Morning Report: The Trump reflation trade is back

Vital Statistics:

	Last	Change
S&P Futures	2307.0	2.8
Eurostoxx Index	366.8	0.0
Oil (WTI)	53.9	0.9
US dollar index	91.2	-0.1
10 Year Govt Bond Yield	2.42%
Current Coupon Fannie Mae TBA	102.1
Current Coupon Ginnie Mae TBA	103.2
30 Year Fixed Rate Mortgage	4.06

Stocks are following through on yesterday's strength. Bonds and MBS are down small.

President Trump made some comments about corporate tax reform which brought back the Trump reflation trade, at least for a day or two. While everyone agrees we need corporate tax reform, in practice it is going to be a lot harder than it looks, simply because almost everyone has some sort of tax break they don't want to give up. An undertaking this big will also need some things to bring Democrats onboard, so it will probably be watered down. Initial price talk is a corporate tax rate of 20%, with an exemption on overseas earnings, and some sort of border adjustment tax. As you can imagine, some industries will love this new arrangement, while others will hate it. 

Import prices rose 0.4% last month and are up 3,7% YOY. Ex petroleum, they are down small. We will be getting more inflation data next week with the consumer price index and the producer price index. 

Consumer sentiment slipped in the preliminary reading for February. It came in at 95.7 after a January reading of 98.5. The drop was almost 100% in the future expectations index, as the current conditions index was more or less flat. Perceptions of Donald Trump and his effect on the economy was pretty much split: 30% favorable, 29% unfavorable. 

A top Fannie Mae official (Brian Brooks) is reportedly being considered to replace Richard Cordray as Director of the CFPB. Another possibility is Todd Zywicki, an economist with the Mercatus Center. Discussions are preliminary as the future of the CFPB remains up in the air. 

The Mortgage Bankers Association plans to lobby Congress to turn the GSEs into private utilities and allow new entrants to compete on the same terms, meaning their securitizations will have a government backstop as well. Partisan politics will be an issue, as Republicans want to government backstop to become smaller, and Democrats worry about the social mission of the GSEs falling by the wayside. 

The Spring Selling season is more or less beginning now, and tight inventory remains the biggest issue. A second problem is mismatched markets, where there is a disconnect  between what buyers want and what is available for sale. Affordable starter homes are the biggest problem, as builders have focused on the luxury end of the market since 2008. Luxury was the only segment that worked for builders post-crisis, but 10 years on, the boomers that bought McMansions are looking to downsize, and the Millennials are beginning to start families. 

Millennial women are more likely to use FHA loans than men. Not sure why - it could be any number or reasons: income, education, lenders highlighting them more. Worth watching, however. 

Realtor.com has some good advice for the first time homebuyer. Hint: you don't need 20% down.