Morning Report: Short squeeze in Treasuries

Vital Statistics:

	Last	Change	Percent
S&P Futures	2055.3	0.1	0.00%
Eurostoxx Index	3013.3	-30.8	-1.01%
Oil (WTI)	38.38	0.1	0.16%
LIBOR	0.631	0.002	0.36%
US Dollar Index (DXY)	94.45	-0.389	-0.41%
10 Year Govt Bond Yield	1.82%	0.00%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.81

Markets are flattish on no real news. Bonds and MBS are flat as well. 

Initial Jobless Claims rose to 276k from 265k last week. 

In other economic data, the ISM Milwaukee rose to 57.8 while the Chicago purchasing Manager Index jumped. Consumer comfort fell however to 42.8.

Job cuts fell 13,4k to 48.2k in March, according to outplacement firm Challenger Gray, and Christmas. 

Note that Boeing announced 4500 job cuts yesterday, and the financial industry is going through another round of lay-offs. 

Not everything is grim in the labor markets, however. Some parts of the country are seeing outsized wage growth. 

Mohammed El-Arian on what to look for in tomorrow's jobs report. The numbers to watch: wage growth and the labor force participation rate.

TRID issues have shut the jumbo securitization market down for the moment. Non-bank jumbo originators are sitting on the sidelines at the moment because they can't move their inventory. Another unintended consequence of TRID. 

One unappreciated fact relating to the 10 year has been the massive short position that built up in them ahead of the Fed's hiking rates. Now that the Fed is becoming more dovish, it is creating a short squeeze in Treasuries, which is pushing down rates. The punch line is that the bid under Treasuries (and thus the forces pushing yields down) are somewhat temporary. 

Morning Report: Janet soothes the markets again

Vital Statistics:

	Last	Change	Percent
S&P Futures	2059.7	12.2	0.60%
Eurostoxx Index	3054.2	49.3	1.64%
Oil (WTI)	39.31	1.0	2.69%
LIBOR	0.629	-0.002	-0.24%
US Dollar Index (DXY)	94.98	-0.179	-0.19%
10 Year Govt Bond Yield	1.84%	0.04%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.69

Markets are higher following dovish comments from Janet Yellen yesterday. Bonds and MBS are down. 

Janet Yellen spoke yesterday in NY and reiterated the dovish statements from the last FOMC meeting. Stocks and bonds rallied on the announcement, with both going out on their highs, although bonds have given back their gains this morning. Fed Funds futures now assign a 0% probability of an April hike. It is very much a Goldilocks moment for stocks, not so much for the economy. For the time being, economic weakness is good news for stocks because it keeps the Fed on the sidelines. As if on cue, Boeing announces it is cutting 4.500 jobs. 

Overseas yields are still heading lower, with the German Bund trading at 16 basis points. As long as bond yields throughout the world trade at such low levels, the 10 year will have relative-value trading support. This means that as rates in Europe fall and go negative, investors will swap out of Bunds, which really have nowhere to go but down and buy Treasuries. The world is trading as if inflation is never, ever, ever coming back. There are a lot of "this time is different" stories going around about technology and inflation. It may turn out that the best possible trade is borrowing money for 30 years at 3.375%. 

Mortgage Applications fell 1% last week as purchases rose 2.1% and refis fell 3.3%. Refis fell to 52.4% of total loans, compared to 58.6% a month ago.

Payrolls increased by 200,000 according to outplacement firm ADP. The Street is looking for an increase of 210,000 on Friday. 

In the Webster's dictionary under real estate bubble, people should place China. Here is an example of the sort of stuff that is getting built these days. It reminds me of the height of the US property bubble when a thief supposedly broke into a McMansion with a boxcutter. Builders were cutting every corner just to make houses big. I have said this before: China is going to be an epic battle between Mr. Market and Big Communist Government. Compare property prices to stock prices. 

Morning Report: Luxury condo glut in Manhattan?

Vital Statistics:

	Last	Change	Percent
S&P Futures	2023.5	-4.5	-0.22%
Eurostoxx Index	2997.0	10.3	0.34%
Oil (WTI)	38.53	-0.9	-2.18%
LIBOR	0.629	-0.002	-0.24%
US Dollar Index (DXY)	95.91	-0.035	-0.04%
10 Year Govt Bond Yield	1.85%	-0.04%
Current Coupon Ginnie Mae TBA	105
Current Coupon Fannie Mae TBA	104.4
BankRate 30 Year Fixed Rate Mortgage	3.71

Markets are lower this morning on weaker commodity prices. Bonds and MBS are up small.

Pending Home Sales increased 3.5% MOM and are up 5.1% YOY. This is the best number in a year, and points to a strong Spring Selling Season. Lack of inventory remains a problem. 

Janet Yellen will be speaking around noon EST today. Don't expect her to break any new ground, but just be aware. 

Inflation remains tough to find, but both BlackRock and PIMCO are calling for investors to add an inflation hedge, either by switching out of Treasuries into TIPS or by buying gold. 

Barclay's is calling the latest rally in commodity prices a dead cat bounce, and is calling for a steep decline as fast money exits en masse. 

Home prices rose .52% month-over-month according to Case-Shiller. Prices are up 5.4% YOY. Portland, Seattle, and San Francisco reported the biggest gains. Again, tight inventory remains an issue, along with tight credit for the first time homebuyer. 

Prices continue to defy gravity in New York City, however the demand for luxury condos is beginning to wane. 423 Park Avenue, now home of the tallest residential building in the Western Hemisphere, has 141 apartments for sale and luxury buyers are beginning to fade as foreign money is hesitant. Yet Manhattan is dotted with cranes, largely building high-end condos. 

Homebuilder Lennar reported better than expected earnings this morning. EPS is the highest third quarter number since 2006. Average selling prices increased 12% to $365,000 while new orders increased 10% in units and 15% in dollar volume. 

Morning Report: Lenders are getting more cautious easing credit

Vital Statistics:

	Last	Change	Percent
S&P Futures	2040.1	-9.2	-0.51%
Eurostoxx Index	3016.5	-45.5	-1.49%
Oil (WTI)	39.01	0.5	1.43%
LIBOR	0.642	0.002	0.38%
US Dollar Index (DXY)	95.03	-0.860	-0.90%
10 Year Govt Bond Yield	1.89%	-0.02%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.5
BankRate 30 Year Fixed Rate Mortgage	3.70

Stocks are under pressure this morning as commodities drop. Bonds and MBS are up small.

Initial Jobless Claims rose to 265k last week while the Bloomberg Consumer Comfort Index ticked up to 44.6

Durable Goods Orders fell 1.8% last month, slightly better than expectations, but when you strip out transportation, the number was a huge miss. Capital Goods orders (a proxy for business capital expenditures) fell 1.8% missing by a country mile. 

In other economic data, the Markit PMI numbers were barely expansionary and the Kansas City Fed improved slightly, but is still negative. 

Mel Watt is going to have a decision on principal mods for conforming loans held by the government within the next 30 days. The left has been pushing FHFA to do this for years. Why the (expected) change? Probably the FHFA House Price index, which has now recouped all of its losses from the bubble years. HARP may go away as well - FHFA is toying with the idea of a high-LTV refi. 

Cash sales are at their lowest level in 7 years, according to CoreLogic. In 2015, they accounted for 34% of all sales. The peak was January 2011 when they hit 47%. Pre-crisis, that number was in the high 20s. Unsurprisingly, the states with the highest foreclosure pipeline and the lousiest real estate markets have the highest cash sales percentages.

Mortgage lenders are on net still easing credit standards, however they are doing it at a slower pace, according to the latest Fannie Mae Mortgage Lender Sentiment Survey.Government loans actually were tightened.

Morning Report: Paging Helicopter Ben

Vital Statistics:

	Last	Change	Percent
S&P Futures	2049.1	-4.2	-0.21%
Eurostoxx Index	3016.5	-45.5	-1.49%
Oil (WTI)	39.01	0.5	1.43%
LIBOR	0.642	0.002	0.38%
US Dollar Index (DXY)	95.03	-0.860	-0.90%
10 Year Govt Bond Yield	1.89%	-0.02%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.5
BankRate 30 Year Fixed Rate Mortgage	3.70

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

Mortgage Applications fell 3.3% last week as purchases fell 1% and refis fell 4.9%. Despite an 11 basis point drop in the 10 year yield, mortgage rates barely budged, falling only 1 basis point. 

New Home Sales ticked up slightly to an annualized pace of 512,000. The increase was driven entirely by building out West where there is an acute shortage of housing. Note that homebuilder KB Home reports after the close tonight. The median sales price increased 2.6% to $301,400.

Hawkish comments out of St Louis Fed President James Bullard: “You get another strong jobs report, it looks like labor markets are improving, you could probably make a case for moving in April,” Bullard, who votes on policy this year, said in a Bloomberg interview in New York Wednesday. “I think we are going to end up overshooting on inflation and the natural rate of unemployment." Perhaps, but the doves are in control of the FOMC at the moment.

Bullard isn't the only dissenter, however. Janet Yellen has a bit of a mini-revolt on her hands (as much as central bankers can "revolt" in the first place)

If negative interest rates in Europe and Japan don't do the trick, then the next step is "helicopter money" which has always been a textbook-only idea but is gaining fans. The government would issue debt directly to the central bank, which would print the cash which the government would immediately spend, bypassing the banking system entirely. The theory is that if there is a liquidity trap (where banks just sit on Treasuries and won't lend them out), this would inject the money directly in the economy. It would probably require legislation to change the way central banks are run in Europe (and certainly the US), and if there isn't the political will to do massive Keynsian spending programs, then there won't be the political will to do this. What are the risks to doing it? Who knows? Weimar Republic-esque inflation is one, but probably the biggest one would be a loss in confidence in central banks globally, which would probably mean a collapse of the banking system worldwide. Anyway, it is just a theory that is gaining some traction, but it probably remains in the textbooks.

And don't forget - ZIRP and NIRP aren't "free." Insurers need to earn a certain rate of return on their money to fund future payouts, and the actuarial tables couldn't care less than rates are 0%. The latest victim is the oldest insurance company in the world, Lloyds of London who reported a big drop in profits due to sub-par investment returns. 

Morning Report: The problem of the unaffordable starter home.

Vital Statistics:

	Last	Change	Percent
S&P Futures	2049.1	-4.2	-0.21%
Eurostoxx Index	3016.5	-45.5	-1.49%
Oil (WTI)	39.01	0.5	1.43%
LIBOR	0.642	0.002	0.38%
US Dollar Index (DXY)	95.03	-0.860	-0.90%
10 Year Govt Bond Yield	1.89%	-0.02%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.5
BankRate 30 Year Fixed Rate Mortgage	3.70

Markets are weaker this morning after a terrorist attack in Brussels leaves 35 dead. Bonds and MBS are up.

The FHFA House Price Index rose 0.5% last month. House prices have recouped all of their losses from the housing bust and are making new highs. Note the FHFA House Price Index is the only one showing the losses have been recouped - Case Shiller, and Core Logic have not. 

You can also see the huge geographic disparity between the different regions in the US. The Northeast (which includes New England and the Middle Atlantic) are picking up the rear compared to the other parts of the country. As someone who grew up in the Rust Belt, I am beginning to notice similarities in the Northeast. 

In other economic data, the Richmond Fed Manufacturing Index improved last month, and the Markit US Manufacturing PMI was flat. 

We are well aware there is a problem with the first time homebuyer. They are saddled with large student loan debt, and are under-employed for the most part. The other big issue - low housing inventory is making the starter home unaffordable. When you look at the expensive areas, it gets ridiculous. The mortgage payment for a starter home in San Francisco (admittedly an extreme example) would run someone 110% of median income! I have said it before: the difference between 2% GDP growth and 3% GDP growth is housing. To address the dearth of inventory, we should have a run rate of 2 million starts a year. Yet we remain mired around 1.2 million. It obviously isn't an oversupply issue - it is a credit issue. Yet the consensus seems to be that the financial sector remains "unregulated" and needs to be reined in. You would think politicians would like to see 3% economic growth but apparently they don't.

Over half of US homes are now built in community associations. Issues over the creditor priority HOA claims over mortgages have been an issue in some states, apparently.

More evidence that the cheap labor arbitrage for China is about over. 

Morning Report: Existing Home Sales fall again

Vital Statistics:

	Last	Change	Percent
S&P Futures	2046.1	-4.2	-0.21%
Eurostoxx Index	3016.5	-45.5	-1.49%
Oil (WTI)	39.01	0.5	1.43%
LIBOR	0.642	0.002	0.38%
US Dollar Index (DXY)	95.03	-0.860	-0.90%
10 Year Govt Bond Yield	1.91%	0.02%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.5
BankRate 30 Year Fixed Rate Mortgage	3.71

Markets are lower this morning on no real news. Bonds and MBS are down.

Existing home sales fell 7.1% in February to an annualized pace of 5.08 million. Bad weather in the Northeast and the Midwest may have played a part. Sales are up 2.2% on a year-over-year basis. Lack of inventory and affordability remain the biggest issues. The median home price increased 4.4% to $210,800, and total inventory is about 4.4 month's worth. All cash transactions were 25% of sales and investor purchases ticked up to 19%. The share of first time homebuyers slipped to 30% as affordability problems and worries about the economy kept many younger buyers on the sidelines. 

Given the tight inventory, why aren't homebuilders aggressively adding supply? Finding affordable land plots and skilled labor appear to be the problem. It is amazing that 10 years after the housing bust, we are still 25% below the long-term average in housing starts. I adjusted housing starts by population, and the graph below gives you an ideal of how much we have underbuilt. We still just barely reached the low of the 81-82 recession, which was the nastiest since the Great Depression. What is going on? My guess is that the government is the problem, via zoning laws in some localities, and general Washingtonian regulatory funk tying up the credit markets. Correcting whatever problem is holding back housing is the difference between a tepid, meh economy of 2% growth, and a recovery where we see 3% growth and wage inflation. It would be nice if someone running for office noticed this and said something. Unfortunately, they only acceptable answer these days is that the financial sector isn't regulated and needs to be sat on more. 

Investor demand for paper isn't necessarily the issue either, as right now anyone who can fog a mirror can get an auto loan. It is the same old story: new entrants come into the market, take risks that the established players won't take, and a new market takes off. One thing that is different these days is technology. Lower credit borrowers will get a GPS installed on their car (no, not a nice navigation system, but a transmitter that tells the lender where the car is). Lenders also now have the ability to disable the car remotely. 

The Chicago Fed National Activity index reverted to negative territory last month to -.29 from a upward-revised .41. The 3 month moving average is negative, indicating the economy is growing slightly below trend. 

Morning Report: The Fed takes down their interest rate forecast

Vital Statistics:

	Last	Change	Percent
S&P Futures	2013.1	-4.2	-0.21%
Eurostoxx Index	3016.5	-45.5	-1.49%
Oil (WTI)	39.01	0.5	1.43%
LIBOR	0.642	0.002	0.38%
US Dollar Index (DXY)	95.03	-0.860	-0.90%
10 Year Govt Bond Yield	1.89%	-0.01%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.5
BankRate 30 Year Fixed Rate Mortgage	3.76

Markets are lower this morning after the Fed maintained interest rates yesterday. Bonds and MBS are up small.

Surprising that bonds aren't rallying harder this morning as European rates are moving aggressively lower, with the German Bund yield down 8 basis points to 24 bp. The dollar is getting hit a bit, which might explain the lack of follow-through. 

The Fed maintained interest rates and put out a relatively dovish statement. They took down their forecast for interest rates going out through 2018, which helped put a bid under bonds. In their updated economic forecasts, they took down their forecast for 2016 GDP to 2.2% from 2.4% and their estimate of 2016 inflation to 1.4% from 1.6%. They maintained their forecast for 4.7% unemployment. On the dot graph, the forecast looks for 2 more rate hikes this year, as opposed to their forecast of 4 in December. 

After the FOMC statement, stocks and bonds rallied, with the 10 year yield dropping about 4 basis points and the 2 year yield dropping 11. 

Initial Jobless Claims rose to 265k last week, while the Philly Fed Index improved. 

The Bloomberg Consumer Comfort Index edged up last week to 44.3 from 43.8. 

The Index of Leading Economic Indicators improved 0.1% in February, while job openings increased to 5.54 million. 

CFPB Chairman Richard Cordray appeared before the House Financial Services Committee this morning. He said the CFPB will take a "sensitive" approach to TRID enforcement, meaning that if you are making a good-faith effort to comply, they won't hammer you. 

Morning Report: Inflation returning?

Vital Statistics:

	Last	Change	Percent
S&P Futures	1999.9	-6.5	-0.32%
Eurostoxx Index	3056.1	-11.1	-0.36%
Oil (WTI)	36.84	0.5	1.38%
LIBOR	0.64	0.006	0.90%
US Dollar Index (DXY)	96.96	0.329	0.34%
10 Year Govt Bond Yield	1.99%	0.02%
Current Coupon Ginnie Mae TBA	105
Current Coupon Fannie Mae TBA	103.9
BankRate 30 Year Fixed Rate Mortgage	3.67

Markets are lower this morning after inflation comes in a little hotter than expected. Bonds and MBS are down.

The consumer price index fell 0.2% month-over month, but the core index, which excludes food and energy, rose 0.3% and is up 2.3% year-over-year. This makes the FOMC statement (and the press conference that follows) more significant this afternoon. Remember, the decision will be out at 2:00 pm EST, so expect some volatility in bonds around that time. 

Bonds sold off on the CPI number and the more dramatic move was in the 2-year, not the 10-year. The 2 year yield increased 3 basis points on the news to .99%. Movements in the 2-year signify the market's expectations about what the Fed is up to. The 10 year is more driven by longer-range economic forecasts. The 10 year was up, sold off on the news and is now flat on the day. 

Housing starts rose to an annualized pace of 1.178 million in February and January was revised upward to 1.12 million. Building Permits fell however to 1.17million from 1.2 million. The drop in permits was driven by multi-family construction as single-fam remains slow and steady. 

Mortgage Applications fell 3.3% as purchases rose 0.3% and refis fell 5.6%. Refis now constitute 55% of the total number of loans, down about 9 percentage points over the last month. 

The strong dollar is still making life tough for manufacturers. Industrial production fell 0.5% month-over-month, while manufacturing production rose 0.2%. Capacity Utilization fell to 76.7%.

Marco Rubio is out after losing his home state of Florida to Donald Trump. John Kasich won Ohio, which keeps him in the race and makes him the de facto "Establishment Candidate. Ted Cruz is still in and he is probably going to split the Trump vote, while Kasich solidifies the establishment vote. Policy-wise, Kasich and Hillary are almost identical. Trump is warning that there will be riots if he has the delegates (or is close) and loses a contested convention. The convention is 4 months away. A lot can happen. 

On the Democratic side, Hillary did well, so we can stick a fork in the #FeelTheBern hashtag.

Morning Report: Homebuilder sentiment flat

Vital Statistics:

	Last	Change	Percent
S&P Futures	2018.7	-1.2	-0.06%
Eurostoxx Index	3057.2	-34.8	-1.13%
Oil (WTI)	36.12	-1.1	-2.85%
LIBOR	0.634	0.002	0.24%
US Dollar Index (DXY)	96.57	-0.058	-0.06%
10 Year Govt Bond Yield	1.92%	-0.04%
Current Coupon Ginnie Mae TBA	105.2
Current Coupon Fannie Mae TBA	104.2
BankRate 30 Year Fixed Rate Mortgage	3.67

Markets are lower this morning as the dollar rallies and commodities fall. Bonds and MBS are up.

The FOMC meeting begins today. The decision will come out at 2:00 pm EST tomorrow, along with the new economic and Fed Funds forecasts. Here is Tim Duy's take on the state of play. His take: while you could make an argument to tighten, the Fed still considers the bigger risks to be to the downside. The doves are ascendant on the Board. 

Retail Sales fell 0.1% in February, although declining gasoline prices had a lot to do with it. Ex-autos and gas, they were up 0.3%. The control group, which also strips out building products was flat. The downward revisions to January got everyone's attention however as the initial 0.2% estimate was revised downward to -0.4%. 

Inflation at the wholesale level remains well below the Fed's target. The Producer Price Index fell 0.2% in February as well. Ex-food and energy, it was flat on a month-over-month basis and is up 1.2% YOY. 

The Empire Manufacturing Index rebounded smartly to .62 after a heavily negative start to the year. 

The NAHB Homebuilder Sentiment Index was unchanged at 58 in March. This is a 9 month low. A shortage of lots and labor continue to be the biggest headaches facing the sector. The builders have been able to drive the top line by raising prices, not by pushing volume. You can see below how the index has tracked versus housing starts. The divergence is as big as it has ever been. 

Voters go to the polls in several states today, including Florida and Ohio, which are do-or-die races for Marco Rubio and John Kasich respectively. The Democratic side seems pretty much set at this point, unless Bernie Sanders pulls a free rabbit out of a hat. 

Morning Report: FOMC week

Vital Statistics:

	Last	Change	Percent
S&P Futures	2019.9	31.1	1.56%
Eurostoxx Index	3097.4	23.6	0.77%
Oil (WTI)	37.46	-1.0	-2.70%
LIBOR	0.634	0.002	0.24%
US Dollar Index (DXY)	96.4	0.228	0.24%
10 Year Govt Bond Yield	1.96%	-0.03%
Current Coupon Ginnie Mae TBA	105
Current Coupon Fannie Mae TBA	104.1
BankRate 30 Year Fixed Rate Mortgage	3.68

Stocks are lower this morning as oil gets roughed up. Bonds and MBS are up.

There is no economic data this morning, however the rest of the week looks pretty active, with retail sales, inflation data, housing starts, and industrial production. Of course we have the FOMC meeting Tuesday and Wednesday as well. 

Mohammed El-Arian lays out his prediction for the FOMC meeting this week. Bottom line: No move in rates, and an emphasis on data-dependency. They will mention overseas weakness, but won't make the statement that it will affect the US economy all that much. They will be sanguine on overall US data without becoming too hawkish on wages and inflation. So, generally a dovish take on things. 

It is hard to come up with a good reason to take away the punch bowl when investor sentiment is hitting 2 year lows. Of course the ultimate poll is the market, and not some survey. Where are investors doing well these days? Rental properties. 

Note that the recent increase in US rates was driven at least partially by increases in Euro rates. That move seems to be unwinding (in other words, Euro rates are heading back down). This will probably help guide US rates lower as well, especially if we get a dovish statement on Wednesday. 

Morgan Stanley is out with a call saying yields are going lower. Their forecast: 1.45% 10 year by the end of September. While the US economy is doing ok, the rest of the world is not. They think the next rate hike will be in December. 

Why is the first time homebuyer sitting out? Freddie Mac attributes at least some of the reason to misconceptions about buying, specifically credit scores and down payments. Many young borrowers still believe you need 20% down and perfect credit to qualify for a mortgage. Freddie has launched their Real Estate Professionals Resource Center to give pros the lowdown on products that can get a young borrower into a home. 

Morning Report: Markets yawn at the new ECB stimulus

Vital Statistics:

	Last	Change	Percent
S&P Futures	1989.1	0.4	0.07%
Eurostoxx Index	3029.0	16.1	0.54%
Oil (WTI)	34.96	0.4	1.13%
LIBOR	0.635	0.003	0.51%
US Dollar Index (DXY)	97.37	-0.224	-0.23%
10 Year Govt Bond Yield	1.94%	0.06%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.6
BankRate 30 Year Fixed Rate Mortgage	3.71

Stocks are flat this morning after the ECB's new stimulus plans earned a big yawn from the markets. Bonds and MBS are down.

The ECB cut interest rates again, and threw a kitchen sink worth of QE, lender subsidies, and other goodies.They will also start buying corporate debt. Not sure what the markets were looking for, but Euro rates are higher this morning with the German Bund yielding 32 basis points, up 8. This is what is dragging US rates higher. Buy the rumor, sell the fact, I guess.

Initial Jobless Claims came in at 259k, while the Bloomberg Consumer Comfort Index ticked up slightly to 43.8.

Americans have regained most of the wealth lost when the real estate bubble burst. Homeowners' equity has more or less doubled since the lows of 2009. Since 2013, real estate has outperformed ther S&P 500 by 16 percentage points.

Bank of America is forecasting home prices will rise 3.6% this year.

Is the global economy going through a great metamorphosis?

Morning Report: Consumers are becoming less bullish on house prices

Vital Statistics:

	Last	Change	Percent
S&P Futures	1989.1	8.4	0.47%
Eurostoxx Index	3029.0	16.1	0.54%
Oil (WTI)	34.96	0.4	1.13%
LIBOR	0.635	0.003	0.51%
US Dollar Index (DXY)	97.37	-0.224	-0.23%
10 Year Govt Bond Yield	1.87%	0.03%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.6
BankRate 30 Year Fixed Rate Mortgage	3.68

Stocks are higher this morning as commodities rally and the market anticipates more stimulus from the European Central Bank tomorrow. Bonds and MBS are down small.

Mortgage Applications edged up 0.2% last week as purchases increased 4.2% and refis fell 2.3%. The 30 year fixed rate mortgage rose 6 basis points. We saw a big move up in ARM rates from 3.02% to 3.2%. In an environment where the yield curve is flattening, switching from an ARM to a 30 year fixed is the trade to make. 

Wholesale sales fell 1.3% last month while inventories built up 0.3%. The inventory-to-sales ratio is 1.35 month's worth, which is the highest since April of 2009. This is a negative sign for the economy going forward, as inventory build adds to GDP, and a buildup essentially "borrows" growth from future quarters. While this number doesn't carry the same weight it did 20 years ago, it still matters. 

Marco Rubio had a tough day yesterday. John Kasich is looking more and more like he could be the "establishment candidate." Bernie Sanders beat Hillary in Michigan, as anti-trade populism resonates deeply in the hard-hit rust belt. 

Consumers are becoming a touch less bullish on future home price appreciation, according to the latest Fannie Mae National Housing Survey. They anticipate that home prices will appreciate 1.7% next year, as opposed to 2.2% last month. We are certainly seeing some signs of softness in the oil states as well as the high end. Their view on the economy is about the most negative it has been since the big equity sell-off in August. 56% believe the economy is on the wrong track, and only 37% believe the economy is on the right track. This statistic explains the appeal of Sanders and Trump these days, two candidates who would ordinarily get zero traction. 

Global financial markets are forecasting that the age of ZIRP will be with us for 10 years or more. Sound far-fetched? Japan has been at 0% interest rates for over 20 years. Interest rate cycles are long. While the US may not be in the sort of deflationary trap that Europe and Japan are in, relative value trading will help keep a lid on rates going forward. In fact, the US may be more at risk of future asset bubbles than deflation. 

With rates so low, consumers are happy to rack up the credit card debt. The average credit card debt level for a US consumer is $7,879, closing in on the unsustainable levels we saw early in the Great Recession.

Morning Report: Conflicting signals in the labor markets

Vital Statistics:

	Last	Change	Percent
S&P Futures	1984.1	-14.4	-0.87%
Eurostoxx Index	3029.0	16.1	0.54%
Oil (WTI)	34.96	0.4	1.13%
LIBOR	0.635	0.003	0.51%
US Dollar Index (DXY)	97.37	-0.224	-0.23%
10 Year Govt Bond Yield	1.82%	-0.09%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.6
BankRate 30 Year Fixed Rate Mortgage	3.70

Stocks are lower this morning on bad export numbers out of China. Bonds and MBS are up.

The US Labor Market Conditions Index fell in February, This is a relatively new index created of 19 different labor market indicators. Not sure what caused the recent drop in the index, as most of the big indicators are positive. Perhaps the disappointing wage growth in the last jobs report is causing it. Certainly the labor market does not seem to be the worst in four years..

Consumer credit rose by $10.5 billion in January, the lowest in a year. Lower levels of credit card debt drove the deceleration. 

Small Business Optimism hit a 2 year low, according to the NFIB. Worryingly, job creation fell for the first time in quite a while, as small businesses shed about .12 workers per firm. The difficulty in finding qualified workers also fell in importance, although it is still elevated. Washington remains the biggest impediment, with taxes and red tape occupying the #1 and #2 concerns for small business. The report summed it up this way: "Overall, a “ho hum” outcome, confirming that the small business sector is not headed up with any strength, just treading water waiting for a good reason to invest in the future."

The big drop in interest rates has bumped up the refinanceable population to 6.7 million borrowers from 5.2 million last month, according to Black Knight Financial Services.   An additional 15 basis point drop in rates would add another 2.1 million borrowers. This data is based on mid-February numbers, with a FHLMC 30 year rate of 3.65%. Just another reason why 2016 might be a little better than expected.

Foreclosure activity continues to fall, according to CoreLogic. Foreclosure inventory is down 21.7% to 456,000 homes, and completed foreclosures fell 16% in January. Serious delinquencies also fell to 1.2 million mortgages, the lowest since 2007. Foreclosure activity is making the home price recovery more durable: “The improvement in distressed properties continues across the country in every state which is contributing to the lack of stock of available homes and resulting price escalation in many markets,” said Anand Nallathambi, president and CEO of CoreLogic. “So far the trend toward lower delinquency and foreclosures has been immune from shocks from such things as the collapse in oil prices attesting to the durability of the housing recovery.”

Morning Report: Mixed jobs report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1989.1	-1.4	-0.07%
Eurostoxx Index	3029.0	16.1	0.54%
Oil (WTI)	34.96	0.4	1.13%
LIBOR	0.635	0.003	0.51%
US Dollar Index (DXY)	97.37	-0.224	-0.23%
10 Year Govt Bond Yield	1.87%	0.03%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.6
BankRate 30 Year Fixed Rate Mortgage	3.71

Stocks are flattish after the jobs report. Bonds and MBS are down.

Jobs report data dump:

• Nonfarm payrolls +242k
• Unemployment rate 4.9%
• Average hourly earnings -0.1%
• Labor force participation rate 62.9%
• Average weekly hours 34.4

Overall, an okay report: payrolls were better than expected, but hourly earnings disappoint. The increase in the labor force participation rate is a good thing to see. While it will depress wage growth at least initially, it will make for a stronger economy down the road. FWIW, there may be measurement issues regarding the wage measure that will supposedly be unwound in the next report.

Bonds sold off on the jobs report, with the 10 year and the 2 year bond yields up 3 basis points. I doubt this report will change any minds with regard to the March FOMC meeting, which most people seem to think will have no move in rates and hawkish language. 

More evidence of wage inflation: Costco is upping the lower end of their wage scale from $11.50 to $13.00. They announced it on their earnings conference call last night. This will hit their earnings per share by about 1.3% over the next year. Competition for workers is becoming more intense as unemployment stays below 5%. 

Morning Report: lots of economic data this morning

Vital Statistics:

	Last	Change	Percent
S&P Futures	1980.6	-3.0	-0.15%
Eurostoxx Index	3008.4	-13.7	-0.45%
Oil (WTI)	34.41	-0.3	-0.72%
LIBOR	0.632	-0.002	-0.24%
US Dollar Index (DXY)	97.98	-0.232	-0.24%
10 Year Govt Bond Yield	1.85%	0.01%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.5
BankRate 30 Year Fixed Rate Mortgage	3.68

Stocks are slightly lower as a slew of economic data comes in this morning. Bonds and MBS are flattish. 

Outplacement firm Challenger, Gray and Christmas reported that announced job cuts rose 21.8% in February to 61.6k. The energy sector accounted for 25k of the losses, followed by chemicals, computer, and industrial goods. The West and the Midwest bore the brunt of the cuts. Remember these are announced job cuts and often never actually happen. Overall, the employment picture is looking decent, however we'll get a better look tomorrow. 

Here is a table of the industries hit. Note that aside from energy, job cuts are pretty low. Note that these are not net numbers either - they don't take into account any sort of hiring. 

Initial Jobless Claims rose to 278k last week. Anything below 300k is a good number.

The ISM Non-manufacturing composite fell slightly to 53.4 in February from 53.5 in January. Business continues to be decent in the services sector. 

Factory Orders fell 1.6% in January, while durable goods orders rose 4.7%. Capital Goods Orders rose 3.4%. 

Why is wage growth so difficult to find? Productivity growth has been weak since peaking around 1999 - 2000. This was the tail end of the big boost from the Internet and the decade-long transformation of the PC into a tool on everyone's desk. Last quarter it came in at -2.2%. Productivity has been negative for 3 out of the past 4 years, and that is not a recipe for wage inflation. 

Unit Labor costs rose 3.3% in the fourth quarter, which drove the drop in productivity as output only increased 1%. 

The Markit US Services PMI fell slightly in February to 49.7 while the composite PMI was flat at 50. 

The Bloomberg Consumer Comfort Index fell to 43.6 from 44.2 last week. Falling perceptions of the economy drove the decline. 

2012 Presidential Nominee Mitt Romney is going to try and push back the Trumpmentum with a speech tonight. 

Nothing too earth-shattering in the Fed's Beige Book which was released yesterday. Overall, manufacturing is flattish compared to last month, however labor markets improved overall, and "wage growth varied considerably, from flat to strong, across all districts."