Morning Report: The homeownership rate falls again

Vital Statistics:

	Last	Change	Percent
S&P Futures	2066.5	-5.9	-0.28%
Eurostoxx Index	3055.8	-69.6	-2.23%
Oil (WTI)	46.51	0.5	1.04%
LIBOR	0.638	0.004	0.63%
US Dollar Index (DXY)	93.18	-0.583	-0.62%
10 Year Govt Bond Yield	1.86%	0.03%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.65

Markets are lower after yesterday's bloodbath. Bonds and MBS are down.

Personal incomes rose 0.4% in March, while spending rose 0.1%. The savings rate rose to 5.4%, this highest since late 2012. The Great American De-Leveraging continues..

The PCE Core Index (which is the inflation measure preferred by the Fed) rose 0.1% in march and is up 1.6% YOY. This is still below the Fed's 2% target rate. We simply aren't going to see much in the way of inflation until we see wage growth. 

Speaking of wage growth, the employment cost index rose 0.6% in the first quarter as wages and salaries increased by 0.7% and benefits increased by 0.5%. On an unadjusted YOY basis, compensation increased 1.9% as salaries increased 2% and benefits increased 1.7%. 

Consumer sentiment fell in April, according to the University of Michigan Consumer Sentiment Survey. 

The homeownership rate fell to 63.5% in the first quarter, which is back below the levels of the mid 80s through the mid 90s. The gains in homeownership that started with the Clinton Administration's social engineering via the housing market in 1995 have been given back. 

As the Millennial generation ages, that number should increase, and does represent pent-up demand for housing. Affordability remains a big issue, along with high DTI ratios due to student debt. The homeownership rate for Gen Xers was 59%. 

Worried about the increase in the price of oil? Don't be. It is due to a massive short squeeze. For every barrel of oil being bought by a long speculator, there are 9 shorts exiting their position. 

Morning Report: The FOMC statemetn soothes markets

Vital Statistics:

	Last	Change	Percent
S&P Futures	2078.2	-12.5	-0.60%
Eurostoxx Index	3079.3	-51.2	-1.63%
Oil (WTI)	45.48	0.1	0.33%
LIBOR	0.634	0.001	0.08%
US Dollar Index (DXY)	93.9	-0.487	-0.52%
10 Year Govt Bond Yield	1.86%	0.01%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.6
BankRate 30 Year Fixed Rate Mortgage	3.68

Stocks are lower this morning after the Bank of Japan declined to add further stimulus measures to the economy. Bonds and MBS are down.

First quarter GDP came in at 0.5%, lower than expected. Consumption and the core price index both rose. This is the advance estimate, so it will be revised twice over the next two months. Positive contributors to GDP included personal consumption, residential fixed investment, and state / local government spending. Negative contributors include inventory, non-residential fixed investment, and federal government spending. This is the lowest quarterly print in 2 years, although weakness in the oil patch does explain a good chunk of it. 

The Fed maintained interest rates yesterday, and made few changes to the language of the FOMC statement. The most substantive change was that they removed the language regarding weakness in global financial markets. They noted the US economy slowed recently however the labor market continues to improve. Housing and capital expenditures continue to remain soft.  After a few headfakes immediately after the release, the bond market finally decided that the statement was good news and rallied a couple basis points. Stocks took the "glass half full" view and rallied as well. Here is Mohammed El-Arian's take on the statement. 

Initial Jobless Claims rose to 247k last week. The Bloomberg Consumer Comfort index rose to 43.4 from 42.9 last week as well. 

Realtor.com lays out the hottest real estate markets this month. The West Coast and the Rust Belt lead the pack. Has the Rust Belt finally become too cheap to ignore?

Traffic down? Warm weather will help things. 

Morning Report: FOMC day

Vital Statistics:

	Last	Change	Percent
S&P Futures	2083.8	-4.6	-0.22%
Eurostoxx Index	3125.7	4.4	0.14%
Oil (WTI)	44.86	0.8	1.86%
LIBOR	0.634	-0.002	-0.31%
US Dollar Index (DXY)	94.38	-0.198	-0.21%
10 Year Govt Bond Yield	1.90%	-0.03%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.5
BankRate 30 Year Fixed Rate Mortgage	3.68

Stocks are lower this morning after some tough earnings reports, especially out of Apple. Bonds and MBS are up.

Last night 5 primaries were run in the Northeast. Bernie is pretty much done and Trump is declaring himself the presumptive nominee.

Mortgage Applications fell 4.1% last week as purchases fell 2.4% and refis fell 5%.

Pending Home Sales rose 1.4% month-over-month and increased 2.9% year-over-year, according to the NAR. This is the highest level in a year. Only the West reported a decline in contract activity. The surprise drop in rates is easing some of the affordability issues caused by higher prices.

The FOMC decision should be released around 2:00 pm today. Be careful locking loans around that time. If the Fed intends to raise rates at the June meeting, they will probably telegraph it in the statement. Financial conditions have definitely improved since earlier this year. Here is the latest analysis of the situation.

For anyone who is on the fence about renting versus buying, show them this poll: Renters are twice as likely as owners to worry about not being able to pay housing costs. Given the tight inventory for housing, you are seeing mid single-digit increases in rents. Granted, house price appreciation has been in the same neighborhood, however that has been offset by falling rates. Many younger renters are still under the impression that they need 20% down to buy a home.

Venezuela is in such bad shape that it doesn't have the money to pay for its money. Like Weimar Germany, citizens need a wheelbarrow to buy a loaf of bread: the largest note is a 100 bolivar note, which is worth about one cigarette. Making all that cash isn't cheap, and Venezuela doesn't have the money to pay the firms that make it.

Morning Report: Home prices continue to rise, but are there problems at the high end?

Vital Statistics:

	Last	Change	Percent
S&P Futures	2086.6	3.4	0.16%
Eurostoxx Index	3125.0	7.4	0.24%
Oil (WTI)	43.23	0.6	1.38%
LIBOR	0.636	-0.002	-0.35%
US Dollar Index (DXY)	94.42	-0.423	-0.45%
10 Year Govt Bond Yield	1.92%	0.00%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.4
BankRate 30 Year Fixed Rate Mortgage	3.68

Talk about it here: http://thenadtearsheet.blogspot.com/

Stocks are up this morning on overseas strength. Bonds and MBS are flat.

The S&P / Case-Shiller index of home prices rose .66% on a MOM basis and is up 5.38% YOY. Their take on the housing market: “Mortgage defaults are an important measure of the health of the housing market. Memories of the financial crisis are dominated by rising defaults as much as by falling home prices (see first chart). Today as well, the mortgage default rate continues to mirror the path of home prices. Currently, the default rate on first mortgages is about three-quarters of one percent, a touch lower than in 2004. Moreover, the figure has drifted down in the last two years. While financing is not an issue for home buyers, rising prices are a concern in many parts of the country. The visible supply of homes on the market is low at 4.8 months in the last report. Homeowners looking to sell their house and trade up to a larger house or a more desirable location are concerned with finding that new house. Additionally, the pace of new single family home construction and sales has not completely recovered from the recession."

In other economic news, durable goods orders rose 0.8% in March, versus Street expectations of an increase of 1.9%. Capital Goods orders (a proxy for business capital investment) was flat. The Markit US Services PMI and the Markit US Composite PMI indices both improved in April. The Richmond Fed Manufacturing index fell, as did consumer confidence. 

The FOMC begins their two day meeting today. Here is Mohammed El-Arian's take on what to look for in the statement. Here is a more in-depth parsing of what the Fed may say and what it means. 

What is going on this weekend aside from the NFL draft? Buffetapalooza or Woodstock for Capitalists. The Berkshire Hathaway shareholder meeting in Omaha, where you can play ukelele with the Fruit of the Loom guys listen to Warren wax poetically about value investing. This year, it will be streamed live. 

We are starting to see weakness in the top end of the hottest real estate markets as supply surges and foreign demand begins to wane. Will it spread?

Did you know Trump and Hillary share the same address?

Morning Report: FOMC week

Vital Statistics:

	Last	Change	Percent
S&P Futures	2091.8	0.8	0.2%
Eurostoxx Index	3054.4	-6.4	-0.21%
Oil (WTI)	40.26	0.5	0.36%
LIBOR	0.628	-0.001	-0.20%
US Dollar Index (DXY)	94.76	-0.139	-0.15%
10 Year Govt Bond Yield	1.88%	0.00%
Current Coupon Ginnie Mae TBA	105.5
Current Coupon Fannie Mae TBA	104.8
BankRate 30 Year Fixed Rate Mortgage	3.67

Stocks are down this morning on lower commodity prices. Bonds and MBS are flat.

We have a lot of data this week, with new home sales, Case-Shiller, and GDP. The FOMC will meet Tuesday and Wednesday, although the market is predicting that the Fed won't hike rates. Given the posture of traders, the risk is probably on the hawkish side. Here is an analysis of what the markets will be looking for. 

New home sales fell to an annualized pace of 511k in March. 

Why did interest rates rise so suddenly and dramatically last week? Many market participants were scratching their heads wondering what was going on. One theory: The European Central Bank's decision to adopt a "wait and see" attitude towards future stimulus gives the Fed the opportunity to raise rates at the June FOMC meeting. 

Republicans John Kasich and Ted Cruz came to an agreement to split their delegates in order to deny Donald Trump the 1,237 delegates he needs to claim the nomination. Bernie Sanders is pretty much down to his last 48 hours or so and should exit this week sometime. In other news, Charles Koch (who took the Darth Vader of the left mantle from Dick Cheney) said he could vote for Hillary over the Republican nominees. Does that mean he will give money to her campaign? Probably not, however he will probably put money to work down-ticket. 

Former Fed Head Narayana Kocherlakota says the Fed must be more aggressive in combating deflationary expectations. 

The bond market is as dangerous as it has ever been, according to many bond managers. A small uptick in rates can wipe out a year's worth of return. The flip side: borrowing is as attractive as it has ever been. The trade is to get out of ARMs, which will have their rates determined by LIBOR and into a 30 year fixed. 

Freddie Mac makes some predictions for 2016: Mortgage origination will be $1.7 trillion (an increase of $50 billion from their last estimate), Q1 GDP of 1.1%, and an average fixed rate mortgage of 4% for 2016. 

Morning Report: Good numbers out of the builders

Vital Statistics:

	Last	Change	Percent
S&P Futures	2102.8	0.8	0.2%
Eurostoxx Index	3054.4	-6.4	-0.21%
Oil (WTI)	40.26	0.5	0.36%
LIBOR	0.628	-0.001	-0.20%
US Dollar Index (DXY)	94.76	-0.139	-0.15%
10 Year Govt Bond Yield	1.87%	0.03%
Current Coupon Ginnie Mae TBA	105.5
Current Coupon Fannie Mae TBA	104.8
BankRate 30 Year Fixed Rate Mortgage	3.62

Markets are flattish after the European Central Bank declined to initiate further stimulus measures. Bonds and MBS are down.

The Chicago Fed National Activity Index fell slightly in March as the economy continues to grow slightly below trend. 

Initial Jobless Claims printed below  250k last week, The last time we saw an initial jobless print below 250k? Late 1973. For all the fears of mass layoffs in the oil patch, we aren't seeing evidence of it in the jobless numbers. 

The FHFA House Price Index rose 0.4% in February, according to the FHFA House Price Index. Prices are up 5.6% overall. The index, which only looks at a subset of the housing market, has surpassed its bubble highs. The West Coast markets continue to be the hottest, while New England continues to bring up the rear. 

In other economic news, the Philly Fed manufacturing index fell, while the index of leading economic indicators improved. Consumer comfort fell.

Homebuilder PulteGroup reported better than expected earnings this morning. Revenues increased 28%, while backlog rose 31%. Average selling prices rose 9%. The CEO characterized the housing market this way: "Looking to the broader housing market, we remain pleased with overall demand and expect new home sales will continue to move higher over the coming years as the industry benefits from an improving economy, ongoing employment and wage gains, low interest rates, a limited supply of homes and the gradual release of pent-up demand, We believe our business is extremely well positioned to be successful in this type of operating environment given our disciplined investment practices and focus on investing in high returning projects."

We also heard from D.R. Horton this morning, who also put out better-than expected numbers. Revenues increased 16%, while backlog increased 14%. D.R. Horton is up about 80 cents a share this morning. They took up guidance for the year, which means perhaps the slowdown in the energy sector is not affecting their geographies. DHI has a lot of Texas exposure. 

Millennials may want to buy a home, but they are not saving enough for a downpayment. The article assumes a 20% downpayment is required, and doesn't mention FHA loans, which only require 3.5% down. If journalists aren't aware that you don't need 20% down, it means the industry still has some more educating to do. 

Morning Report: Existing home sales rise

Vital Statistics:

	Last	Change	Percent
S&P Futures	2102.8	0.8	0.2%
Eurostoxx Index	3054.4	-6.4	-0.21%
Oil (WTI)	40.26	0.5	0.36%
LIBOR	0.628	-0.001	-0.20%
US Dollar Index (DXY)	94.76	-0.139	-0.15%
10 Year Govt Bond Yield	1.78%	-0.01%
Current Coupon Ginnie Mae TBA	105.5
Current Coupon Fannie Mae TBA	104.8
BankRate 30 Year Fixed Rate Mortgage	3.62

Stocks and bonds are flattish this morning on no real news.

Mortgage Applications rose 1.3% last week as purchases fell 0.5% and refis rose 2.6%. 

Existing Home Sales rose 5.1% MOM to 5.33 million in March. The median home price rose 5.7% to $222,700. This puts the median house price to median income ratio at 3.9x, which is higher than its historical range in the 3.2x - 3.6x. There are 4.5 months' worth of inventory, which was an uptick from the 4.4 months' worth in February. Days on market fell to 47 however. Sales slowed at the $1 million + price points, which could be a reflection of the global economic slowdown. The number of first time homebuyers was steady at 30%. Historically, that number has been closer to 40%. 

Given the weak housing starts data and the existing home sales data, we aren't getting the breakout spring selling season that some had hoped for. We should get some important data points tomorrow when we get earnings results out of Pulte and Horton.

The weakness in housing starts remains a conundrum, given the demand for housing. Builders have pointed to a shortage of labor, but as Goldman Sachs points out, you aren't seeing increases in wages in the construction sector, at least not yet. Interestingly, the average age of a construction worker is the highest ever, as young people are not entering the sector. The other issue: regulations, and lots of them. You would think that government would be interested in seeing more housing construction, because that is the difference between 2% and 3% GDP growth, but the only discussion of housing these days revolves around how hard to slug the originators. 

Hillary Clinton and Donald Trump won convincingly in NY last night.

Morning Report: Housing starts and building permits going the wrong way

Vital Statistics:

	Last	Change	Percent
S&P Futures	2102.8	17.8	0.4%
Eurostoxx Index	3054.4	-6.4	-0.21%
Oil (WTI)	40.26	0.5	0.36%
LIBOR	0.628	-0.001	-0.20%
US Dollar Index (DXY)	94.76	-0.139	-0.15%
10 Year Govt Bond Yield	1.78%	-0.01%
Current Coupon Ginnie Mae TBA	105.5
Current Coupon Fannie Mae TBA	104.8
BankRate 30 Year Fixed Rate Mortgage	3.62

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

Housing starts fell 9% MOM in March to an annualized rate of 1.09 million, a highly disappointing number. Both SFR and multi-fam fell. This is the lowest level since October. Building Permits also fell around 8%, hitting a 1 year low. It is astounding that we have such a deficit of housing in this country, and are building 25% fewer homes than we did before the bubble, Housing (or lack thereof) has been the reason why this recovery has been so weak. Take a look at the chart below, which shows housing starts from 1959. Typically you see V-shaped recoveries in housing starts, however this time you haven't. Granted some of that was due to oversupply from the bubble years, but that excess inventory got worked off years ago. Is the problem a lack of skilled labor? Credit? Regulation? Probably all three.

While housing starts remain depressed, builder confidence is still strong, with the NAHB Housing Market Index (a measure of homebuilder sentiment) holding steady at 58 in April. The builders continue to report big increases in average selling prices, although gross margins are lagging. This means input prices (raw land, sticks and bricks, and labor) are rising faster than prices. Given that incomes aren't rising in the mid-high single digits the way ASPs have been, we have to be hitting the ceiling. Note we will get earnings from Pulte and D.R. Horton on Thursday.

There are signs of weakness building in the labor market - temporary employees are typically the canary in the coal mine, and temp hiring is falling. Historically, that has been an early warning sign of a recession. Separately, the Federal Reserve's Labor Market Conditions Index, which is a meta-index of leading and lagging indicators has been turning downward. Could 2015 have been the peak of the labor market recovery?

Certainly things are not going swimmingly in the financial sector: Goldman reported a 60% drop in earnings as revenues fell. The bright side? The multi-billion fines from the government may finally be in the rear view mirror. I wonder if you tally up all the bailout money and compare it to the revenues the government has received in paybacks, fines, and Fannie Mae profits how profitable was the Great Recession for the government. 

Morning Report: consumer sentiment is falling

Vital Statistics:

	Last	Change	Percent
S&P Futures	2075.8	-0.8	-0.04%
Eurostoxx Index	3054.4	-6.4	-0.21%
Oil (WTI)	40.52	-1.0	-2.36%
LIBOR	0.628	-0.001	-0.20%
US Dollar Index (DXY)	94.76	-0.139	-0.15%
10 Year Govt Bond Yield	1.78%	-0.01%
Current Coupon Ginnie Mae TBA	105.5
Current Coupon Fannie Mae TBA	104.8
BankRate 30 Year Fixed Rate Mortgage	3.62

Markets are lower this morning as commodity prices fall. Bonds and MBS are up.

The Empire Manufacturing Index increased in April to the highest level in over a year. The bad news is that industrial production, manufacturing production and capacity utilization all fell in March. Some of that is going to be due to low oil prices, however global demand continues to fall. Economists are looking for weak Q1 GDP numbers, possibly below 1%. 

Consumer Sentiment dipped in April, as increasing gasoline prices rose. Most consumers think the economy is getting worse. This was borne out in the Fannie Mae Housing sentiment index where consumers are the most pessimistic about the economy in two years. 

Citigroup posted better than expected earnings this morning based on cost cutting. They launched a new round of layoffs, with up to 2,000 people being let go. Cost-cutting is the theme of banking right now, as Goldman is also calling for the deepest cuts in years. 

Foreclosures are declining in importance in most markets - in fact foreclosure activity is below pre-recession levels in just over a third of metro areas, according to RealtyTrac. “Despite a seasonal bump higher in March, foreclosure activity in most markets continues to trend lower and back toward more healthy, stable levels,” said Daren Blomquist, senior vice president at RealtyTrac. “More than one-third of the 216 local markets we analyzed were below their pre-recession foreclosure activity averages in the first quarter, and we would expect a growing number of markets to move below that milestone the rest of this year — while the number of markets with a lingering low-grade fever of foreclosure activity continues to shrink.”

We are starting to see weakness at the very high end of the real estate market. A combination of fevered building of luxury urban properties and waning overseas demand has created a glut of property in places like Miami, where prices are sliding 6% - 8%. The top 10% of condos saw a 15% price decline. Ever since the bust, luxury has been the only place that has been consistently working for builders. 

Economists are becoming less convinced we will see 2 more rate hikes this year. Given the fragile global economy and the complete absence of inflation, the risks of hiking are growing larger. Until you see wage inflation, it is hard to imagine any real inflation pushing through to consumers. Even then, the Fed has said they want to let the labor economy "run hot" for a while, which probably means they will accept moderate wage inflation for some period in order to get the labor force participation rate back up. 

Morning Report: Originations and Margins fall for Wells

Vital Statistics:

	Last	Change	Percent
S&P Futures	2079.4	3.5	0.17%
Eurostoxx Index	3053.6	14.4	0.47%
Oil (WTI)	42.03	0.3	0.65%
LIBOR	0.63	0.000	-0.04%
US Dollar Index (DXY)	94.78	0.033	0.03%
10 Year Govt Bond Yield	1.79%	0.03%
Current Coupon Ginnie Mae TBA	105.5
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.62

Stocks are up this morning as commodities rally. Bonds and MBS are down.

Initial Jobless Claims fell to 253k from 266k the week before. This is the lowest reading since 1973. When you take into account population growth, the number is even more dramatic. Employers are hanging onto their workers, but they aren't necessarily paying them more. 

Inflation remains muted at the consumer level, with the Consumer Price Index rising 0.1% month over month. Ex-food and energy, it is up 0.9%. The core index, which excludes food and energy was up 0.1% MOM and 2.2% YOY. Real average weekly earnings were up 1.1%. 

Consumer comfort increased slightly last week to 43.6 from 42.6 the week before. 

Wells reported numbers this morning, with a decrease in profit on loan loss provisions. Mortgage loan origination volume and margins both fell on a QOQ and YOY basis. Originations fell 6% from Q4 and 10% YOY. Margins fell 15 bps QOQ and 25 bps YOY. Non-conforming mortgage growth was up 8% YOY. The stock is down a couple percent pre-open. Overall, lower net interest margins are hurting the banking business in general. Separately, the US government increased Well's "systemically important" rating, which means they could be subject to higher capital requirements. JP Morgan, Citi, Morgan Stanley and Goldman are also in that club. 

Bank of America also reported weaker-than expected earnings this morning. Losses in the energy patch are hurting them. The stock is down about a percent. The big legal fees and settlements should be in the rear view mirror now. 

Hillary Clinton and Bernie Sanders are debating in New York over whether the financial industry should be drowned in boiling oil or just put before a firing squad. 

Morning Report: Banks fail the living will test

Vital Statistics:

	Last	Change	Percent
S&P Futures	2064.8	9.1	0.44%
Eurostoxx Index	3018.3	76.2	2.59%
Oil (WTI)	41.6	-0.6	-1.35%
LIBOR	0.63	-0.001	-0.15%
US Dollar Index (DXY)	94.54	0.581	0.62%
10 Year Govt Bond Yield	1.78%	0.00%
Current Coupon Ginnie Mae TBA	105.7
Current Coupon Fannie Mae TBA	104.8
BankRate 30 Year Fixed Rate Mortgage	3.6

Markets are higher this morning after equities rallied overnight. Bonds and MBS are down on the "risk-on" trade. 

Mortgage applications increased 10% last week as purchases rose 8.4% and refis rose 11.3%. The average 30 year fixed rate mortgage rate fell from 3.86% to 3.82%. Refis dipped to 54.9% of all loans. 

Retail Sales fell 0.3% in March which was lower than expected. The control group, which excludes autos, gas and building products rose 0.1%, which again was lower than expected. January and February were revised higher, however. 

Inflation remains muted at the wholesale level, with the Producer Price Index falling 0.1% in March, again below estimates. On a year over year basis, the core rate is up 0.9%, well below the Fed's inflation target of 2%. 

Business inventories fell 0.1% in February, in line with expectations. January was revised downward as well. 

JP Morgan reported better than expected earnings this morning. Mortgage Banking revenues increased 7.3% YOY, and charge-offs fell. It appears that units fell while average loan sizes increased. 

Regulators have rejected the living wills submitted by 5 of the largest banks, which could ultimately force them to raise more capital and could subject them to being broken up. In spite of all of these TBTF banks, we do have the least concentrated banking system in the world. Most countries are dominated by 3 or 4 massive banks. 

Confirming everyone's suspicions, the government knew that Fannie and Fred were about to become profitable when they changed the rules and began to take everything the GSEs made. The government's cover story was that the two GSEs were too weak and therefore all profits needed to be swept to protect taxpayers. Fannie stock rallied from 1.33 to 2.05 on the news. 

Morning Report: Small business and consumers are becoming more negative on the economy

Vital Statistics:

	Last	Change	Percent
S&P Futures	2039.8	5.3	0.26%
Eurostoxx Index	2928.2	4.0	0.14%
Oil (WTI)	40.74	0.4	0.94%
LIBOR	0.631	0.002	0.32%
US Dollar Index (DXY)	93.98	0.025	0.03%
10 Year Govt Bond Yield	1.76%	0.03%
Current Coupon Ginnie Mae TBA	105.8
Current Coupon Fannie Mae TBA	104.9
BankRate 30 Year Fixed Rate Mortgage	3.65

Markets are higher despite a lousy start to the earnings season. Bonds and MBS are down.

Earnings season kicked off last night with Alcoa missing on revenues and revising down their forecast for aluminum demand. As is on cue, the IMF took down their global growth forecast for 2016 from 3.4% to 3.2%. Fastenal also missed this morning. 

Import prices rose for the first time since June of last year. Energy prices increased and food prices decreased. On a year-over-year basis, import prices are down over 6.2%. We will get two more inflation indicators this week, with the Consumer Price Index and the Producer Price Index. 

The NFIB Small Business Optimism index fell again to a two year low. The bright spot? Businesses are still adding employees, although there is a mismatch between the skills they want and the available labor pool. A net 22% of employers reported increasing wages. Capital expenditures are rising slightly, although it is tough to tell if that is merely maintenance capex or growth capex. 

Consumers are getting more pessimistic about the economy as well, according to Gallup. Voters are mad as hell, and they aren't going to take it anymore. 

Completed foreclosures fell to 34k in February, according to Corelogic. This is a decline of 10% YOY. There are 434k homes in foreclosure, down 24% from a year ago. This is roughly where foreclosures were in late 2007. 1.25 million mortgages are seriously delinquent, which is down 20% from a year ago. Foreclosures remain an issue in the judicial states (especially in the Northeast) but aren't an issue anywhere else. We are seeing delinquencies creep up in the energy states. 

Another day, another settlement with the DOJ. Goldman settled with the DOJ for $5.1 billion.  I wonder how the fines stack up compared to the bailout money received. 

Morning Report: Home purchase sentiment the lowest in 18 months

Vital Statistics:

	Last	Change	Percent
S&P Futures	2051.0	10.3	0.50%
Eurostoxx Index	2936.0	24.1	0.83%
Oil (WTI)	40.06	0.3	0.86%
LIBOR	0.631	0.002	0.32%
US Dollar Index (DXY)	93.99	-0.246	-0.26%
10 Year Govt Bond Yield	1.74%	0.03%
Current Coupon Ginnie Mae TBA	105.6
Current Coupon Fannie Mae TBA	105
BankRate 30 Year Fixed Rate Mortgage	3.63

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

No economic data today - in fact this week looks pretty data-light. We will get retail sales, inflation and industrial production data this week, but none of these should be market moving, unless inflation comes in way higher than expected. The Fed doesn't really pay too much attention to the CPI and PPI numbers.

Earnings season kicks off this week in the traditional way, with Alcoa reporting after the close. The first week is usually pretty slow, and dominated by the banks. JP Morgan and Citi report Wednesday and Friday, respectively. The banks are being squeezed by a flattening yield curve as the Fed is tightening while long-term rates are falling. This compresses net interest margins and cuts profits. The stock market has been hitting the financials lately, which you can see below with a relative performance graph of the S&P SPDRs versus the XLF financials ETF

Consumer home purchase sentiment is the lowest in 18 months, according to Fannie Mae. Pessimism over the economy is spilling over into the real estate market. They haven't been this pessimistic about the economy since March of 2014.

Want to hear something depressing? Check this out: Hillary's take on the banking industry...(feel free to ignore the commentator) She thinks lending discrimination is rampant in our industry, which is a preposterous assertion in the age of automated underwriting systems. The ironic thing is that if the government was on a mission to restrict credit to poor people, push mortgage origination to the biggest TBTF banks, and depress the economy, they would be doing exactly what they are doing. Worse, they don't even realize it.

Following on that theme, Wells just settled with the DOJ for $1.2 billion over errors in its FHA loans from 2001 to 2008. According to the settlement, Wells Fargo "admits, acknowledges, and accepts responsibility" for having from 2001 to 2008 falsely certified that many of its home loans qualified for Federal Housing Administration insurance. Wonder if Wells is going to follow JP Morgan in de-emphasizing FHA loans.

Morning Report: Dovish FOMC minutes

Vital Statistics:

	Last	Change	Percent
S&P Futures	2041.6	-18.9	-0.88%
Eurostoxx Index	2920.0	-85.0	-2.83%
Oil (WTI)	37.05	-1.3	-3.36%
LIBOR	0.625	-0.006	-0.91%
US Dollar Index (DXY)	94.63	0.048	0.05%
10 Year Govt Bond Yield	1.70%	-0.05%
Current Coupon Ginnie Mae TBA	105.6
Current Coupon Fannie Mae TBA	104.9
BankRate 30 Year Fixed Rate Mortgage	3.62

Stocks are lower this morning on no real news. Bonds and MBS are up and the 10 year is flirting with a 1.6 handle

Initial Jobless Claims fell to 267k last week, while consumer comfort dipped slightly.

The Fed re-affirmed their dovish bent in the March FOMC minutes, which were released yesterday afternoon. In discussing the global financial situation, the money quote was: "Nonetheless, many participants indicated that the heightened global risks and the asymmetric ability of monetary policy to respond to them warranted caution in making adjustments to the stance of U.S. monetary policy." The markets have been saying that via the Fed Funds futures for a while now. An April hike is off the table. With the US economy improving, while the rest of the world deteriorates, the Fed doesn't have to be aggressive in hiking rates. We are in uncharted territory here with zero and negative interest rates. They are going to be cautious raising rates when the rest of the world is cutting rates. 2016 could be shaping up to be a great year for mortgage bankers.

The German Bund yield is now a single-digit midget, trading at a 9 basis point yield. The Japanese 10 year yield has been negative since February.

Hedge fund giant Apollo is into the "seller financed" market for low income / bad credit borrowers. It is a hybrid purchase / rental model, where the seller keeps the title and the borrower is responsible for upkeep. Some have called this a predatory model. "Whether the process is called a land sale, contract-for-deed, bond-for-title or something else, the idea is the same: While it gives some low-income Americans a path, though long and winding, to homeownership, it can also be a way for investors to profit from borrowers who don’t qualify for mortgages."

Morning Report: US corporations are re-leveraging

Vital Statistics:

	Last	Change	Percent
S&P Futures	2045.6	0.9	0.08%
Eurostoxx Index	2920.0	-85.0	-2.83%
Oil (WTI)	37.05	-1.3	-3.36%
LIBOR	0.625	-0.006	-0.91%
US Dollar Index (DXY)	94.63	0.048	0.05%
10 Year Govt Bond Yield	1.74%	0.02%
Current Coupon Ginnie Mae TBA	105.6
Current Coupon Fannie Mae TBA	104.9
BankRate 30 Year Fixed Rate Mortgage	3.62

Stocks are higher this morning on no real news. Bonds and MBS are down

Mortgage Applications rose 2.7% last week as purchases fell 2.4% and refis rose 6.8%.

We will get the FOMC minutes later today at 2:00 pm EST. Given the big move downward in rates over the past couple of weeks, look for a rebound in rates if the minutes aren't sufficiently dovish. 

Pessimism in the stock market is one of the reasons why it is levitating. Short interest is at an 8 month high. This represents future demand for stocks.

Another negative consequence of ZIRP: companies are more leveraged today than they were during the financial crisis. Many companies have used debt to buy back stock, which doesn't improve asset quality. That said, the rates on this debt are much lower than they were 10 years ago, which will ease the pain somewhat. 

Global bond yields continue to fall. The yield on the Bank of America Global Bond index is 1.3%.

Morning Report: The 10 year bond yield approaches 2013 levels

Vital Statistics:

	Last	Change	Percent
S&P Futures	2037.6	-19.9	-0.98%
Eurostoxx Index	2920.0	-85.0	-2.83%
Oil (WTI)	37.05	-1.3	-3.36%
LIBOR	0.625	-0.006	-0.91%
US Dollar Index (DXY)	94.63	0.048	0.05%
10 Year Govt Bond Yield	1.71%	-0.05%
Current Coupon Ginnie Mae TBA	105.6
Current Coupon Fannie Mae TBA	104.9
BankRate 30 Year Fixed Rate Mortgage	3.62

Markets are lower for the second day in a row on global growth concerns. Bonds and MBS are up.

With the latest bond market rally, the 10 year bond yield is a stone's throw away from the 2013 "taper tantrum" when the Fed began its withdrawal of QE. Part of the reason for the bond rally is the flight to safety in Europe. The German Bund now yields under 10 basis points. Talk about a all-risk/no reward trade. Falling global bond yields are pulling US Treasury yields lower as investors sell European and Japanese bonds to buy US Treasuries. For the mortgage industry, it should mean more refi volume. Since the Fed hiked rates in December, the 10 year yield has fallen 58 basis points. Who'd a thunk?

The ISM non-manufacturing index improved in March, after decelerating for most of last year and this year. Employment continues to be neutral. 

Job openings fell in February to 5.445 million from 5.6 million the month before. These are still boom-time levels, which begs the question as to why the labor market continues to have such a low labor force participation rate. Many would argue it is a skills gap - the labor people need isn't what is out there there right now. 

Good article on how hard it can be for Millennials to get a mortgage these days if you have bad credit, given the regulatory shelling that has been going on for the past 8 years. There is definitely a cognitive dissonance in DC over the competing goals of increasing access to credit and slugging "unregulated" financial system even harder.

Ever wonder why a government guaranteed mortgage backed security trades for a much higher yield than the corresponding Treasury? The credit risk is the same - i.e. zero - so what is the reason for the difference. I discuss the reason in Rob Chrisman's blog. Note there is some bond geek math going on in the explanation.

Former Fed Head Narayana Kochlerakota discusses the way we use the financial system for social engineering, and suggests if the government thinks college and housing needs to be subsidized, the answer is to subsidize it directly instead of subsidizing borrowing. FWIW, I have always thought the issue with college tuition inflation is that college is a good with inelastic demand. Colleges don't compete on price and parents will pretty much pay whatever is asked. When the government subsidizes an inelastic good, the subsidies accrue to the producer, not the consumer. Which means the net effect is that the more the government subsidizes college education, the more colleges raise tuition. 

Morning Report: Decent jobs report

Vital Statistics:

	Last	Change	Percent
S&P Futures	2037.6	-13.9	-0.68%
Eurostoxx Index	2920.0	-85.0	-2.83%
Oil (WTI)	37.05	-1.3	-3.36%
LIBOR	0.625	-0.006	-0.91%
US Dollar Index (DXY)	94.63	0.048	0.05%
10 Year Govt Bond Yield	1.76%	-0.01%
Current Coupon Ginnie Mae TBA	105.6
Current Coupon Fannie Mae TBA	104.9
BankRate 30 Year Fixed Rate Mortgage	3.65

Stocks are lower after the jobs report. Bonds and MBS are flat.

Jobs report data dump:

• Payrolls up 215k vs 205k expected
• Unemployment rate 5% up .1%
• Labor Force Participation rate 63%
• Average hourly earnings up 2.3% YOY
• Average hourly earnings flat at 34.4

Manufacturing employment fell 29k, while restaurant increased 25k, retail, up 48k and construction up 37k. This is the fifth straight increase in the labor force participation rate, which bottomed out (hopefully) in September. The lower the labor force participation rate, the lower the speed limit for the economy. The improvement in the participation rate drove an increase in the unemployment rate, and this is one of those times where an increase in the unemployment rate is actually a good thing because it means that discouraged workers are now beginning to see enough opportunity out there to look for a job. Remember, if you are unemployed and not actively looking for a job, you are not considered to be part of the labor force, and therefore you aren't officially "unemployed" according to the government. Wages rebounded from a negative February. Overall, a decent report - the wage growth will certainly push the Fed to take another step towards normalization of interest rates, and a June hike is looking more certain.

Despite the drop in manufacturing employment, the ISM Manufacturing Index increased smartly in March, New Orders and production drove the increase, while employment fell. Prices rose as commodity and raw material prices increased. This level of manufacturing would be consistent with 2% GDP growth. A shortage of skilled labor continues to be a problem. 

Construction spending fell 0.5% in February, while January was revised upward to an increase of 2.1%. Residential construction rose 0.9% and is up 10.5% YOY. We are almost back to the pre-bubble highs. 

Consumer Sentiment ticked up in March, according to the University of Michigan to 91.