Morning Report: Initial Jobless Claims lowest since 1969

Vital Statistics:

			Last	Change
S&P futures			2652.75	8.25
Eurostoxx index			382.29	2.12
Oil (WTI)			68.61	0.56
10 Year Government Bond Yield				3.00%
30 Year fixed rate mortgage				4.62%

Stocks are higher this morning on strong earnings from Facebook. Bonds and MBS are up.

The ECB maintained its current policy and made some cautious comments, which is pushing up bonds in Europe. US Treasuries are following along on the relative value trade. 

The 10 year has made a pretty sizeable move over the past month or so, and mortgage rates typically lag. So don't be surprised if mortgage rates continue to tick up, even if the 10 year finds a home at the 3% level. 

The homeownership rate was flat in the first quarter at 64.2%. It is up from 63.6% a year ago however. It bottomed in the second quarter of 2016 at 62.9%. 

Durable Goods Orders increased 2.6% in March, following a strong February. Ex-transportation, they were flat however and core capital goods, which is a proxy for business capital investment, fell slightly. February's already strong numbers were revised up slightly. 

Retail inventories fell 0.5% while wholesale inventories increased by the same amount. 

Initial Jobless Claims fell to 209,000 last week, which is the lowest number since 1969. When you adjust for population growth, the number becomes even more dramatic:

Deutsche Bank is scaling back its US operations to focus on becoming a more Euro-centric bank. It is hard to believe, but almost 20 years ago, the bank decided to make a big foray into the US market by buying Banker's Trust and Alex Brown. 

Moody's is worrying about the next area of opportunity in the mortgage market: cash-out refinances. As many CLTVs are approaching 75%, homeowners may choose to do a cash-out to either consolidate higher rate debt, or perhaps do home improvements. The other opportunity remains refinancing FHA loans that have accumulated enough equity to qualify for a conforming loan without MI. Finally, those who still have ARMs might find the relative attractiveness of a 30 year fixed to be a compelling switch. In an environment of rising home prices and rising interest rates, these will be the only game in town. 

Homebuilders are facing rising input costs - sticks and bricks, if you will. Framing lumber prices are up 16% this year, and plywood is up 33%. Inventory is so tight that builders are able to pass these costs onto homebuyers. A tight labor market remains an issue for the industry as well. All of this points to higher home prices going forward. 

For those wondering if we are indeed at the end of the credit cycle, here is WeWork's bond offering, which came in at $700 million with bonds paying 7.875%. Borrowing money at 7.875% for 5% cap rate office space? Set that aside for the moment. They introduced a new financial concept, called "community-adjusted EBITDA," which not only strips out interest, depreciation and amortization, and taxes, but also ignores general and administrative, marketing, and design / development costs. That has to be the first time I have ever heard this term before, and it should just be renamed EBBS - or earnings before bad stuff.