Morning Report: Job openings high, quits flat

Vital Statistics:

	Last	Change	Percent
S&P Futures	2062.2	8.5	0.37%
Eurostoxx Index	2973.5	36.6	1.25%
Oil (WTI)	44.82	0.2	0.36%
LIBOR	0.63	-0.002	-0.35%
US Dollar Index (DXY)	94.02	0.134	0.14%
10 Year Govt Bond Yield	1.75%	0.00%
Current Coupon Ginnie Mae TBA	105.6
Current Coupon Fannie Mae TBA	105
BankRate 30 Year Fixed Rate Mortgage	3.58

Stocks are higher this morning as commodities rally. Bonds and MBS are flat.

Why are markets looking at commodity prices? Because we have an enormous speculative bubble in commodities unraveling in China. As China deflates its many bubbles (including residential real estate), the reverberations will be felt in developing markets as China looks to export its way out. The deflationary impulse emanating from China threatens to send the European markets (who are closer to the edge than we are) into a Japanese-esque deflationary spiral. The German 10 year Bund yields 12 basis points, and is pushing towards its lows. The net effect to the US? Pain in the high end of the real estate market (think Seattle, San Francisco, Manhattan), and lower Treasury yields.

Speaking of Treasury yields, Citi is out with a call of 1.5% on the 10-year.

Despite a dovish bent, and a call to let the labor market run hot, Minneapolis Fed President Neel Kashkari still says 2 more rate hikes this year is a "reasonable expectation." 

Small business optimism increased slightly in April, according to the NFIB. The index rose about a point to 93.6, still well below its long term average of 98 and below the post-recession peak of 100 set in 2014. While the political climate is certainly not helping, small business is becoming more pessimistic about the economy, which certainly is consistent with the weakening economic data. The conundrum continues to be the labor force, where we have enormous slack, yet businesses talk about an inability to find qualified applicants. Will there be a bidding war for the current people in the labor force (and thus wage inflation), or will businesses decide to hire and train people who don't quite fit what they are looking for? That dynamic will determine how fast the Fed moves to hike rates.

Job openings are higher than they were in 2000, according to the latest JOLTS data. Last month, job openings increased to 5.8 million, just under the high set in July last year. You can see in the chart below how job openings have looked since the index began in the year 2000.

That said, the job openings data might not be the best snapshot of the state of the labor market. The quits rate is a much better barometer of the health of the labor market. The quits rate was flat in March, and is still heading higher, but has not eclipsed the pre-recession highs.

Wholesale inventories increased by 0.1%, while sales rose 0.7%. We still have an inventory problem in the economy however, and that is one signal that is pointing towards a downturn this year. The inventory to sales ratio is at 1.36, which is pushing towards the highs experienced during the Great Recession.

Fannie Mae is launching a no-FICO product for people who don't have credit scores. The loan will price out as if your credit score is 620. Proof of payment of your rent and some other bill will suffice. They will go to 90 LTV for purchase and no cash-out refis. The down payment is gift-able. However, for the very young borrower who has yet to establish a track record, this could be a way in. 

Interesting battle between Quicken and the government. It speaks to the question of what constitutes fraud and what constitutes honest, normal mistakes.