Morning Report: Davos looks at populism

Vital Statistics:

	Last	Change
S&P Futures	2265.0	-7.0
Eurostoxx Index	363.1	0.1
Oil (WTI)	53.2	0.8
US dollar index	91.1	-1.0
10 Year Govt Bond Yield	2.31%
Current Coupon Fannie Mae TBA	103
Current Coupon Ginnie Mae TBA	104
30 Year Fixed Rate Mortgage	4.08

Stocks are lower this morning on Theresa May comments about Brexit. Bonds and MBS are up.

The World Economic Forum in Davos is going on this week. There may be a slight chance of market-moving data, but it is unlikely. The big subject is undoubtedly the wave of populism and anti-corporate / anti-government / anti-globalization sentiment going on throughout the world. 

Corporate America seems to have read the tea leaves as well. GM just put out a headline saying they will invest $1 billion in US manufacturing operations and create 7,000 jobs. Walmart is getting into the action too. Even foreign companies are getting into the act. Of course some companies may be publicizing old plans to get the benefit of some good PR, the fact remains that big job cutting announcements are going to be out of style for a while. Don't forget, the job market IS getting tighter, and (hopefully) the mindset of Corporate America is shifting from cost control to revenue growth. 

Manufacturing in New York State slipped slightly last month according to the Empire State Manufacturing Survey. Growth is modest, however employment is still depressed. 

James Bullard believes that the Fed can begin to think about shrinking its balance sheet since rates are higher now than where they were. This would probably happen by not re-investing maturing assets. At the margin, this will translate into higher mortgage rates since TBAs will lose a natural buyer. 

Strategist Komal-Sri Kumar is skeptical of the Fed's forecast for interest rate hikes. His point is that the Fed cannot really raise rates in a vacuum, when all of the other central banks are going in the opposite direction. His call is for one hike this year. I am skeptical of a big fiscal stimulus out of Washington this year because Democrats will be united in opposition, and Republicans aren't going to stick their necks out politically for a President they never wanted and don't trust. The minutes from the Fed said explicitly that the forecast is based on expected fiscal stimulus. Note that many Fed officials are beginning to sour on the idea of additional fiscal stimulus. 

In addition, if Trump manages to impose some additional tariffs (which IMO is a political non-starter) that will weaken the economy, and probably put the Fed on hold. Separately, Donald Trump just turned decades of US policy towards the dollar on its head, saying that the US currency is too strong. At the end of the day, presidents don't really have all that much control over the economy. 

Despite all the uncertainty about the government and the Fed, economic optimism remains just off a nine-year high. 

The baby boomers drove housing construction through the 1970s and 1980s, yet their offspring (an even bigger generation) are not buying homes the way their parents did. What gives? Millennials earn 20% less (inflation adjusted) than their parents did at the same age. Not only that, but the consumer price inflation index deemphasizes /ignores things like college education which has going up multiples of the CPI. When you look at wealth, the numbers are even worse. That said, in 1989, mortgage rates were 10% and the principal and interest payment for a loan on the median house was 27% of median income versus around 21% today. 

Morning Report: Probability of a 2016 rate hike back to pre-Brexit levels

Vital Statistics:

	Last	Change
S&P Futures	2176.0	0.0
Eurostoxx Index	341.5	-1.9
Oil (WTI)	46.4	-0.2
US dollar index	85.8	0.2
10 Year Govt Bond Yield	1.58%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.52

Markets are flat this morning on no real news. Bonds and MBS are down small.

The FOMC minutes come out today at 2:00 pm EST. Be careful locking loans around then since we could see some volatility. 

Mortgage Applications fell 4% last week as both purchases and refis fell by 4%. 

Mohammed El Arian has a good piece on what to look for in the minutes. The main things to look for: labor (and what the Fed considers "full employment), productivity (and why we aren't seeing it), inflation (and why we don't see it), external threats (China slowdown, Brexit), and finally why ultra-low interest rates and QE aren't achieving the desired result (the elephant in the room). Expect the Fed to prod the government to use fiscal policy to help stimulate the economy. 

For those complaining that US fiscal policy has been in austerity mode, I would remind them that the biggest post WWII deficits as a percentage of GDP are (in order) 2009, 2010, 2011, 1983, 2012, 1946, 2013. 

Yesterday, William Dudley suggested that a September rate hike is still on the table and the markets may be underestimating the chance of one. The Fed Funds futures market have now back to pre-Brexit levels in terms of predicting the probability of a rate hike this year. 

The lack of inventory is going to get worse, as we aren't building enough homes to keep up with population growth, let alone obsolescence. I keep saying this, but we should be hitting 2 million starts a year given the shortage and the need to house Millennials. This is the difference between 2% GDP and 3% GDP. Unfortunately, Washington seems to think the biggest problem is that we aren't slugging the banks hard enough. 

Morning Report: Is the post-Brexit bond rally played out?

Vital Statistics:

	Last	Change
S&P Futures	2128.0	8.0
Eurostoxx Index	324.3	2.1
Oil (WTI)	45.6	0.4
US dollar index	87.1	0.1
10 Year Govt Bond Yield	1.41%
Current Coupon Fannie Mae TBA	104
Current Coupon Ginnie Mae TBA	104.2
BankRate 30 Year Fixed Rate Mortgage	3.57

Stocks are up this morning as overseas markets rally. Bonds and MBS are down. 

Friday's huge payroll print was largely due to seasonal adjustment factors. The unemployment rate rose, hourly earnings barely budged and the labor force participation rate inched up only slightly. The right thing to do is to take May's 11k number and average it in with June's 287k number to get a more realistic run rate.

There isn't much in the way of market-moving data this week - the week after the jobs report is invariably data-light. Earnings season kicks off this week, and the next two weeks will be dominated by bank earnings.

Morgan Stanley is making the call that the post Brexit bond market rally is largely played out. “After having been bullish, we turn neutral on bonds as G4 yields sit at all-time lows,” Morgan Stanley analysts including Matthew Hornbach, the head of global interest-rate strategy in New York, wrote in a report July 8. That said, the increasing amount of negative yielding paper will continue to push up Treasuries in the US, as investors sell bonds yielding nothing to buy bonds yielding something. This will also lower borrowing costs for Corporate America. 

Don't forget the last time bond yields bottomed out (2012) it took mortgage rates another 4 months to bottom out as well. We should probably see a similar effect going this time around. 

Mortgage delinquency rates ticked up in May, according to the latest Black Knight Financial Services Mortgage Monitor. Some of this is apparently seasonally driven. Interesting stat: From 2009-2012, over 80% of borrowers that refinanced a GNMA loan refi'd back into another GNMA product. Post 2013, GN back into GN refis have dropped below 50%. Increasing home equity and higher MI premiums are pushing borrowers out of GN products. 

Could this summer be the best summer for housing yet?  

Morning Report: Bond Yields continue to fall

Vital Statistics:

	Last	Change	Percent
S&P Futures	2085.1	-11.2	-0.53%
Eurostoxx Index	2818.0	-44.2	-1.54%
Oil (WTI)	47.64	-1.4	-2.76%
LIBOR	0.653	-0.001	-0.11%
US Dollar Index (DXY)	95.67	0.016	0.02%
10 Year Govt Bond Yield	1.39%	-0.05%
Current Coupon Ginnie Mae TBA	106.3
Current Coupon Fannie Mae TBA	105.7
BankRate 30 Year Fixed Rate Mortgage	3.4

Markets are lower this morning as bond yields push lower globally. Bonds and MBS are up, with the 10 year trading below 1.4%. The German Bund now yields negative 16 basis points. 

We have a short week, but a lot of data. The biggest events will be the FOMC minutes on Wednesday and the jobs report on Friday. Given the Brexit backdrop, I see the FOMC minutes as a nonevent, and the jobs report shouldn't be market moving unless wage inflation accelerates. 

This morning, the ISM New York Index rose from 37.2 to 45.4. Still, a reading below 50 is indicative of a slowing economy.

Economic Optimism slipped in July to 45.5 from 48.2 a month ago. 

Factory Orders fell 1% in May after increasing 1.8% in April. Durable Goods orders fell 2.3% while capital goods orders, which is a proxy for business capital expenditures, fell 0.3%. 

Last week stocks rallied as it looks like Brexit didn't trigger a financial crisis. Bonds continued their march higher and yield curves flattened, which is a recessionary pattern. Generally speaking, when the stock market and the bond market disagree, the bond market is usually right. That said, Italy is injecting more capital into its weak banking system, but that issue predates Brexit. 

Speaking of Italy, they may be the next one out of the EU, as they have issues with their banks and cannot come to the aid of banks without giving investors a haircut according to EU rules. Since about half of Italian bank debt is held by ordinary Italians, no politician wants to suggest that investors lose money on a bailout. Plus their debt to GDP ratio is 1.3x, which gives them little maneuvering room.  

Brexit and the rise of Donald Trump are symptoms of a bigger problem: a lack of trust in government and institutions like the media. Some say we need to learn to trust the government. Other say we need to push Facebook to use its algorithms in order to show opposing viewpoints more often. Bottom line, we are more polarized than ever before, and no matter who wins in November, gridlock will be the name of the game. Both parties are focused on one thing: a potential 3 or 4 Supreme Court nominees, which would ideologically skew the Court for a generation. 

Home prices rose 5.9% in May, according to Corelogic. 

Loan performance increased in the first quarter, according to the OCC. Performing loans are up 0.7% YOY, while foreclosures have declined to 0.4% to 0.9%. 

Morning Report: Brexit panic over?

Vital Statistics:

	Last	Change	Percent
S&P Futures	2042.0	13.6	0.67%
Eurostoxx Index	2816.4	57.7	2.09%
Oil (WTI)	48.26	0.4	0.86%
LIBOR	0.627	0.004	0.56%
US Dollar Index (DXY)	95.89	-0.351	-0.36%
10 Year Govt Bond Yield	1.48%	0.01%
Current Coupon Ginnie Mae TBA	106
Current Coupon Fannie Mae TBA	105.4
BankRate 30 Year Fixed Rate Mortgage	3.6

Stocks are higher this morning as global stocks and commodities rally. Bonds and MBS are flat.

It seems like the big Brexit-related sell-off might be over.  Brexit will have a negligible effect on US corporate earnings, and stocks will benefit from a lower, steadier interest rate environment. I would look for the correlation between US stocks and global stocks to break down gradually. I am not sure we will see the same effect in the Treasury markets as the global bond market is simply much more integrated. Speaking of which, global bond yields are holding steady this morning, with the German Bund at -11 basis points and the the PIIGS slightly lower. 

First quarter GDP was revised to +1.1%. while personal consumption came in at 1.5% and the PCE index (the inflation measure preferred by the Fed came in at 0.4%). Housing as a percentage of GDP increased. I have long said the difference between this sub-par economy and a strong one is housing. Politicians have yet to figure this out.

Home prices rose .5% MOM and 5.4%YOY, according to the Case-Shiller home price index. Home prices in 7 MSAs (Denver, Dallas, Portland OR, San Francisco, Seattle, Charlotte, and Boston) have eclipsed their 2006 peaks. 

Personal Incomes rose 0.2% in May, slightly below forecasts, while personal spending increased 0.4%, right in line with expectations. For the month, the PCE core index rose 1.6% YOY, which is still below the Fed's target of 2%. 

Mortgage Applications fell 2.6% last week as purchases fell 3% and refis fell 2.4%. Pending Home Sales fell 3.7% MOM in May and are up 2.4% YOY. 

The Fed is scheduled to release the results of its stress tests for the largest US banks. The results should come out after the close. Billions of dollars in dividends and buybacks are on the line. Separately, GE's systemic designation has been rescinded by US regulators. GE is the first institution to have the designation removed, which requires stringent capital and leverage requirements. GE has sold much of its GE Financial division, and has returned to its roots as an industrial manufacturer. 

Speaking of banking crises, the European big banks have stabilized in the aftermath of Brexit. The canaries in the coal mine are Deutsche Bank and Unicredito. Even Barclay's and RBS have stabilized. The thing to keep in mind is that the banks now have almost double the capital they had in 2008 and Brexit is nothing like the bursting of the US residential real estate bubble. The Bernank agrees.

Freddie Mac wonders if the homeownership rate can fall below 50%. The current level is at 63.5%, which is the lowest in 22 years, and just off the low of 63%, which goes back to 1965, when Census started tracking the statistic. They look at 3 studies, which all predict lower homeownership going forward. The factors inhibiting an increase in homeownership are lower income growth, high rental prices, tight supply and and high student loan debt / tight credit. It is hard to tell what a "normal" homeownership rate as the 2005 spike was the result of a bubble and a lot of social engineering via the housing market, which really started early in the Clinton Administration.

Morning Report: Implications of Brexit

Vital Statistics:

	Last	Change	Percent
S&P Futures	2004.6	-14.0	-0.69%
Eurostoxx Index	2714.3	-61.8	-2.22%
Oil (WTI)	46.84	-0.8	-1.68%
LIBOR	0.624	-0.017	-2.58%
US Dollar Index (DXY)	96.58	1.131	1.18%
10 Year Govt Bond Yield	1.47%	-0.09%
Current Coupon Ginnie Mae TBA	105.9
Current Coupon Fannie Mae TBA	105.3
BankRate 30 Year Fixed Rate Mortgage	3.56

Stocks are lower this morning as markets adjust to Brexit. Bonds and MBS are up.

Here is the summary of the financial market reaction to Brexit: Stocks down, Treasuries up, US dollar up, Gold up, but other commodities down. Fed Funds futures pricing in no more interest rate hikes this year. In many ways, markets were discounting #Bremain in the week or so heading up to the vote, so in many cases, they merely gave back those moves. Friday was volatile, with 3-sigma moves seen in 23 currencies, 30 sovereign bonds, and and 28 stock market indices. 

What does Brexit mean to the European financial markets?  The banks got crushed on Friday, and part of that is due to widening sovereign spreads. Brexit caused a yield divergence between the German Bund and the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) bonds. Greek spreads widened out 89 basis points to 8.65%. German bond yields fell 14 basis points to -5 basis points. While yields on the PIIGS are still low, they could become an issue going forward.

The biggest risk to the US is any sort of financial contagion. The tell will be the performance of the European and UK banks. Note Italy is considering injecting 50 billion euros into its banking system. The PIIGS are behaving this morning, but that will be something to watch.

Brexit has put the Fed in a box. The slowing economy in China plus the issues with Brexit have pretty much put them on the sidelines for now. In fact, the Fed Funds futures are beginning to price in the possibility of a rate cut. The bottom line is that rates will be lower for longer. FWIW, Bill Gross thinks the upside is limited in US bonds. While Brexit will probably dampen global growth slightly, it shouldn't be a catalyst to push the US into a recession. The biggest beneficiaries will be tourists who want to visit the UK this summer. The biggest losers will be US manufacturers who compete with UK manufacturers and become less competitive due to the sell-off in the pound. In other words, the economic fall-out to the US will probably be pretty limited. Perhaps US stocks were looking for a reason to sell off, but the effect of Brexit on US corporate earnings should be pretty small.

In terms of the mortgage markets, the TBA market (which sets mortgage rates) really didn't have much of a move on Friday. Ginnie II 3.5s were up about 1/4 of a point, which is more or less normal volatility. Fannie TBAs were up 3/8 of a point, which again is more or less normal volatility. Historically, TBAs have lagged movements in the bond markets, and days like Friday absolutely annihilate people who hedge MBS interest rate risk. So, while their portfolio goes up in value, their interest rate hedges lose a lot more than their book gains, so it ends up pressuring TBA pricing, which in turn prevents mortgage rates from moving as low as you think they should go. If the 10 year stays right here, expect mortgage rates to catch up only gradually over a week or even two. Note that the Bankrate US 30 year fixed rate mortgage had been lagging the moves downward in rates already, even before the big move on Friday. It dropped 11 basis points on Friday.

Construction wages are rising faster than the rest of the industry, however they are really just playing catch-up. It will make new houses marginally more expensive, however falling mortgage rates will cushion the blow. 

Morning Report: Brexit implications.

Vital Statistics:

	Last	Change	Percent
S&P Futures	2056	-48.5	-2.37%
Eurostoxx Index	2810.4	-228.1	-7.57%
Oil (WTI)	48.21	-2.0	-2.16%
LIBOR	0.656	0.002	0.24%
US Dollar Index (DXY)	94.4	-0.169	-0.18%
10 Year Govt Bond Yield	1.57%	-0.18%
Current Coupon Ginnie Mae TBA	105.9
Current Coupon Fannie Mae TBA	105
BankRate 30 Year Fixed Rate Mortgage	3.72

Stocks are getting sold this morning after the UK voted to leave the EU. Bonds and MBS are up.

Last night the UK voted to leave the EU, which was a surprise to the markets. European stocks are getting crushed this morning, and the biggest ones taking a hit are the banks. Barclay's is down 17%, Santander is down 18%, for example, so there is the distinct possibility of some sort of banking crisis over there. Note we are not seeing a huge move in US banks, so it looks like any crisis over there isn't going to spill over to the US banking sector. 

Big picture: The Fed is doing nothing - in fact there will be calls for the next move to be a rate cut. This could cause a mild recession over here, which means lower rates.  In fact, durable goods orders were terrible this morning, down 2.2%. One of the big investment banks was calling for a 1.4% 10 year bond yield if the UK left. The 2 year bond yield dropped 14 basis points to 64 bps, That will be the one to watch to get a read on what the market thinks the Fed will do.

In terms of mortgage rates, the TBAs (which determine mortgage rates) will lag the move downward in yields. For example, the Fannie Mae TBAs are up this morning, but nowhere near the move in bonds. So, while the 10 year bond yield will get everybody excited, don't expect a huge move downward in mortgage rates, at least initially. Once the 10 year finds its level, TBAs will find their level, probably over the next few weeks or so. If the European banking system goes into full crisis mode, the impact on mortgage rates will probably be a pull-back in jumbo pricing, which is the most vulnerable since it relies on a private securitization market. FN and GN pricing should not be affected. So basically, we will see some drama in the stock and bond markets, and not so much in the mortgage markets. 

Morning Report: Markets optimistic as Britain votes

Vital Statistics:

	Last	Change	Percent
S&P Futures	2104.1	18.5	0.87%
Eurostoxx Index	2852.4	33.1	1.17%
Oil (WTI)	47.21	1.0	2.16%
LIBOR	0.656	0.002	0.24%
US Dollar Index (DXY)	94.4	-0.169	-0.18%
10 Year Govt Bond Yield	1.72%	0.03%
Current Coupon Ginnie Mae TBA	105.9
Current Coupon Fannie Mae TBA	105
BankRate 30 Year Fixed Rate Mortgage	3.72

Markets are higher this morning as the Brexit vote happens in the UK. Bonds and MBS are down.

Last night, the Sporting Index Brexit Markets were tilted towards Remain at 53-47. If the UK leaves, it probably won't have much of an effect on the US economy, however it will probably cause a flight to safety, meaning US Treasury yields would fall.

New Home Sales fell to an annualized pace of 551k in May. This is down on a sequential basis but is still up 9% YOY. April was revised lower as well. The median new home price was $290,400 and the average sale price was $358,900. At the end of May there were 244,000 new homes for sale, which represents a 5.3 month supply. I plotted new home sales going back to the early 1960s, and put a trend line in so you can see how much of a deficit we have, and where that number should be (about 50% higher)

Tight supply of starter homes are pushing prices up 9% per year in that segment, more than double the price appreciation at the high end. This is a combination of lower foreign demand for luxury homes and increasing demand by Millennials who want to buy. 

Initial Jobless Claims fell to 259k last week. For all the talk about a slowdown in the labor markets, you aren't seeing any evidence of layoffs.

The Chicago Fed National Activity Index turned negative last month, while the Kansas City Fed Index turned positive. 

Finally, the Index of Leading Economic Indicators turned negative last month.

The 20 hottest real estate markets, according to Realtor.com. No, it isn't Phoenix, Palm Springs, Vegas, and Orange County. Note how many are in the Rust Belt! The D is supposedly a hot market - I thought they were going to abandon about 1/3 of the city and turn it back into farmland. 

Morning Report: Janet Yellen gets more dovish

Vital Statistics:

	Last	Change	Percent
S&P Futures	2087.1	3.5	0.17%
Eurostoxx Index	2852.4	33.1	1.17%
Oil (WTI)	47.21	1.0	2.16%
LIBOR	0.656	0.002	0.24%
US Dollar Index (DXY)	94.4	-0.169	-0.18%
10 Year Govt Bond Yield	1.68%	-0.01%
Current Coupon Ginnie Mae TBA	105.9
Current Coupon Fannie Mae TBA	105
BankRate 30 Year Fixed Rate Mortgage	3.53

Markets are up this morning as the market frets about Brexit and Janet Yellen speaks. Bonds and MBS are up small.

The latest polls for Brexit are mixed, and the bottom line is that it is too close to call. If the UK leaves the EU, the most likely effect will be a flight to safety, which would mean global flows to US Treasuries, lowering rates. Some of the forecasts I am seeing would be a sub 1.4% on the 10 year if the UK leaves, or a return to the old 1.7% - 1.9% range if they stay. FWIW, spread betting is common in the UK, and the markets there are much deeper than the political betting sites in the US. Right now, the spread betting markets are assigning a 25% probability of Brexit. 

Janet Yellen adjusted her language to be slightly more dovish ahead of her testimony today in front of the Senate Banking Committee. She is exhibiting a little more uncertainty over whether the economy is ready to return to moderate growth. Not sure what changed in the last week or so, but there you go. 

Homebuilder Lennar beat estimate this morning as the housing market continues to improve and wage growth begins to appear. Interestingly, they are pulling back a little from the market, it appears: "As this year's spring selling season improved over last year, our second quarter new orders increased 10% to 7,962 homes year-over-year, while our home deliveries and home sales revenue also increased to 6,724 homes and $2.4 billion, respectively.  As the recovery has continued to mature, we have remained focused on our strategy of moderating our growth rate in community count and home sales, as well as on our soft-pivot land strategy, targeting land acquisitions with a shorter average life." For some reason, the builders don't seem to trust this recovery in housing. 

Perhaps Lennar's reticence comes from the attitudes of consumers. A recent survey shows housing affordability remains a big problem. That said, perceptions of real estate as a good long-term investment are improving. They should, since rental inflation is generally outpacing house price appreciation and the buy-rent decision is skewed heavily towards buying. That said, consumers are becoming more pessimistic that the housing crisis is over. 

Good breakdown on how big of a boost homebuilding is for the economy. Unfortunately, the only discussion of housing in DC revolves around how hard we should be slugging the banks. 

Morning Report: Uncle Sam is the creditor for 28% of the consumer loan market

Vital Statistics:

	Last	Change	Percent
S&P Futures	2081.4	-5.9	-0.28%
Eurostoxx Index	2868.3	-42.8	-1.47%
Oil (WTI)	48.5	-0.6	-1.16%
LIBOR	0.656	0.000	-0.07%
US Dollar Index (DXY)	94.55	-0.021	-0.02%
10 Year Govt Bond Yield	1.63%	-0.02%
Current Coupon Ginnie Mae TBA	105.7
Current Coupon Fannie Mae TBA	105
BankRate 30 Year Fixed Rate Mortgage	3.7

Stocks are lower this morning on fears over Brexit (The 6/23 vote to decide whether the UK leaves the EU). Bonds and MBS are up small.

No economic data today. The big event this week will be the FOMC meeting Tuesday and Wednesday. The markets are expecting no changes to interest rates, so any bond rally on the news of no changes will probably be limited. 

Interesting chart about the Federal government's percent of ownership of consumer debt. This is money that US citizens owe Uncle Sam. Ever since Obama nationalized the student loan sector, they have taken their percentage of consumer debt from 5% to 28%. The student loan market is a $1.3 trillion market - not exactly chump change. Expect some sort of write-down of student loan debt in the future: many graduates have degrees that will never pay enough to work this down. As a side note, more young adults aged 18-34 live at home with Mom and Dad than in any other arrangement. 

Speaking of Millennials, the high student loan debt is causing lower credit scores. The average credit score for the 18-34 age cohort is 625, compared to the national average of 667. Almost a third of that age cohort have sub-600 scores. Good luck getting a loan with that. Finally, all of the new post-2008 regulations have added anywhere form 50k-100k to the cost of building a starter home, making it difficult for builders to make homes that are affordable for the first-time homebuyer. 

There is now $10 trillion worth of global sovereign debt trading at negative yields. Bill Gross of Janus Capital calls that a "supernova" that will explode one day. All of the worlds' central banks are on a mission to create inflation: one day they will succeed. What has been the best trade for bond investors lately? The Japanese 30 year bond, which now yields 28 basis points. Bill says that bond yields today are the lowest in 500 years. Not sure where he comes up with that number.

Speaking of Central Bank jiggery-pokery, ECB corporate bond buying now makes up for 1 in 5 trades. We are truly in uncharted waters with global central banking. 

As a general rule, buy stocks in an election year. Election years tend to be optimistic times, and the Fed is usually on your side. That might not be the case this year. 

Morning Report: New Home Sales fall

Vital Statistics:

	Last	Change	Percent
S&P Futures	1896.0	-20.6	-1.04%
Eurostoxx Index	2867.6	-27.6	-0.95%
Oil (WTI)	30.09	-0.7	-2.21%
LIBOR	0.619	0.001	0.19%
US Dollar Index (DXY)	96.93	-0.019	-0.02%
10 Year Govt Bond Yield	1.67%	-0.03%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.8
BankRate 30 Year Fixed Rate Mortgage	3.68

Markets are getting pounded on the new worry du jour: Brexit. Bonds and MBS are rallying..

Brexit is the threat of the UK leaving the EU. It has implications mainly in the foreign exchange markets, but if the markets need something to worry about, well there you go. 

Mortgage Applications fell 4.3% last week as purchases rose 2.2% and refis fell 7.7%. The spike in rates last week killed the refis. 

New Home Sales continue to disappoint. Sales fell in January to 494k from 544k in December. For whatever reason, homebuilders continue to hold back production and rely in price hikes to move the top line. 

Regardless, people are still optimistic about the housing sector going forward. Toll Brothers mentioned that a dearth of skilled labor is an issue. Interestingly, average selling prices on signed contracts are falling for them in some areas of the country (the Mid-Atlantic and the South) and are flat in the West. Their urban luxury apartment sector was where all the ASP growth was. Perhaps the builders have pushed price hikes about as far as they can and now buyers are beginning to balk. 

Donald Trump performed well in the Nevada caucuses, easily beating Ted Cruz and Marco Rubio.