Morning Report - Not much clarity from the FOMC minutes

Vital Statistics:

	Last	Change	Percent
S&P Futures	2061.0	-11.7	-0.56%
Eurostoxx Index	3407.1	-22.7	-0.66%
Oil (WTI)	40.89	0.1	0.22%
LIBOR	0.333	0.000	0.00%
US Dollar Index (DXY)	96.25	-0.109	-0.11%
10 Year Govt Bond Yield	2.11%	-0.02%
Current Coupon Ginnie Mae TBA	104.2	0.3
Current Coupon Fannie Mae TBA	103.8	0.4
BankRate 30 Year Fixed Rate Mortgage	3.9

Stocks are lower this morning after Asian markets got roughed up overnight. Bonds and MBS are up. 

Initial Jobless Claims came in at 277k, a bit higher than expected but still at or close to 4 decade lows. The Bloomberg Consumer Comfort Index rose to 41.1. 

Existing Home Sales rose to 5.59 million in July from 5,48 million. The median home price rose 5.6% YOY to $234,000. This puts the median house price to median income ratio around 4.3x, which is higher than historical averages. Distressed sales fell 2 percentage points YOY to 7%. First time homebuyers fell slightly to 28% from 29% a year ago. Investor purchases fell from 16% to 13% and days on market fell from 48 to 42. Unsold inventory is about 4.9 months' worth, which indicates a tight market. 

In other economic news, the Index of Leading Economic Indicators unexpectedly fell, while the Philthy Fed Index rose. 

With the 10 year bond trading around 2.1%, we are at 3 - 4 month lows. Loan officers, you might want to ping any of your borrowers that are floating or who were on the fence for a refi.

The FOMC minutes didn't really add any certainty to the September vs. December debate, however it did change the market's perception of the probability of a rate hike from 50% to 36%. The key statement: “Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point.” The minutes address the labor market this way: (I bolded the interesting parts for emphasis)

"Participants agreed that labor market conditions had improved further, citing increases in payroll employment and job openings, the decrease in the unemployment rate, and some further reduction in broader measures of labor market underutilization. Although the labor force participation rate declined in June and the national hiring and quits rates were little changed in May, several participants noted that reports from business contacts in their Districts pointed to continued job gains and relatively strong labor markets. They cited anecdotal reports of firms having concerns about retaining workers and facing difficulties in filling even medium- and lower-skilled jobs. However, several participants contended that, despite the progress over the past few years, some noticeable margins of slack remained, citing as evidence the high number of workers not actively searching for jobs but available and interested in work as well as the high share of employees working part time for economic reasons compared with pre-recession levels. 

The ongoing rise in labor demand still appeared not to have led to a broad-based firming of wage increases. While business contacts in a number of Districts continued to report that the pace of wage increases had picked up, recent national readings on hourly compensation and average hourly earnings of employees had remained subdued. The most recent employment cost index, released in April, had suggested an increase in wage gains. However, questions were raised about how to interpret this reading because the pickup was concentrated in the Northeast and might have resulted from particular factors that were not associated solely with a general tightening of labor market conditions, such as minimum wage adjustments and market conditions in certain occupations. In addition, it was noted that considerable uncertainty remained about when wages might begin to accelerate and whether that development might translate into increased price inflation." 

I found it interesting that filling lower-skilled jobs is difficult. If that is the case, then wages at the low end of the scale are going up, whether or not the government passes a new minimum wage law. (Of course the left is going to try and claim the minimum wage law did it, if wages do in fact rise). This would push the Fed to start hiking sooner rather than later. On the other hand, conditions in China and the fall in commodities (which they also mentioned) are going to naturally pull us towards a disinflationary scenario. The Fed does not foresee any sort of contagion from China, however they thought the same thing about the end of the subprime bubble. Punch line - not many people changed their forecasts after the minutes, and it is going to probably hinge on the August jobs report in a few weeks. 

Zerohedge had an interesting oberservation: The Fed last hiked rates 110 months ago. Since then there have been 697 rate cuts around the world.

Did the Bernank get himself a new boat?