Morning Report: Pending Home Sales fall

Vital Statistics:

	Last	Change
S&P Futures	2363.5	-1.5
Eurostoxx Index	368.6	-1.4
Oil (WTI)	54.5	0.6
US dollar index	90.8
10 Year Govt Bond Yield	2.33%
Current Coupon Fannie Mae TBA	102.045
Current Coupon Ginnie Mae TBA	103.17
30 Year Fixed Rate Mortgage	4.09

Stocks are lower this morning on overseas weakness. Bonds and MBS are up small. 

We have a slew of economic data this week with the second revision to Q4 GDP, Personal Income and Spending, Construction Spending, and the ISM data. Even though this Friday is the first of March, the jobs report will be released on the 10th. Finally, we get some Fed-speak this week, culminating with Janet Yellen on Friday, which will begin the quiet period ahead of the March FOMC meeting. 

Durable Goods orders rose 1.8% MOM but are down 0.6% YOY. Capital Goods expenditures fell 0.4% MOM and are up 0.5% YOY. Capital Goods orders are a proxy for business investment (and therefore the animal spirits), so for all the talk about improved sentiment businesses are still in maintenance mode, not growth mode.

Pending Home Sales fell 2.8% in January as tight inventory reduced sales. Lawrence Yun, NAR chief economist, says home shoppers in January faced numerous obstacles in their quest to buy a home. "The significant shortage of listings last month along with deteriorating affordability as the result of higher home prices and mortgage rates kept many would-be buyers at bay," he said. "Buyer traffic is easily outpacing seller traffic in several metro areas and is why homes are selling at a much faster rate than a year ago 1. Most notably in the West, it's not uncommon to see a home come off the market within a month."

Donald Trump's proposed budget includes increased defense spending, a cut to agency budgets, and no changes to Social Security and Medicare. This is just an opening bid, and Congress will ultimately determine who gets what. Separately, Trump signed an executive order taking aim at excessive regulations. 

Jeffrey Gundlach, CEO of Double Line Capital sees the 10 year heading to a range of 2% - 2.25% as there is a "stealth flight to safety" happening globally and the most crowded trade on the planet (short bonds) goes the wrong way. He is supportive of Treasury's plan to issue longer-dated bonds (30 years up to 100 years). At these rates, why not? Warren Buffet won't touch them with a barge pole, however. 

For those that follow Buffet, here is his annual letter to shareholders, which is usually a fun read.