and the low end of the real estate market. 

Consumer confidence rose to 95.4 in May, up slightly from April, but still below the Jan peak of 103.8. The Richmond Fed Index rose slightly, and Markit is forecasting a slight downturn in the PMI indices.

It is looking more and more like Greece is going to miss its payment to the IMF next week, unless they get more bailout funds. Here is a good FAQ of what can happen. I suspect the IMF and the ECB will come up with a way to kick the can down the road. Greek Banks are a hot mess (much of their capital consists of deferred tax assets and Greek sovereign debt) and they are completely dependent on emergency loan agreements from the ECB. If the government defaults on IMF payments, the ECB could declare the collateral backing these loans as ineligible (which makes sense since they are more or less defaulted securities), which would make the Greek banks insolvent and set the stage for a bank run. The big European banks all have at least some exposure to Greece and that will certainly be a consideration for the ECB. Public opinion supports keeping Greece in the EU so I suspect they will find a way. However if they do miss their payment and things take a turn for the worse, it is probably dollar (and bond) bullish. 

Interesting article about how the Fed has consistently overshot its economic forecasts for the US economy. The market however continues to disagree with the Fed, and it has been right. Take a look at the chart below. The Fed makes new economic forecasts quarterly, and I have tracked the Fed's forecast for 2015 GDP since the March 2013 FOMC meeting. As you can see, two years ago, they thought 2015 GDP would come in around 3.3%. They are now forecasting 2%. Given that the Street is forecasting that the second revision to Q1 GDP is going to come in at -0.9% (we'll get that number Friday), they will probably end up taking down their forecast at the June meeting. People are starting to think the next rate hike will be a 2016 event. 

Morning Report - inflation is running a touch hotter than expected.

Vital Statistics:

	Last	Change	Percent
S&P Futures	2125.1	-2.9	-0.14%
Eurostoxx Index	3678.9	-9.8	-0.27%
Oil (WTI)	59.82	-0.9	-1.48%
LIBOR	0.284	0.003	0.89%
US Dollar Index (DXY)	95.72	0.469	0.49%
10 Year Govt Bond Yield	2.21%	0.02%
Current Coupon Ginnie Mae TBA	102	0.0
Current Coupon Fannie Mae TBA	100.8	-0.2
BankRate 30 Year Fixed Rate Mortgage	3.89

Markets are lower after some hotter-than-expected inflation data. Bonds and MBS are down.

Bonds will close early today, at 2:00 pm EST. Stocks are open a full day. 

The Consumer Price Index increased .1% in April, bang in line with expectations. Prices ex-food and energy rose .3% vs. the .2% forecast. On an annual basis, the CPI ex food and energy is up 1.8%. 

Real Average Weekly Earnings rose 2.3% on an annualized basis in April. 

Janet Yellen will be speaking at 1:00 pm EST. I can't imagine she will say anything market moving an hour before the close on a 3-day weekend, but just be aware. Markets will become illiquid as the entire street will be on the L.I.E. by noon. 

Short missive today, as there really isn't much to talk about. Have a good Memorial Day Weekend.

Morning Report - Home Prices continue to rise

Vital Statistics:

	Last	Change	Percent
S&P Futures	2121.4	-1.1	-0.05%
Eurostoxx Index	3670.2	-13.3	-0.36%
Oil (WTI)	60	1.0	1.73%
LIBOR	0.281	0.005	1.81%
US Dollar Index (DXY)	95.4	-0.047	-0.05%
10 Year Govt Bond Yield	2.24%	-0.01%
Current Coupon Ginnie Mae TBA	101.7	0.2
Current Coupon Fannie Mae TBA	100.7	0.0
BankRate 30 Year Fixed Rate Mortgage	3.91

Stocks are mixed as economic data continues to come in. Bonds and MBS are up small. Lots of economic data today. 

Existing Home Sales fell to 5.04 million in April from 5.21 in March, according to the NAR. Inventory is still low, however the situation is improving, with the unsold inventory increasing to 5.3 months' worth from 4.6 months in March. The median home price rose to 219,400, which is up 8.9% year-over-year. Real estate prices are getting frothy, as the median home price to median income ratio is now 4x, which is higher than its historical range of 3.2x - 3.6x. Low interest rates are playing a part here. That said, home price appreciation will be tough to come by going forward until we get some more wage growth. At some point, the builders will begin pumping out supply.

Initial Jobless Claims came in at 274k, which is a very good number. The labor numbers continue to look okay, however it is a bifurcated market, where people with jobs are keeping them and the long term unemployed have given up. 

Consumer Comfort fell to 53.8 from 54.1, however the big number was the steep drop in economic expectations: from 50 to 44. 

The Chicago Fed National Activity Index improved in April from -.36 to -.15. The Markit US Manufacturing PMI fell to 53.8 from 54.1, the Philly Fed index fell to 6.7 from 7.5, and the Index of Leading Economic Indicators jumped from 0.4% to 0.7%. 

The ECB threw a nickel to Greece yesterday, giving them the smallest aid rise ever. Greece is warning that it will default in June, unless it gets more aid. Whatever money they have is going to go to public sector workers and pensioners. While both sides want Greece to stay in the Euro, their left wing government is complicating things. Which means the bond market will be susceptible to violent swings as we sort this out. 

The markets generally took the FOMC minutes to be dovish, and focused on the fact that only "a few" members of the Committee believed it would be appropriate to raise rates at the June meeting. They still believe that the first quarter weakness was "transitory" due to bad weather and the West Coast port strike. That said, the economy seems to not be exhibiting the same sort of rebound we saw last year, where we had a weak Q1 followed by a strong Q2 and Q3. We are definitely not seeing the same sort of rebound in economic activity this year. The Fed noted the additional volatility in the bond market (as has pretty much everyone in the mortgage business) and attributed it to the increasing presence of high frequency traders, lower dealer inventory, and the elevated holdings of bond funds. The minutes more or less confirmed the direction of market forecasts - a September hike is becoming more likely and a June hike less so. 

Morning Report - Awaiting the FOMC minutes

Vital Statistics:

	Last	Change	Percent
S&P Futures	2125.2	0.6	0.03%
Eurostoxx Index	3663.6	-7.0	-0.19%
Oil (WTI)	58.56	0.6	0.98%
LIBOR	0.276	-0.001	-0.18%
US Dollar Index (DXY)	95.32	0.049	0.05%
10 Year Govt Bond Yield	2.25%	-0.04%
Current Coupon Ginnie Mae TBA	101.4	-0.4
Current Coupon Fannie Mae TBA	100.8	0.3
BankRate 30 Year Fixed Rate Mortgage	3.91

Back from the MBA Secondary Conference in NYC. Generally the mood was upbeat, although regulatory issues weighed on everyone. Lots of talk about TRID.

Markets are flattish this morning as retailers report first quarter earnings. Wal Mart missed big yesterday, while Target came in better than expected this morning. Overall, the savings from lower gas prices are not being spent - they are being saved. In the battle of the home improvement stores, the Home Despot was the winner over Lowe's this spring. 

Catching up on economic data, the NAHB Housing Market Index fell to 54 from 56. Housing Starts came in well above expectations, at 1.135 million. Building Permits rose to 1.143 million as well. So, at least housing rebounded smartly after a tough Q1, however most other indicators (especially manufacturing-related) have not. Blame the dollar. 

Chart: Housing Starts: 2000-Present

Mortgage Applications fell 1.5% last week, according to the MBA. Purchases fell 3.7% while refis were up .3%. 

This afternoon, we will get the FOMC minutes. Of particular interest will be any mention of the huge bond market volatility we have been seeing, particularly emanating from Europe. Also look for their characterization of the first quarter weakness and the lack of a meaningful rebound. Janet Yellen will also be speaking at 1:00 pm EST. We could see some volatility in rates early this afternoon. 

It is no secret that Bernie Sanders hates, hates, hates the financial sector. He has a new plan to fund free college education with a special tax on Wall Street. This is just election fodder to pull Hillary to the left and it is going absolutely nowhere. 

Angela Merkel has given Greece until the end of the month to reach a deal with its creditors. 

Morning Report - The Avon Lady gets a fake suitor

Vital Statistics:

	Last	Change	Percent
S&P Futures	2118.5	0.9	0.04%
Eurostoxx Index	3607.3	5.1	0.14%
Oil (WTI)	59.05	-0.8	-1.39%
LIBOR	0.274	-0.001	-0.40%
US Dollar Index (DXY)	93.96	0.502	0.54%
10 Year Govt Bond Yield	2.19%	-0.04%
Current Coupon Ginnie Mae TBA	102.2	0.2
Current Coupon Fannie Mae TBA	101	0.2
BankRate 30 Year Fixed Rate Mortgage	3.92

Markets are flattish after some disappointing industrial data. Bonds and MBS are following European bonds higher.

Industrial Production fell .3% in April, the same as March. This is the fifth consecutive month of negative readings. On a year-over-year basis, industrial production was up 1.9%. While mining and energy extraction were down as expected, other categories like consumer goods, business equipment etc were down as well. Manufacturing Production was flat, and capacity utilization fell. The European QE-driven dollar rally that began about a year ago is probably a big reason for the continued weakness here. Here is an interesting take on the big bond market sell-off.

Consumer confidence slipped in May, according to the University of Michigan Consumer Confidence Survey. Consumers are coming to the realization that we aren't getting the expected V-shaped recovery from the weak first quarter.

The Avon Lady had a fake suitor yesterday, which drove the stock price up 20%. Someone managed to file a fake press release on EDGAR (The SEC's public documents website) saying the company was being bought by an investment company called PTG Capital Partners (which doesn't exist). The fake bid drove the stock from $6.60 a share to $8.00 a share. Amazing someone was able to file a fake document on EDGAR. 

I will be at the MBA Secondary Conference in NYC next week. If anyone is around and wants to meet, please let me know.

Morning Report - the Democratic race gets bigger

Vital Statistics:

	Last	Change	Percent
S&P Futures	2105.3	10.8	0.52%
Eurostoxx Index	3579.6	26.2	0.74%
Oil (WTI)	60.64	0.1	0.23%
LIBOR	0.275	-0.002	-0.58%
US Dollar Index (DXY)	93.39	-0.223	-0.24%
10 Year Govt Bond Yield	2.24%	-0.05%
Current Coupon Ginnie Mae TBA	101.7	0.2
Current Coupon Fannie Mae TBA	100.5	0.2
BankRate 30 Year Fixed Rate Mortgage	3.92

Markets are higher this morning as bonds are rallying and the dollar weakens

Initial jobless claims came in at 264k, another strong reading. The fear that there would be mass layoffs in the oil patch so far has not come true. Plus, oil is now rebounding as firms have adjusted to the new price levels. 

Inflation remains nowhere to be found, with the producer price index falling 0.4% in April. Ex food and energy, prices are up .7% on a year over year basis. This is about 1/3 of the level the Fed would like to see. 

The Bloomberg Consumer Comfort Index fell slightly to 43.5 last week. 1/3 think the state of the economy is positive, while 2/3 think it is negative. Personal finances, are a net positive however. So it seems the perception of the economy is a bit worse than people' actual financial situations. 

Former Maryland Governor Martin O'Malley is planning to enter the 2016 race, adding at least the appearance of a speed bump to Hillary's coronation as the Democratic candidate. Both O'Malley and Bernie Sanders (I-VT) plan to run to Hillary's left. So far, Hillary has managed to avoid taking any questions about the Trans Pacific Partnership, the trade deal that has become a litmus test on the left. The media doesn't want to mess up Hillary's candidacy, so they are leaving her alone on this one. 

Morning report - disappointing retail sales

Vital Statistics:

	Last	Change	Percent
S&P Futures	2096.8	1.8	0.09%
Eurostoxx Index	3575.5	2.4	0.07%
Oil (WTI)	61.39	0.6	1.05%
LIBOR	0.277	-0.003	-1.16%
US Dollar Index (DXY)	93.97	-0.569	-0.60%
10 Year Govt Bond Yield	2.22%	-0.03%
Current Coupon Ginnie Mae TBA	102.1	0.2
Current Coupon Fannie Mae TBA	100.7	0.1
BankRate 30 Year Fixed Rate Mortgage	3.98

Markets are flattish this morning after a disappointing retail sales number. Bonds and MBS are up after European bond markets mount a small rally.

Retail Sales were flat in April after an upward-revised increase of 1.1% in March. While economists had hoped that consumers would spend their gasoline savings at the mall, they aren't - they are paying down debt. The control group number, which strips out some of the more volatile elements and is an input to GDP was flat as well. Expect strategists to start taking down Q2 GDP estimates and moving out their forecast for the first rate hike. 

Mortgage Applications fell 3.5% last week, which was unsurprising given the bond market sell off. Purchases were down .2%, while refis were down 5.9%. The 30 year fixed rate mortgage increased 7 basis points last week.

Who says the US cannot compete in low value-added manufacturing? It turns out we can, at least in energy-intensive manufacturing. Cheap natural gas in the US are offsetting the cheap labor costs overseas (which are rising) and manufacturing is returning. Case in point: plastics. It isn't just the cheaper electricity - it is the feedstocks that come from natural gas. This will do more to turn around our economy than anything will. 

Have the world's central bankers painted themselves into a monetary corner? Basically, the issue is that they don't have any more ammo since we are already at the zero bound. I would point out that interest rate cycles are very, very long and the US economy spent the 30s through the mid 50s with exceptionally low interest rates. 

Morning Report - Fannie Mae is getting sued for discrimination

Vital Statistics:

	Last	Change	Percent
S&P Futures	2087.4	-10.4	-0.50%
Eurostoxx Index	3573.1	-51.3	-1.42%
Oil (WTI)	59.72	0.5	0.79%
LIBOR	0.28	0.001	0.36%
US Dollar Index (DXY)	94.52	-0.493	-0.52%
10 Year Govt Bond Yield	2.30%	0.02%
Current Coupon Ginnie Mae TBA	101.5	-0.3
Current Coupon Fannie Mae TBA	100.3	-0.1
BankRate 30 Year Fixed Rate Mortgage	3.89

Stocks and bonds are lower as the bloodbath in European bonds continues. The German Bund is trading at 67 basis points. The reversal in Eurobonds has been nothing short of astounding. 

Small business optimism bounced back in April, according to the NFIB. That said, optimism still has not fully recovered from Q1's weakness. Labor markets continue to improve slowly but surely. 

Job openings fell in March from 5.14 million to 5 million. The quits rate is steadily increasing (from 1.8% last year to 2.0% this year, which is a good sign. 

Completed foreclosures fell to 41,000 in March, according to CoreLogic. Foreclosure inventory is still the highest in the judicial states of New York, New Jersey and Florida. The national seriously delinquent rate fell to 3.9%.

More evidence the first time homebuyer is coming back. The NAR is forecasting prices will increase 5.9% this year, more than last year's 5.7%. They are forecasting the average 30 year mortgage rate will come in around 3.9% for the year

The National Fair Housing Alliance is suing Fannie Mae for racial discrimination in lending. “Fannie Mae fails to perform basic maintenance and marketing tasks for foreclosed homes it owns in African

American and Latino neighborhoods, while consistently maintaining its foreclosed properties in white neighborhoods.” I wonder how much of this is due to the fact that in some places like Toledo OH, Detroit MI, and Camden NJ, there simply isn't a bid for these properties given their stripped state and unpaid back taxes. 

Morning Report - Greece may causes some volatility this week

Vital Statistics:

	Last	Change	Percent
S&P Futures	2110.1	1.7	0.08%
Eurostoxx Index	3624.2	-25.3	-0.69%
Oil (WTI)	59.64	0.3	0.42%
LIBOR	0.28	0.001	0.36%
US Dollar Index (DXY)	95.07	0.275	0.29%
10 Year Govt Bond Yield	2.17%	0.03%
Current Coupon Ginnie Mae TBA	102.4	-0.2
Current Coupon Fannie Mae TBA	101.3	-0.1
BankRate 30 Year Fixed Rate Mortgage	3.83

Stocks are flattish on no real news. Bonds and MBS are down.

The week after the jobs report is usually pretty data-light and this week is no exception. The highlights will be retail sales on Wednesday and industrial data on Friday. 

Bonds will be vulnerable to shifts in the wind due to a few big deadlines in Greece this week. To put the Greek situation in perspective, over the past 3 weeks, the German 10 year yield has gone from 7.5 basis points in yield to 77 basis points in yield intraday last week. This is what has been pushing down Treasuries. Last week the 10 year briefly traded over 2.3% in yield.

The Fed may not pursue a path of steady consecutive 25 basis point increases in the Fed Funds rate when they start hiking rates. Interestingly, the article posits that the Fed wants to learn the lesson of the last hike cycle - in which they tightened too predictably, and which some believe caused the real estate bubble. If the Fed truly believes that rate hikes caused the real estate bubble, and everything was fine in the markets before then, it shows we have learned absolutely nothing from 2008. 

The FHFA is extending HARP and HAMP through 2016. 

Morning Report - Jobs report data dump

Vital Statistics:

	Last	Change	Percent
S&P Futures	2102.5	18.3	0.88%
Eurostoxx Index	3609.4	53.2	1.50%
Oil (WTI)	59.41	0.5	0.80%
LIBOR	0.276	0.000	0.04%
US Dollar Index (DXY)	94.6	-0.031	-0.03%
10 Year Govt Bond Yield	2.13%	-0.05%
Current Coupon Ginnie Mae TBA	102.2	0.0
Current Coupon Fannie Mae TBA	101.4	0.3
BankRate 30 Year Fixed Rate Mortgage	3.9

Stocks are higher this morning after the jobs report. Bonds and MBS are up big. European sovereign debt is rallying hard this morning. 

Jobs report data dump:

• Nonfarm payrolls 223k
• two month payroll revision -39
• March payrolls revised to 85k from 126k
• Unemployment rate 5.4%
• Average Hourly earnings +.1%
• Labor Force Participation rate 62.8%

Overall, the report isn't bad, and it had something for everyone to like. Stocks liked the unemployment rate and the fact that payrolls rebounded in April, while bonds could hang their hat on the weak hourly earnings number. 

Wellington Denahan, CEO of mortgage REIT Annaly Capital had some criticism of the Fed and the effects of QE. Money quote: "Since 2009 when the experiment began, global bond markets have increased in value by roughly $17 trillion, or the size of the U.S. economy, while global equity markets have increased in value by a staggering $40 trillion. Yet the American wage earners have gained a relatively paltry $722 billion in comparison during the same period. Or to put it more clearly, for every dollar gained by the American worker, the global equity markets have the gained $55."  As much as people complain about inequality, almost nobody asks if Fed policy in general, not just QE, is behind the rising inequality as the Fed creates serial bubbles. The left loves to point out that inequality began accelerating in 1979 (in order to blame it all on Reagan), however the dual mandate began right around that time as well, and as such began the mother of all rallies in stocks, bonds, and real estate.

Morning Report - Bill Gross sells Bund vol, not Bunds.

Vital Statistics:

	Last	Change	Percent
S&P Futures	2070.3	-3.9	-0.19%
Eurostoxx Index	3550.0	-8.0	-0.22%
Oil (WTI)	60.8	-0.1	-0.21%
LIBOR	0.276	-0.004	-1.38%
US Dollar Index (DXY)	94.44	0.348	0.37%
10 Year Govt Bond Yield	2.23%	-0.01%
Current Coupon Ginnie Mae TBA	101.8	-0.2
Current Coupon Fannie Mae TBA	100.7	0.1
BankRate 30 Year Fixed Rate Mortgage	3.91

Stocks are down small as we get a few mixed signals on the job market. Bonds and MBS are holding in there despite another big sell-off in the German Bund, which now yields almost 65 basis points - this is an increase of 57 basis points in about two weeks. Welcome to the new QE normal, where sovereign debt trades with the volatility of tech stocks. 

Note that the volatility in the Bund has hurt Bill Gross, who considers it "the short of a lifetime." Unfortunately, it looks like Bill sold options against the Bund, betting it would trade in a narrow range, and is now taking some gas on his position given the furious sell-off Euro sovereign debt. Welcome to the wonderful world of negative convexity, which is the bane of mortgage bankers globally. 

The volatility in bonds has hurt the mortgage REITs, the latest of which is Annaly Capital, which missed yesterday. American Capital Agency struggled with the volatility as well. Interestingly, American Capital Agency was responsible for some of the outperformance in FHA / VA pricing at the end of the quarter. Ordinarily, they don't buy Ginnie Mae TBAs as Fannies offer higher returns, but they viewed the Ginnie Mae sell off due to the change in MI was overdone, and took a position the other way. Mortgage REITs are generally most active in the secondary market for MBS, however they do dabble in TBAs and can affect loan pricing at the margin. 

We have some mixed employment data this morning, with Challenger and Gray announced job cuts increasing 53% to 61,582 in April, which is the highest number in 3 years. About a third of these cuts are in the oil patch, as Schlumberger, Baker Hughes, and Halliburton all announced layoffs. The other big category is retail, where you are seeing layoffs as well. Ordinarily, you would expect lower energy prices to translate into higher spending at the mall, but it isn't working out that way this time around. Blame broke Millennials who can't find jobs, Gen-Xers who drew the candy cane card as they were hitting their peak earning years, and Baby Boomers who had to retire a little earlier than they had planned. 

On the plus side, initial jobless claims hit 265,000 last week, which is still flirting with 15 year lows. One thing to keep in mind between the initial jobless claims report and Challenger: Challenger looks at announced job cuts. Often, those cuts end up not happening because the business turns around first. 

The Bloomberg Consumer Comfort Index fell to 43.7 last week as consumers still fret about the state of the economy. An index reading of 50 is considered "normalcy."

Janet Yellen ventured into Alan Greenspan territory yesterday when she remarked stock prices are still "quite high." It didn't have the effect on markets that Alan Greenspan's "irrational exuberance" comments did, as stocks largely ignored the warning. Memo to central bankers: You don't have a bubble in stocks. You have a bubble in sovereign debt. 

Morning Report - Productivity falls

Vital Statistics:

	Last	Change	Percent
S&P Futures	2088.0	4.3	0.16%
Eurostoxx Index	3598.1	-34.8	-0.96%
Oil (WTI)	60.63	1.7	2.88%
LIBOR	0.28	0.001	0.36%
US Dollar Index (DXY)	95.37	-0.112	-0.12%
10 Year Govt Bond Yield	2.19%	0.00%
Current Coupon Ginnie Mae TBA	102.3	0.1
Current Coupon Fannie Mae TBA	101.1	-0.1
BankRate 30 Year Fixed Rate Mortgage	3.89

Stocks are higher this morning after yesterday's bloodbath. Bonds and MBS are flat

The ADP Employment Change index is forecasting a weak employment report this Friday. They report shows 169,000 jobs were created in April, which was lower than the 200,000 estimate. The Street is forecasting an increase of 230,000 for Friday. This is the weakest report in over a year, and you can see the marked slowdown beginning this year. If the early weakness was just weather-related, then you should see some sort of rebound. You aren't.

Some more disappointing data this morning - productivity fell 1.9% in the first quarter after falling 2.1% in the fourth quarter. Output fell .2% while compensation increased 6.2%. Unit Labor Costs rose 5%. Lower productivity has been driven by a combination of a stronger labor market and weak GDP growth, so it isn't necessarily a bad thing, at least in the short term. It means that we could still see improvement in the labor market despite weak economic growth. 

Mortgage Applications fell 4.6% last week as purchases rose .8% and refis fell 8.3%. Bonds got slammed last week, so that isn't a surprise. The 30 year fixed rate mortgage rate rose to 3.93% from 3.85%. Refis as a percentage of loans fell to 52.5%. 

Foreclosures fell to 2.22%, according to the MBA. Delinquencies fell to 5.54%. 

As the rhetoric between Greek Prime Minister Alexis Tsipras and the EU gets more and more heated, the ECB is wrestling with how much of a haircut to demand on Greek collateral. The machinations between the Greeks and the EU are driving Euro yields, which are driving US yields. “The fundamentals have not changed, but bond markets have,” said Christoph Rieger, the Frankfurt-based head of fixed income strategy at Commerzbank AG. “The European bond markets are broken, hampered by low yields, high regulation and central bank intervention. Markets will have to get used to these erratic swings.” The European situation is why so many bond strategists got it so wrong in the US over the past year and explains why bonds are selling off in the US despite some weaker economic data.

Home Prices rose 5.9% annually, according to CoreLogic. A combination of tight inventory, low mortgage rates, and improving confidence is the culprit. Of course we need wage growth to make this actually sustainable, and it looks like we could be seeing the start of wage growth, at least according to the Employment Cost Index. 

Morning Report - Big Reversal in Bunds

Vital Statistics:

	Last	Change	Percent
S&P Futures	2106.0	-3.3	-0.16%
Eurostoxx Index	3598.1	-34.8	-0.96%
Oil (WTI)	60.63	1.7	2.88%
LIBOR	0.28	0.001	0.36%
US Dollar Index (DXY)	95.37	-0.112	-0.12%
10 Year Govt Bond Yield	2.14%	0.00%
Current Coupon Ginnie Mae TBA	102.3	0.1
Current Coupon Fannie Mae TBA	101.1	-0.1
BankRate 30 Year Fixed Rate Mortgage	3.84

Stocks are lower this morning on economic data. Bonds and MBS are getting slammed.

Bonds in the US have been buffeted by the volatility in the European bond markets as optimism and pessimism over a bailout wax and wane. The German Bund is now trading at 51 basis points after hitting 7.5 bps about two weeks ago. The snapback has been vicious and caught a lot of people on the wrong side of the boat.

Chart: German 10 year bond yield:

The ISM Services Index rose to 57.8 in April from 56.5 in March. These are strong numbers, which should bode well for the jobs report on Friday. 

Economic optimism fell, however from 51.3 to 49.7. While a lot of things figure into these sentiment statistics, they are very sensitive to gasoline prices.

Oil is back over $60 a barrel as the supply glut begins to dry up. This could bump up the inflation numbers a bit, which would be good news for the Fed, as long as it is stays muted and inflation holds around 2%. If it goes above, get ready for all the "The Fed is Behind The Curve" handwringing. That would be Hillary's nightmare scenario.

Speaking of inflation, Warren Buffet would short the 30 year bond if he had a cost-effective way to do it. 

Note David Einhorn took aim at fracking (and specifically Pioneer Natural Resources) with regard to profitability at a value investing conference. 

Banks generally eased credit slightly last month, according to the Fed's Senior Loan Officer Survey. In resi, it looks like the biggest change was the easing of overlays for government / conforming loans. 

Morning Report - Big reversal in Bunds

Vital Statistics:

	Last	Change	Percent
S&P Futures	2107.3	5.7	0.27%
Eurostoxx Index	3648.2	32.6	0.90%
Oil (WTI)	59.34	0.2	0.32%
LIBOR	0.28	0.001	0.36%
US Dollar Index (DXY)	95.33	0.028	0.03%
10 Year Govt Bond Yield	2.10%	-0.01%
Current Coupon Ginnie Mae TBA	102.5	-0.3
Current Coupon Fannie Mae TBA	101.5	0.1
BankRate 30 Year Fixed Rate Mortgage	3.87

Stocks are higher this morning after a stronger-than-expected European manufacturing report eased fears of deflation. Bonds and MBS are up small.

This week has some important economic data, with the biggest being the jobs report on Friday. The market has been backing away from the June rate hike forecast, and IMO the jobs report will have to be outstanding (300k+ payrolls, and a meaningful increase in wages) to bring a June tightening back into play. We will also get productivity and unit labor costs this week, which will figure heavily into the Fed's thinking. 

The ISM New York Index increased to 58.1 from 50 in March. Factory Orders rose 2.1%, topping the analyst 2% forecast.

A few stronger than expected economic reports turned around G7 debt in a hurry. The German Bund, which hit a record low of 7.5 basis points two weeks ago is now trading at a 41.5 basis point yield, which is a 3 month high. G7 sovereigns have been a one-way bet for a long time, so a sell-off is to be expected. 

Bill Gross's latest Investment Outlook is good. He is calling for the end of the secular bull market in bonds and is recommending shorting the Bund (good trade over the past two weeks). He also believes that cheap credit, which has fueled the bull market in stocks is going to slowly dry up. Is he suggesting to sell your portfolio and bury the cash in the back yard? Not at all. However he is arguing that the trade going forward may be focusing on lightly levered income trades instead of searching for capital gains. 

Delinquencies and foreclosures continue to drop, according to the Black Knight Mortgage Monitor. 

Morning Report - construction spending falls

Vital Statistics:

	Last	Change	Percent
S&P Futures	2085.5	6.6	0.32%
Eurostoxx Index	3615.6	-1.5	-0.04%
Oil (WTI)	58.99	-0.6	-1.07%
LIBOR	0.278	0.000	0.00%
US Dollar Index (DXY)	94.73	0.133	0.14%
10 Year Govt Bond Yield	2.07%	0.04%
Current Coupon Ginnie Mae TBA	102.7	-0.1
Current Coupon Fannie Mae TBA	101.7	0.0
BankRate 30 Year Fixed Rate Mortgage	3.86

Stocks are higher this morning on no real news. Bonds and MBS are down. Most of Europe is closed for May Day.

Construction Spending fell .6% in March - another bad economic number. Residential Construction fell 1.6%, although we already knew that from the lousy housing starts number of 926k. 

The ISM Manufacturing Survey was flat in April, coming in at 51.5. A reading of 51.5 would correspond to a GDP growth rate of about 2.6%. The comments suggest that conditions are good, and while the rise in the dollar is a headwind, it isn't choking off growth. The West Coast port strike didn't help either. 

Consumer sentiment fell slightly in April, according to Reuters and the University of Michigan. 

The European economy seems to be turning around. In fact, lending is expanding again. While it is very early days, it looks like the world economies are finally going in the right direction, and if so that will probably mark the end of the Great US Treasury Bull Market that began when Paul Volcker tightened to quell the inflation of the 1970s. Chart: US 10 year yield 1980 - present:

And of course, it probably means the end of the secular bear market in stocks that began in 2000. 

The open question is whether the Fed can raise rates without crashing the markets.