Morning Report: Fed funds futures reprice September

Vital Statistics:

	Last	Change
S&P Futures	2391.5	-1.8
Eurostoxx Index	395.9	0.1
Oil (WTI)	46.4	0.6
US dollar index	90.4
10 Year Govt Bond Yield	2.36%
Current Coupon Fannie Mae TBA	102.6
Current Coupon Ginnie Mae TBA	103.81
30 Year Fixed Rate Mortgage	4.05

Stocks are lower this morning on no real news. Bonds and MBS are up.

Last night, Donald Trump fired FBI Director James Comey. This will excite the chattering classes and provide endless fodder for the media, but it shouldn't matter much to the markets. At the margin, it will probably push bond yields lower. 

Mortgage applications rose 2.4% last week as purchases rose 2% and refis rose 3%. Conforming and jumbo rates were flat, while FHA ticked up a few basis points. 

Import prices rose .5% MOM and are up 4.1% YOY. Bonds are shrugging off the data, however it could be a sign of inflation creeping up. We did see a small sell-off in the dollar during April, but nothing of that magnitude. Something to watch. 

We will have some Fed-speak this afternoon with Eric Rosengren and Neel Kashkari speaking at 12:30 and 1:30 EST respectively. 

With all the data over the past week, Fed Funds futures are moving mainly for the September meeting, which now has a 40% chance of a 25 basis point hike, up from 20% about a week ago. June is currently pegged at 80%. The weak Q1 print so far has not had an effect on trader sentiment. 

Good advice for the first time homebuyer who is also saddled with student loan debt. Waiting until the deferral period has passed helps. Also look at FHA loans, however there are caveats. 

Boston Fed President Eric Rosengren warns that GSE reform could hit the multi-family market. F&F bear the credit risk of 44% of the multi-fam market, more than all the banks combined. 

Job openings in the construction sector are higher now than they were at the peak of the bubble. Yet the hiring rate is just off the lows of the bust. This certainly corroborates the claim that a labor shortage is a big reason why housing starts are still depressed. Lots of skilled labor left the sector after the bubble burst and got jobs in the energy patch. There is only one way to square that circle and that is to raise wages to attract talent. Which means compressing margins if builders are unable to pass on that cost increase. Regardless, it doesn't bode well for new home affordability unless we begin to see wholesale increases in wages across the US, which hasn't been happening.