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.