Morning Report: Beware of Hurricane deductibles

Vital Statistics:

	Last	Change
S&P Futures	2458.8	-6.0
Eurostoxx Index	374.7	-0.3
Oil (WTI)	49.0	-0.1
US dollar index	84.3	-0.4
10 Year Govt Bond Yield	2.05%
Current Coupon Fannie Mae TBA	103.33
Current Coupon Ginnie Mae TBA	104.21
30 Year Fixed Rate Mortgage	3.74

Stocks are lower as markets fret over the possible damage due to Hurricane Irma. Bonds and MBS are flat. 

Donald Trump cut a deal with Democrats to fund the government until December and increase aid for Harvey and Irma. Republicans were caught off guard here, however the optics of making a stand on a completely symbolic hill like the debt ceiling during a couple of major hurricanes would have been awful. Trump and Schumer are reportedly planning a bill to repeal the debt ceiling altogether. 

Credit reporting agency Equifax suffered a cyberattack which potentially gave social security numbers, addresses and drivers license numbers for 143 million people. The company has set up a website https://www.equifaxsecurity2017.com/  where people can see if their data was stolen. Banks generally eat the charges for fraud, so something of this size could potentially hit bank earnings if the fraud is big enough. The stock is down 16% on the open this morning. 

Initial Jobless Claims jumped to 298k last week due to the effects of Hurricane Harvey. This number is probably understated as many areas in Texas were unable to report. 

Productivity rose by 1.5%, which beat the 1.3% estimate. The employment cost index came in at 0.2%, below the 0.3% estimate. As long as inflation stays low, wage growth will be low as well. 

Trump has some vacancies to fill at the Fed. Janet Yellen's term expires in February, while the Deputy Fed Chairman Stanley Fischer recently resigned as well for personal reasons. Frontrunner Gary Cohn is supposedly losing favor, partially because the sense is a Goldman banker would have difficulty attracting Democrat votes. Chances are looking better that Trump renominates Yellen for another term. Former Fed Governor Kevin Warsh is also a good possibility. Warsh is slightly more hawkish than Yellen, which means he would pursue higher rates at a faster pace than Yellen, at least at the margin. 

The latest Fed funds futures prediction has a 63% of no move in December now. They are predicting no move in September as well. 

Homeowners in Florida and Texas should read the fine print on their policies. These storms could trigger "hurricane deductibles" that allow insurers to push more of the damage costs to homeowners. These became widespread after Hurricane Katrina in 2005, but haven't been used. These allow insurers to increase the size of the deductible in certain coastal states if a hurricane occurs. These deductibles are usually a percentage of the policy, as opposed to a flat dollar amount. They generally run in the 1% to 2% range. Sandy did not trigger these due to the fact it was a tropical storm when it hit the East Coast. Bottom line, someone who was expecting a deductible of $1,000 might find themselves with a $5,000 or $10,000 deductible. 

Fannie Mae is offering forbearance up to 12 months in some situations. Borrowers affected by Harvey or Irma are encouraged to contact their servicer to see if they are eligible for some relief. Details are here: http://www.fanniemae.com/portal/about-fm/hurricane-relief.html