Morning Report: Big change in the market's handicapping of rate hikes this year

Vital Statistics:

	Last	Change
S&P Futures	2158.0	5.0
Eurostoxx Index	338.8	1.0
Oil (WTI)	45.3	-0.6
US dollar index	87.4	0.1
10 Year Govt Bond Yield	1.57%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.52

Markets are higher this morning despite the coup attempt in Turkey over the weekend. Bonds and MBS are down. 

We have a relatively data-light week coming up, at least as far as market-moving data. We will get a lot of housing related data however, with the NAHB Homebuilder sentiment, housing starts, building permits, the FHFA House Price Index and existing home sales. We will also get earnings from Pulte, D.R. Horton, and NVR. 

The Republican National Convention kicks off today in Cleveland. The #NeverTrump crowd is still trying to find a way to derail his nomination, but without a candidate it looks impossible. Mainstream Republicans are largely avoiding the convention altogether, so expect a bunch of celebrities to kill time with speeches. The protests from the left will probably be the most interesting part, as "law-and-order" promises to be the big theme of the convention.

Bond yields rose 17 basis points last week as US economic data came in stronger than expected, and global yields rose. The German Bund hit 0% late last week after starting the week at a yield of -18 basis points. As people realize Brexit didn't cause the end of the world, risk appetites returned and with it, expectations of a rate hike. The Fed Funds futures are now pricing in a 44% chance of a rate hike this year, from 20% a week ago. That is huge, and indicates this is more than just a pull back in a market that went too far too fast. 

That new forecast for rate hikes makes next week's FOMC meeting all that more important. A week ago, I would have said it wouldn't be market-moving. Now I am not so sure. 

Are we in danger of living in a new housing bubble? Not really. Housing is expensive because inventory is tight, not because of loose lending standards. 

Homebuilder sentiment slipped in July to 59 from 60 the prior month.