Morning Report: Bank of Japan to the rescue

Vital Statistics:

	Last	Change	Percent
S&P Futures	1908.0	22.0	1.15%
Eurostoxx Index	3024.6	80.7	2.74%
Oil (WTI)	30.46	0.1	0.12%
LIBOR	0.621	-0.003	-0.48%
US Dollar Index (DXY)	99.34	0.279	0.28%
10 Year Govt Bond Yield	1.92%	-0.05%
Current Coupon Ginnie Mae TBA	104.7
Current Coupon Fannie Mae TBA	104
BankRate 30 Year Fixed Rate Mortgage	3.71

Stocks and bonds are higher this morning after the Bank of Japan instituted negative interest rates in an attempt to improve their struggling economy and weaken the yen.

The Bank of Japan's move caused a worldwide bond rally, which has brought the US 10 year bond solidly below 2%. Mortgage bankers could catch a break here as refi activity will pick up.

We have a lot of economic data this morning

Fourth quarter GDP came in at an anemic 0.7%, missing the Street estimate of 0.8%. The only bright spot of the report was consumption, which increased 2.2%

Inflation remains well-contained with the PCE (the preferred inflation measure of the Fed) increasing at 0.8%, and the core index increasing at 1.2%

The Employment Cost Index rose at 0.6% as wage inflation remains nowhere to be found.

Consumer sentiment slipped in January, while the ISM Milwaukee and Chicago Purchasing Manager Indices increased. 

The homeownership rate increased by a tenth of a percent in the fourth quarter to 63.8%. It bottomed in the second quarter at 63.4%. Median asking rent increased 6% from the third quarter to $850. On an annualized basis, it increased 11%.

Household formation dropped to 460,000 in the fourth quarter from 1,447,300 in the third quarter. This almost looks like a data error. If household formation was slowing that much, you wouldn't see the tight inventory of housing that we have. 

Morning Report: The FOMC acknowledges global risks to the economy

Vital Statistics:

	Last	Change	Percent
S&P Futures	1885.0	2.0	0.15%
Eurostoxx Index	3024.6	80.7	2.74%
Oil (WTI)	30.46	0.1	0.12%
LIBOR	0.621	-0.003	-0.48%
US Dollar Index (DXY)	99.34	0.279	0.28%
10 Year Govt Bond Yield	1.99%	0.02%
Current Coupon Ginnie Mae TBA	104.7
Current Coupon Fannie Mae TBA	104
BankRate 30 Year Fixed Rate Mortgage	3.71

Markets are flattish after the Fed maintained interest rate levels. Bonds and MBS are flat.

The statement out of the FOMC was relatively dovish, and the key sentence was: "The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook." Stocks initially rallied on the statement and then sold off into the close. Bonds rallied. 

Initial Jobless Claims fell from 294k to 278k last week. 

Durable Goods orders fell by 5.1%, much more than the Street expectation of -0.7%. Capital Goods orders ex defense / air, a proxy for business capital expenditures, fell 4.3%. 

Pending Home Sales rose 0.1% in December and are up 3.1% YOY.

The Kansas City Fed index was unchanged at -9. 

Homebuilder PulteGroup reported better than expected earnings this morning. Orders were up 13%, and backlog increased 26%. ASPs increased 6% to $353k. CEO Richard Dugas had this to say about the state of the housing market: "While heightened global economic concerns have created greater market volatility, the positive trends in jobs, demographics and household formations, along with low interest rates and limited housing inventory, support expectations that housing demand continues to move higher at a measured pace for a number of years." They are seeing weakness in Texas, although Dallas seems to be immune to the drop in energy prices, at least for now. 

The CBO estimates that wage growth will outstrip home price appreciation in 2016. They are predicting 3.3% wage inflation and 2.4% home price appreciation. Given the tight inventory levels, I think that home price appreciation estimate is low. Wage inflation has recently crept up from 2% to 2.5%, but I don't see the catalyst for further wage inflation given the huge reservoir of people who left the labor force for statistical purposes but would gladly take a job if they found one. 

Morning Report: New Home Sales highest since 2007

Vital Statistics:

	Last	Change	Percent
S&P Futures	1888.0	-14.0	-0.85%
Eurostoxx Index	3024.6	80.7	2.74%
Oil (WTI)	30.77	-0.32	-1.02%
LIBOR	0.621	-0.003	-0.48%
US Dollar Index (DXY)	99.34	0.279	0.28%
10 Year Govt Bond Yield	2.02%	0.02%
Current Coupon Ginnie Mae TBA	104.7
Current Coupon Fannie Mae TBA	104
BankRate 30 Year Fixed Rate Mortgage	3.71

Stocks are lower this morning on lower oil prices and disappointing numbers out of Apple last night. Bonds and MBS are down small.

The FOMC will announce their decision at 2:00 PM EST today. No change in the Fed Funds rate is expected. Bond bulls are going to be looking for a mention of the recent market volatility or oil prices and the path of future inflation. Bond bears will be looking for no mention of oil / volatility and / or language that characterizes these effects as transitory. 

New Home Sales increased to 544k in December from 491k the month before. The Spring Selling season is just around the corner. For the full year, new home sales increased 14.6% to 501,000, the highest level since 2007. Interestingly, the median sales price fell 4.3% to $288,900. D.R. Horton's product mix has mirrored that somewhat, with the Horton Express (starter homes) becoming a bigger share of revenues while Emerald (McMansions) has fallen.

Mortgage Applications rose 8.8% last week as purchases rose 4.6% and refis rose 11.3%.

Weakness in the overall economy depressed sales for Apple. They are seeing it especially in Asia between China and Hong Kong. China is going to be exporting deflation, which is going to make the Fed's job tougher. 

Morning Report: D.R. Horton's bet on the first time homebuyer is paying off

Vital Statistics:

	Last	Change	Percent
S&P Futures	1888.0	9.0	-0.85%
Eurostoxx Index	3024.6	80.7	2.74%
Oil (WTI)	30.46	0.1	0.12%
LIBOR	0.621	-0.003	-0.48%
US Dollar Index (DXY)	99.34	0.279	0.28%
10 Year Govt Bond Yield	2.01%	0.02%
Current Coupon Ginnie Mae TBA	104.7
Current Coupon Fannie Mae TBA	104
BankRate 30 Year Fixed Rate Mortgage	3.71

Stocks are higher this morning in spite of another down 7% day in China overnight. Bonds and MBS are flat

House prices continue to rise, according to the FHFA House Price Index and Case-Shiller. The FHFA House Price index rose 0.5% MOM, while Case-Shiller rose .94%. The Case-Shiller index is up 5.83% YOY. The FHFA House Price Index has recouped all its post-bubble losses. 

In other economic data, the Richmond Fed Index slipped while consumer confidence increased. 

The Fed starts their 2 day FOMC meeting today. The decision is expected tomorrow at 2:00 PM EST. 

Homebuilder D.R. Horton reported earnings yesterday and met Street expectations. Orders increased 9% in units and 12% in value. Backlog is up 15% at 10,665 homes. The company is “Well-positioned” for spring selling season, FY 2016, given backlog, “positive sales trends” in Jan., “robust” lot supply, inventory of homes available for sale according to Donald R. Horton, chairman of DHI. Their new brand for first time homebuyers - Horton Express - accounted for 22% of sales last quarter. 

D.R Horton said that the Houston market was softening as oil continues to fall. State-by-state employment figures show that the collapse in oil prices is now being felt in the fracking states.

Foreign money helped prop up the ultra-luxury sector of the real estate market and now they pulling back. Prices are stagnating and homes are not moving. Blame the stock sell-off in China, and the oil price collapse which is hurting Middle Eastern and Russian investors. 

Morning Report: The Fed awaits

Vital Statistics:

	Last	Change	Percent
S&P Futures	1888.0	-9.0	-0.85%
Eurostoxx Index	3024.6	80.7	2.74%
Oil (WTI)	31.19	-1.1	-3.12%
LIBOR	0.621	-0.003	-0.48%
US Dollar Index (DXY)	99.34	0.279	0.28%
10 Year Govt Bond Yield	2.02%	-0.02%
Current Coupon Ginnie Mae TBA	104.7
Current Coupon Fannie Mae TBA	104
BankRate 30 Year Fixed Rate Mortgage	3.71

Stocks are lower this morning on lower oil prices and weaker overseas markets. Bonds and MBS are up small.

Not much data this morning, although we do get some important real estate data this week with the FHFA House Price Index and Case-Shiller on Tuesday, new home sales on Wednesday, and pending home sales on Thursday. We will also get the first estimate of fourth quarter GDP on Friday, with the consensus estimate at 0.8%. While this is a dramatic slowdown from the third quarter, a recession in the US is probably not in the cards (Bank of America is handicapping a 20% chance of a recession next year). Remember the old market saw: stocks have predicted 12 of the last 5 recessions..

The main event of this week is the FOMC meeting on Tuesday and Wednesday. The general consensus is that the Fed isn't going to hike rates at this meeting. Given the turbulence in the markets lately people are beginning to think the March meeting isn't a definite hike either. Ever since the Fed hiked rates in December, the two year bond yield has dropped by 24 basis point to 0.86%. If you take a look at the chart below, it plots the Fed Funds rate versus mortgage rates. While there is a correlation, over the past 50 years or so, mortgage rates have risen or fallen with Fed Fund, but at a much slower rate. In fact, during the last tightening cycle, mortgage rates barely moved, although there could be some bubble effects happening as well.

Morgan Stanley is bullish on Treasuries, while Goldman is bearish. Goldman is looking for a 2% - 2.3%  range on the 10 year, while Morgan Stanley is thinking 1.55% - 1.75%. The difference of opinion revolves around oil prices and their impact.

Morning Report: Existing Home Sales rebound

Vital Statistics:

	Last	Change	Percent
S&P Futures	1888.0	27.0	1.45%
Eurostoxx Index	3024.6	80.7	2.74%
Oil (WTI)	31.19	1.7	5.62%
LIBOR	0.621	-0.003	-0.48%
US Dollar Index (DXY)	99.34	0.279	0.28%
10 Year Govt Bond Yield	2.07%	0.03%
Current Coupon Ginnie Mae TBA	104.7
Current Coupon Fannie Mae TBA	104
BankRate 30 Year Fixed Rate Mortgage	3.71

Stocks are higher this morning as global markets rallied overnight. Bonds and MBS are lower. 

Generally a risk-on feel to the market, as stocks and commodities are rallying. Oil is back above $31 a barrel. 

The Chicago Fed National Activity Index improved to -.22 from -.36 last month, while the Index of Leading Economic Indicators fell 0.2%. 

Existing Home Sales rose 14.7% in December to 5.46 million. November's numbers were depressed by TRID, and it looks like much of those sales got bumped to December. This makes 2015 the best year for existing home sales since 2006. The median home price increased 7.6% to $224,100. Housing inventory continues to fall, and the 1.79 million homes for sale represents only a 3.8 month supply (6 - 6.5 months' worth constitutes a balanced market). First time homebuyers accounted for 32% of all sales, while all-cash transactions fell to 24%. 

The first time homebuyer is returning to the market, as FHA origination increases. After the FHFA cut FHA insurance premiums, we saw an increase in FHA origination. 

Things might run a little slow today as the Federal Government workers will leave at noon to get home before Snowmageddon II hits DC. Fannie Mae pricing will be the most affected.

As Ted Cruz and Donald Trump dominate the headlines and the polls, the big Wall Street donors are relatively sanguine. 

Morning Report: Markets stabilizing?

Vital Statistics:

	Last	Change	Percent
S&P Futures	1867.0	12.1	0.65%
Eurostoxx Index	2955.6	73.0	2.53%
Oil (WTI)	28.26	-0.1	-0.32%
LIBOR	0.624	0.001	0.08%
US Dollar Index (DXY)	99.59	0.497	0.50%
10 Year Govt Bond Yield	1.97%	-0.01%
Current Coupon Ginnie Mae TBA	104.8
Current Coupon Fannie Mae TBA	104.2
BankRate 30 Year Fixed Rate Mortgage	3.72

Stocks are up this morning as ECB President Mario Draghi hinted at further easing in March. Bonds and MBS are up small.

ECB President Mario Draghi said that downside risks to the economy have increased and the ECB could possibly reconsider its policy stance in March. The ECB did leave rates unchanged this month.

Stocks got pummeled yesterday with the Dow down 566 points in early afternoon. Markets then turned around on no real news and rallied into the close to cut the losses for the day. The 10 year got down to 1.94%. 

The carnage in the markets is largely a result of how leveraged the entire system is. In many cases, people are selling to cover margin calls. Margin selling begets margin selling, which is why markets are so skittish these days. 

Initial Jobless Claims rose to 293k from 283k yesterday. This is the highest level in 6 months. The Philthy Fed Index improved from -10.2 to -3.5. 

We are starting to see more announcements about job cuts. Johnson and Johnson is cutting 3,000 and Barclay's is letting 1,200 go as it pulls out of Asian markets. 

TRID rules are increasing the time it takes for a closing by 5 days, according to the National Association of Realtors. We could see the effect of that tomorrow when they report existing home sales. November's numbers were depressed, so people will be looking for a rebound in December. 

Morning Report: Housing starts fall

Vital Statistics:

	Last	Change	Percent
S&P Futures	1844.8	-28.1	-1.50%
Eurostoxx Index	2902.8	-77.7	-2.61%
Oil (WTI)	27.77	-0.7	-2.42%
LIBOR	0.624	0.004	0.68%
US Dollar Index (DXY)	99.01	0.019	0.02%
10 Year Govt Bond Yield	1.99%	-0.06%
Current Coupon Ginnie Mae TBA	104.9
Current Coupon Fannie Mae TBA	104.2
BankRate 30 Year Fixed Rate Mortgage	3.74

Another down day in stocks as global indices hit bear market levels. Yes, Virginia that is a 1-handle on the 10 year...

Housing starts fell in December from 1.17 million to 1.15 million, missing the 1.2 million Street estimate. Building permits fell from 1.28 million to 1.23 million, topping the 1.2 million estimate. Single-fam permits hit the highest level in 8 years. I sound like a broken record, but the economy isn't going to hit the next level until housing construction returns to normalcy, about 1.5 million units per year. The plus side of this is that the housing deficit continues to grow, which means the rebound (when it happens) will be stronger and longer. Confidence and credit remain the issues at the moment.

Mortgage Applications rose 9% last week as refis rose 18.7% and purchases fell 1.6%. With the 10 year trading below 2% again, there should be refinance opportunities. With the 10 year yield falling and the Fed Fund rate increasing, the strategy to pitch is to swap out of an ARM (which is pegged to short term rates) and into a 30 year fixed. 

Inflation remains under control, as the consumer price index fell 0.1% in December. Ex-food and energy it increased 0.1%.  

The dramatic sell-off in the markets has taken down rate hike expectations out of the Fed. You can see this in the 2 year bond yield, which has fallen 25 basis points since late December. This forecast was borne out in the latest Bank of America survey on the economic outlook. A month ago, 40% of fund managers expected no more than 2 rate hikes in 2016. Now that number is closer to 50%. 

Earnings season is upon us, and the first companies to report are out of the banking sector. The main theme: a withdrawal from mortgage banking. The only big bank to report an increase in mortgage banking? Wells. Jamie Dimon said on JP Morgan's conference call that the banks remain under assault. And politicians in DC continue to scratch their heads and wonder why the economy remains tepid.  Refer to housing starts above. 

Morning Report: Markets attempt to rebound

Vital Statistics:

	Last	Change	Percent
S&P Futures	1898.9	23.9	1.27%
Eurostoxx Index	3004.7	69.3	2.36%
Oil (WTI)	29.55	0.1	0.44%
LIBOR	0.62	-0.002	-0.24%
US Dollar Index (DXY)	99.28	0.328	0.33%
10 Year Govt Bond Yield	2.06%	0.02%
Current Coupon Ginnie Mae TBA	104.7
Current Coupon Fannie Mae TBA	104
BankRate 30 Year Fixed Rate Mortgage	3.73

Markets are higher this morning as commodities rally. Bonds and MBS are down small.

The NAHB Homebuilders Index was unchanged at 60 last month. 

Last Friday had some bad numbers with retail sales disappointing and industrial data coming in much softer than expected. 

Bank of America reported better than expected numbers this morning, with mortgage production up 13%. 

The 10 year bond yield touched 2% on Friday during the stock market sell-off. For those keeping score at home, the 10 year bond yield has dropped about 25 basis points since the Fed hiked rates in December. 

Jeb Bush's donors are getting cold feet. The rumor is that he needs to be in the top 3 in Iowa and New Hampshire or else they are going elsewhere. The "elsewhere" is Rubio. 

On Friday, the Atlanta Fed took down their estimate for Q4 GDP to 0.6%. Luckily they waited until after the close to drop that bomb. 

The IMF has taken down their estimate for global growth to 3.4% from 3.6%.

The FNC Residential Price Index rose 6% year-over-year in November. 

Morning Report: Mortgage banking earnings fall at JP Morgan

Vital Statistics:

	Last	Change	Percent
S&P Futures	1883	4.7	0.27%
Eurostoxx Index	3101.4	16.7	0.54%
Oil (WTI)	31.36	0.6	2.07%
LIBOR	0.62	0.003	0.49%
US Dollar Index (DXY)	98.93	0.709	0.72%
10 Year Govt Bond Yield	2.06%	-0.03%
Current Coupon Ginnie Mae TBA	104.4
Current Coupon Fannie Mae TBA	103.7
BankRate 30 Year Fixed Rate Mortgage	3.83

Markets are up this morning after yesterday's bloodbath. Bonds and MBS are up.

Initial Jobless Claims ticked up to 284k last week. Import prices fell 1.2% as the dollar rallied, and consumer comfort ticked up a tiny bit last week. 

JP Morgan reported good numbers this morning. Mortgage Banking net income fell 21% as revenues fell 10%. 

The bursting of the China bubble is going to dominate the markets for the foreseeable future. This will be an epic battle of Mr. Market versus Big Communist Government. With debt at 282% of GDP, China's economy is more fragile than it appears. This is another reason why long term interest rates are probably not headed much higher for the foreseeable future. 

Note that the Chinese stock market is dominated by retail investors, not institutions. This makes their market more volatile. They are pouring money into Chinese government debt (probably a good call), the dollar (another good call) and gold. 

Note that in the President's State of the Union address, housing was basically ignored. The country has an acute shortage of affordable housing, and housing starts are still mired well below historical averages. Getting housing back on track is the difference between 2% GDP and 3% GDP. Unfortunately, the only mention political candidates have regarding housing is that Wall Street is evil, the banks are too big, and there needs to be more government control. Which is most definitely not the way to increase credit or confidence.

Morning Report: Larry Summers warns about further rate hikes

Vital Statistics:

	Last	Change	Percent
S&P Futures	1929	4.7	0.27%
Eurostoxx Index	3101.4	16.7	0.54%
Oil (WTI)	30.36	0.2	-2.57%
LIBOR	0.62	0.003	0.49%
US Dollar Index (DXY)	98.93	0.709	0.72%
10 Year Govt Bond Yield	2.11%	-0.01%
Current Coupon Ginnie Mae TBA	104.4
Current Coupon Fannie Mae TBA	103.7
BankRate 30 Year Fixed Rate Mortgage	3.83

Markets are higher this morning as oil rebounds a little. Bonds and MBS are up.

Mortgage Applications rose 21% last week as purchases rose 18% and refis rose 24%.

New regulations may require banks to raise up to $550 billion in the bond market by 2019. The bonds will be part of a package that are designed to prevent another 2008 from happening. They will be senior unsecured debt that converts to equity when a bank becomes insolvent. The new regs are open for comment and the ABA is working hard to lower the amount. I have trouble imagining the type of investor that would buy half a trillion of this stuff.

China's troubles are further evidence that whenever a country appears to have "cracked the code" for seemingly perpetual growth, a real estate bubble is usually the culprit. And it always ends badly.

Larry Summers is warning the Fed that the global economy cannot withstand 4 rate hikes this year. The bond market rally is saying the same thing. Since the Fed hiked rates on Dec 16, the 10 year bond yield has fallen 20 basis points.

Boston Fed Chairman Rosengren is also warning about further growth and the effect that overseas weakness will have on the US economy.

The US is starting to require title companies to identify the people who pay cash for properties in NYC and Miami. 

Morning Report: Foreclosures continue to fall

Vital Statistics:

	Last	Change	Percent
S&P Futures	1918	2.7	0.07%
Eurostoxx Index	3101.4	16.7	0.54%
Oil (WTI)	30.16	-1.2	-2.57%
LIBOR	0.62	0.003	0.49%
US Dollar Index (DXY)	98.93	0.709	0.72%
10 Year Govt Bond Yield	2.12%	-0.05%
Current Coupon Ginnie Mae TBA	104.4
Current Coupon Fannie Mae TBA	103.7
BankRate 30 Year Fixed Rate Mortgage	3.81

Markets are flat this morning on no real news. Bonds and MBS are up.

The NFIB Small Business Optimism Index rose from 94.8 to 95.2 last month. We see big positive numbers on plans to increase employment and capital expenditures. Earnings trends are down, however. Note that confidence is still depressed however. 

Job openings continue remain at 16 year highs, according to the JOLTs jobs report. 

The IBD / TIPP economic optimism index inched up as well last month

Junk bond spreads are widening as troubles continue in the energy patch. According to one prognosticator, the current risk premium for high yield debt is implying a 44% chance of a recession next year. Note the Fed seemed to be pretty sanguine about HY in the FOMC minutes. 

China's economic slowdown is having repercussions all over the global economy. The US is probably the most insulated, but it is wreaking havoc in South America and Asia.

There were 33,000 completed foreclosures in November, down from 41,000 last year, according to CoreLogic. The foreclosure rate of 1.2% is back to late 2007 levels. 

Morning Report: Good jobs report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1953.6	20.7	1.07%
Eurostoxx Index	3101.4	16.7	0.54%
Oil (WTI)	33.46	0.2	0.57%
LIBOR	0.62	0.003	0.49%
US Dollar Index (DXY)	98.93	0.709	0.72%
10 Year Govt Bond Yield	2.17%	0.03%
Current Coupon Ginnie Mae TBA	104.4
Current Coupon Fannie Mae TBA	103.7
BankRate 30 Year Fixed Rate Mortgage	3.81

Markets are higher this morning after a turn-around in Asian markets and the strong jobs report.

Jobs report data dump

• Nonfarm payrolls +292k vs 200k expected
• Unemployment rate 5% in line
• Average hourly earnings flat vs. 0.2% expected
• Labor Force participation rate 62.6% vs. 62.5% expected

Generally a strong report - only disappointment is lack of wage growth. The labor market continues to improve, and if this trend continues, we are probably going to see another rate hike at the March FOMC meeting. 

Builder KB Home reported a big miss yesterday, which sent the stock down 15%. Revenues and EPS both were shy of expectations. The slowdown in the oil patch is moving buyers down the price curve in Texas. Margins remain under pressure due to lack of available land and increasing labor costs. 

We may have a new most valuable publicly-traded company. Saudi Aramco (the state-owned oil company) is thinking about an IPO, which could value the company over a trillion dollars. With oil revenues falling, the Saudi government is looking at different ways to balance the budget. 

Morning Report: FOMC minutes turn out to be a nonevent

Vital Statistics:

	Last	Change	Percent
S&P Futures	1946.5	-39.4	-1.98%
Eurostoxx Index	3052.5	-86.8	-2.76%
Oil (WTI)	32.86	-1.1	-3.27%
LIBOR	0.617	0.005	0.88%
US Dollar Index (DXY)	98.75	-0.432	-0.44%
10 Year Govt Bond Yield	2.16%	-0.01%
Current Coupon Ginnie Mae TBA	104.4
Current Coupon Fannie Mae TBA	103.7
BankRate 30 Year Fixed Rate Mortgage	3.87

Markets are lower again after Chinese markets got slammed down 7% overnight. Bonds and MBS are up small.

Chinese shares fell 7% in the first 30 minutes of trading and the authorities suspended trading for the rest of the day. FWIW, George Soros is comparing what is going on in China with 2008. That probably isn't far off, given they have a real estate bubble which seems to be bursting as well. 

North Korea claimed to have detonated a hydrogen bomb, but the US has so far found no evidence they actually did. 

In spite of all the volatility in the markets, we aren't really seeing much of a bid under Treasuries, or the dollar for that matter. No big flight to safety trade. The market seems to be taking the view that any problems in China will remain contained and won't affect the Fed's policy of normalization. Remember, the Fed was going to hike rates in September and chose not to after the late summer sell-off, so overseas markets do matter to them. 

The FOMC minutes were generally upbeat yesterday, with the Fed noting the continued improvement in the labor markets, nascent wage inflation, and strong consumer spending, especially autos. Worries included the stress in the high yield markets and weakness in overseas markets. The members are still divided over how much slack remains in the labor markets, and for some the decision to raise rates was a "close call."  Bonds didn't react to the release, although they were strong on the day to begin with. 

Initial Jobless Claims fell to 277k from 287k the week before. Announced job cuts fell 28% according to outplacement firm Challenger, Gray and Christmas. 

Morning Report: ADP predicts a strong jobs report on Friday

Vital Statistics:

	Last	Change	Percent
S&P Futures	1974.3	-37.4	-1.86%
Eurostoxx Index	3118.5	-59.5	-1.87%
Oil (WTI)	34.65	-1.3	-3.67%
LIBOR	0.612	-0.001	-0.16%
US Dollar Index (DXY)	99.42	0.015	0.02%
10 Year Govt Bond Yield	2.18%	-0.05%
Current Coupon Ginnie Mae TBA	104.3
Current Coupon Fannie Mae TBA	103.5
BankRate 30 Year Fixed Rate Mortgage	3.89

Markets are getting slammed as China revalued the yuan at a weaker level than expected. Bonds and MBS are up on the flight to safety trade.

Mortgage Applications fell 11.6% last week as purchases fell 11% and refis fell 12%. 

The ADP Employment Change came in at 257k, much better than the 198k Street expectation. Note Friday's jobs report is forecasting an increase of 200k. 

The ISM Non-Manufacturing Index fell to 55.3 from 55.9 last month. 

Factory Orders fell 0.2% in November, while durable goods orders were flat. Capital Goods orders (a proxy for business capital expenditures) fell 0.3%.

Fed Vice Chairman Stanley Fischer says that 4 rate hikes this year is "in the ballpark" of what to expect. Note the FOMC minutes are scheduled to be released at 2:00 pm EST today. 

Banks are taking down their estimates of Q3 GDP based on the lousy ISM data. Deutsche Bank took down Q4 to 0.5% from 1.5%. The Atlanta Fed took it down to 0.7% from 1.3%. 

While inventories and exports are pushing down the GDP data, consumption seems to be turning around. 2015 was the best year for vehicle sales in the US since 2000. While some of that undoubtedly has to do with easy financing (some calling autos the new subprime) most was due to a replacement cycle that was long overdue. 

Speaking of autos, GM is investing in Lyft, the competitor to Uber. This is to have a foothold in the future of summonable driverless cars. 

Morning Report: Dragon tail risk for 2016?

Vital Statistics:

	Last	Change	Percent
S&P Futures	2005.7	-3.4	-0.17%
Eurostoxx Index	3178.2	13.4	0.42%
Oil (WTI)	36.83	0.1	0.19%
LIBOR	0.613	0.001	0.08%
US Dollar Index (DXY)	99.35	0.479	0.48%
10 Year Govt Bond Yield	2.24%	-0.01%
Current Coupon Ginnie Mae TBA	104.2
Current Coupon Fannie Mae TBA	103.3
BankRate 30 Year Fixed Rate Mortgage	3.88

Stocks are lower this morning on no real news. Bonds and MBS are flat

The ISM New York ticked up to 62 from 60.7 in December. 

House prices rose 0.5% month-over-month and are up 6.3% year-over-year, according to CoreLogic. Home prices remain 7.3% below their April 2006 peak. Note the FHFA House Price Index has recouped its post-bubble losses.

"Dragon tail risk" is the new moniker for China risk. Overnight, the government signaled that restrictions on selling in their stock market will remain in place after they expire this week. Even if the Chinese economy "only" grows 4%, it will have effects on the global economy, particularly Asia. It would probably lop a half of a point worth of GDP from the US as well. UBS gamed out the scenario and they predict it would slow the Fed's pace of tightening, but not stop it. 

The bigger question for China is what happens when their real estate bubble bursts. If that happens, 4% GDP growth may be optimistic. The reverberations will almost certainly be felt in the US real estate market, especially at the high end in the big pricey urban markets like NYC, SF, and Seattle. 

After the weak ISM numbers yesterday, the Atlanta Fed took down their estimate for Q4 GDP growth from 1.3% to 0.7%. 

Byron Wein's predictions on 2016: Another down year for the S&P, the 10 year holds below 2.5% and Hillary defeats Ted Cruz. Oil stays in the 30s, and the Fed only hikes once, in March. 

Morning Report: Tough start to 2016

Vital Statistics:

	Last	Change	Percent
S&P Futures	1998.8	-36.6	-1.80%
Eurostoxx Index	3173.7	-93.8	-2.87%
Oil (WTI)	37.61	0.6	1.54%
LIBOR	0.613	0.001	0.08%
US Dollar Index (DXY)	98.67	-0.012	-0.01%
10 Year Govt Bond Yield	2.22%	-0.05%
Current Coupon Ginnie Mae TBA	104.2
Current Coupon Fannie Mae TBA	103.4
BankRate 30 Year Fixed Rate Mortgage	3.9

Markets are getting rocked to start the new year, with China limit down overnight and Euro markets down anywhere from 2% to 4%. Bonds and MBS are up.

The ISM Manufacturing Index fell to 48.2 from 48.6 in December, which is the second month of contraction in the manufacturing sector. Blame the dollar. A 48.2 reading in the manufacturing PMI would normally be associated with GDP growth of around 1.6%.

Construction Spending fell 0.4% in November and October's number was revised downward from 1.0% to 0.3%. 

Foreign demand for US real estate will continue to grow in 2016. Foreign purchases of US real estate were $87 billion last year compared to $9 billion in 2009. Berlin, London, New York City, and San Francisco are the markets where global hot money are headed.

Tensions are increasing in the Middle East, with Saudi Arabia cutting diplomatic ties with Iran over the execution of a cleric. Saudi Arabia is struggling since its economy is based on redistributing oil money and there hasn't been a lot of oil money to redistribute lately. They may have miscalculated on trying to drive out fracking - it can be turned on and off with very little expense and time.