Morning Report: Big difference between average and median earnings

Vital Statistics:

			Last	Change
S&P futures			2808	-2.5
Eurostoxx index			386.74	1.76
Oil (WTI)			67.62	-0.46
10 Year Government Bond Yield				2.85%
30 Year fixed rate mortgage				4.51%

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

Mortgage Applications fell 2.5% last week as purchases fell 5% and refis rose 2%. The refi share rose to 36.5%. 

Housing starts hit their lowest level since September last year, falling to 1.17 million annualized. This is a huge drop from the strong May print of 1.33 million. The Midwest and the South explain the declines, which was both in single family and multi. June weather was generally good, so that isn't the explanation. Building Permits fell as well, although not as dramatically. They came in at 1.27 million. The Midwest accounted for most of the decline in permits. Housing starts tend to be volatile, but the moving average is turning down, which is worrisome. 

Despite the drop in starts, builder confidence remains strong, at least according to the NAHB. The index was flat at 68, which is an elevated number. Pricing remains strong, but the supply is not there. Rising material costs are becoming an issue as lumber tariffs raise costs. So far builders are able to pass these costs on, but there is a limit, especially if wage inflation remains below house price inflation. The median house price to median income ratio is getting back to extreme levels, and interest rates are not going to come to the rescue this time around. 

Jerome Powell begins his second day of testimony on Capitol Hill. There was nothing market-moving yesterday, so expect more of the same. Yesterday, his message was that the US economy has clear sailing ahead with strong growth and moderate inflation. With regard to the potential trade war, Powell downplayed the risks to the economy and said there will be a benefit if it turns out that Trump's actions lower tariffs overall in the global economy. The US generally has much lower tariffs than its trading partners, and Trump has already made the offer to eliminate all US tariffs if our trading partners eliminate theirs. Separately, Powell said that it would ultimately be better for the US if the GSEs were off the government balance sheet. That is pretty much a universal opinion in DC these days, as the US taxpayer bears the credit risk of the majority of the mortgage market. 

Median weekly earnings have not kept pace with the CPI lately, which means workers are losing ground, at least according to the latest survey out of the BLS. It shows that the median weekly wage rose 2% in the second quarter versus an increase in the CPI of 2.7%. Interestingly, the average hourly earnings increase during Q2 was 2.64% in April, 2.74% in May and 2.74% in June. It seems strange that the difference between average wage inflation and median wage inflation would be so stark, which would imply that wages are mainly rising at the high end, not the lower end. Note the other BLS measure of wage inflation, the employment cost index, shows comp growth of 2.9%, which takes into account benefits. For the most part, average hourly earnings have been rising faster than the core PCE index:

New York, Connecticut, New Jersey, and Maryland sued the government yesterday over the state and local tax deduction cap. The lawsuit if probably more for show than anything and doesn't seem to have much chance of success. Some of the states are looking at workarounds, allowing people to "donate" to charitable funds which go to funding state and local services. Charitable deductions are still deductible. At the end of the day, the biggest issue to states like NY and NJ are the property taxes. NY and NJ have some of the highest property taxes in the country, where people routinely pay $20 - $30k or more. That explains at least partially why you can't find buyers for luxury properties in the Northeast. 

The ECB concludes that QE may have helped the rich, but it helped the poor more. While QE did boost asset prices (housing, bonds, stocks etc) it also boosted growth, which more than offset the increase in asset prices.  “Low short rates do hurt savers via a direct effect, that is a reduction in income on their assets . . . however [low rates] also benefit savers, like all other households, via an indirect effect — that is, the reduction in their unemployment rate and the increase in the labour income,” the paper, called “Monetary policy and household inequality”, said. “The indirect effect dominates . . . The paper also finds that [QE] reduced inequality, mainly through a reduction of the unemployment rate of poorer households.”

Note that this contradicts the observation between median and average earnings. If QE was actually decreasing inequality, you should see median earnings growth close to average earning growth or even slightly higher. Not way below. 

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. 

Morning Report: Bond yields rising on hawkish central bankers

Vital Statistics:

	Last	Change
S&P Futures	2443.8	5.0
Eurostoxx Index	384.9	-0.9
Oil (WTI)	45.3	-5.4
US dollar index	87.9	-0.1
10 Year Govt Bond Yield	2.27%
Current Coupon Fannie Mae TBA	103
Current Coupon Ginnie Mae TBA	103.81
30 Year Fixed Rate Mortgage	3.91

Stocks are higher this morning after the big banks announced increases in dividends and buybacks in response to passing their stress tests. Bonds and MBS are down after hawkish comments from central bankers globally. 

In the past few days, the Bank of England, the Bank of Canada, and the ECB have warned that short term rates are heading higher. This has sent the 10 year bond yield up over 10 basis points, and has really clobbered the German Bund, which now yields 44 basis points. The Fed Funds futures have tweaked their assessments of the September and December meetings, with the markets now handicapping a 18% chance of a Sep hike (up from 12%) and a 57% chance of a hike in December (up from 50%). 

The third and final revision to first quarter GDP came in at 1.4%, an upward revision of 0.2%, as personal consumption was revised upward from 0.6% to 1.1%. The inflation indicator fell from 2.2% to 1.9%. Know what bumped up the consumption numbers? RVs. If it weren't for Winnebagos, GDP would have grown less than 1%. 

Initial Jobless Claims ticked up slightly to 244k, while corporate profits were up 12% YOY.

The head of the NYSE thinks short sellers are "icky" You want icky? Here's icky.

Good info: 15 money-saving tips for first time homebuyers. Also questions any homebuyer should ask the seller before taking the plunge. 

Hottest real estate markets in June 2017. Mainly the usual suspects, but there are signs of life in the Rust Belt: Columbus OH is #5 and Detroit is #6. 

Morning Report: Pending home sales fall

Vital Statistics:

	Last	Change
S&P Futures	2424.0	3.5
Eurostoxx Index	384.6	-1.4
Oil (WTI)	44.1	-0.2
US dollar index	88.3	0.0
10 Year Govt Bond Yield	2.21%
Current Coupon Fannie Mae TBA	103
Current Coupon Ginnie Mae TBA	103.81
30 Year Fixed Rate Mortgage	3.91

Stocks are up this morning after the ECB said that they will continue to stimulate the economy. Bonds and MBS are down

Last week was bad for mortgages as applications fell 6%. Purchases were down 4% and refis were down 9%. The index was up 10% from a year ago, however. The refi share fell a point to 45.6%. Note that applications have an income skew: starter home buyers are still aggressive, while it is the jumbo space that is taking a breather. 

Pending Home Sales fell 0.8% in May, which was the third consecutive monthly decline. Lawrence Yun, NAR chief economist, says it's clear the critically low inventory levels in much of the country somewhat sidetracked the housing market this spring. "Monthly closings have recently been oscillating back and forth, but this third consecutive decline in contract activity implies a possible topping off in sales," he said. "Buyer interest is solid, but there is just not enough supply to satisfy demand. Prospective buyers are being sidelined by both limited choices and home prices that are climbing too fast."

As demand for mortgages falls and competition increases, lenders are looking to ease lending standards to capture business, according to the latest Fannie Mae Lender Sentiment Survey. The net share of lenders reporting demand growth fell to a 2 year low, while the number of lenders who expect to ease standards rose to a 2 year high. 

More on inventory woes. Trulia found that over the past year, the inventory of starter homes has fallen by 16%. The inventory of move-up homes has fallen by 13%, and the number of luxury homes has fallen by 3.9%. Inventory is so tight in California that only 25% of the homes for sale remain on the market for over 2 months. Trulia's recommendation to buyers: Move fast, make multiple offers, and be willing to adjust to the seller's timetable. 

Redifin looked at 11 metro areas and found that 33% of the people who bought a home in the past year made an offer without visiting the property. Note to LOs who are worried about rates: Only 5% of the respondents said they would cancel their purchases if mortgage rates topped 5%. The metro areas were Baltimore, Boston, Chicago, Dallas-Fort Worth, Denver, Los Angeles, Portland, San Diego, San Francisco, Seattle and Washington, D.C.

A new ransomware attack is hitting Europe. It is similar to the Wanna Cry attack a few months ago. So far it has not been reported in the US, but it has hit big European companies like advertising giant WPP and shipper Maersk, which has shut down shipping terminals worldwide. The cost to decrypt your machine is $300 in bitcoin. Obviously don't open suspicious attachments - and also note that the hackers are getting better and better at disguising these attachments. For example, an email might appear to be coming from a vendor you work with frequently, but if you check the actual email address it is clear that it isn't actually from that vendor. 

Separately, it is good news the hackers are asking for a fixed dollar value of Bitcoin, since is has been on a tear the past couple of months.

Janet Yellen said that another 2008 style crisis is not likely in our lifetimes. While she attributes that to regulation and increased capital, the real reason is that only residential real estate bubbles cause this sort crisis. Residential real estate bubbles are the Hurricane Katrinas of banking and economics, and they really only come around ever few generations. That said, we will undoubtedly see another 2008 style financial crisis - it just won't be in the US. China has an immense real estate bubble and is trying to find a way to deflate it slowly. Canada has one as well, although it is probably tied pretty closely to Chinese money. 

MBA head Dave Stevens and ex-FHFA head Ed DeMarco will testify in front of the Senate today on housing reform. 

Morning Report: The Trump reflation bubble deflates

Vital Statistics:

	Last	Change
S&P Futures	2324.5	-19.5
Eurostoxx Index	374.0	-1.3
Oil (WTI)	47.62	-0.35
US dollar index	89.4
10 Year Govt Bond Yield	2.35%
Current Coupon Fannie Mae TBA	102.06
Current Coupon Ginnie Mae TBA	103.32
30 Year Fixed Rate Mortgage	4.17

Stocks are lower after the Trump reflation trade is being unwound. Bonds and MBS are up.

Not much in the way of data this week - probably the biggest number is the final revision to Q4 GDP on Thursday. We will have a lot of Fed-speak however. 

The Republican House couldn't agree on a replacement for Obamacare and pulled the vote. This puts Trump's planned infrastructure spend and tax cuts in jeopardy as reduced spending on healthcare was the pay-for. That said, tax reform will probably be easier as there is bipartisan agreement that the current corporate tax structure isn't really working for anyone. Tougher will be individual tax reform, where Republicans want to lower rates in exchange for reduced deductions. The mortgage interest deduction will stay, but the deduction for state and local taxes may not. 

Even though the markets are re-adjusting their forecasts for fiscal stimulus, central bankers still seem committed to getting off the zero bound. Amidst all the furor in the US over the last month, Europeans have completely re-assessed what they think the ECB is going to do, taking the implied probability of a rate hike by the end of the year from a long shot to a coin toss.

In the aftermath of the Obamacare vote, the next thing to watch for is whether the regional Fed banks and strategists start taking down their estimates for 2017 GDP. Remember, the Fed's forecast of 2-3 hikes this year was predicated on fiscal stimulus, which now looks less likely. 

Treasuries remain under some selling pressure as Japanese fund managers sell. Note that speculative short positions in Treasuries were pretty high going into this defeat on healthcare, so interest rates may be pushed lower as hedge funds unwind the trade. Not sure how long that lasts, but this is good news for homebuyers entering the Spring selling season. 

Home prices are just shy of their 2006 peak, according to the Black Knight Financial Services Home Price Index. In December, they rose 0.1% MOM and 5.7% YOY. The report has a good state-by-state analysis too. 

Morning Report: Consumers getting more constructive on the economy

Vital Statistics:

	Last	Change
S&P Futures	2186.5	2.0
Eurostoxx Index	350.5	1.0
Oil (WTI)	46.4	0.9
US dollar index	85.7	-0.1
10 Year Govt Bond Yield	1.54%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.52

Stocks are higher after the ECB left rates unchanged. Bonds and MBS are flat.

Initial Jobless Claims came in at 259k, We have been below 300k (an important level) for 80 weeks now. 

Consumer comfort increased to 44 last week, according to Bloomberg.

Wage inflation is evident only in certain pockets of the labor economy - tech workers, engineers, construction, and remains flattish in the less skilled sectors. Elsewhere, hours are being cut and we are seeing full-timers being relegated to part-time. Until we start seeing broad-based wage inflation, the Fed is going to move slow. Note there is a disconnect between the Fed heads and what the markets are saying regarding near-term rate hikes. The markets aren't buying the hawkish language. 

Consumers are getting somewhat more constructive on the economy, according to Fannie Mae. The number of people who think the economy is on the right track improved to 38% and the number of people who think the economy is on the wrong track fell to 52%. Given the weak data recently that could be a temporary blip.

Morning Report: Fannie says no hikes this year

Vital Statistics:

	Last	Change
S&P Futures	2179.0	-3.0
Eurostoxx Index	340.7	-0.1
Oil (WTI)	47.8	-1.0
US dollar index	85.7	0.2
10 Year Govt Bond Yield	1.56%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.5

Stocks are slightly lower this morning after Stanley Fischer said the US economy was close to hitting all of the Fed's targets. Bonds and MBS are down small.

Not a lot of market-moving data this week, aside form the second revision to GDP on Friday. Note central bankers will be out in Jackson Hole this week, so there is the possibility of comments moving the markets. Otherwise, it looks to be a dull week in late August. 

The Chicago Fed National Activity Index came in better than expected at .27, but the 3 month moving average is negative, indicating the economy is growing slightly below trend. 

Fannie Mae is forecasting the Fed will maintain rates throughout 2016, and they believe the economy will strengthen. “Second quarter growth was a disappointment, but consumer spending appears solid heading into Q3, and we expect inventory investment to balance out after a surprising drawdown in Q2,” said Fannie Mae Chief Economist Doug Duncan. “Credit expansion, combined with improving labor market conditions and strengthening household balance sheets, should continue to support consumers, who will likely be the primary driver of growth again in the second half of the year. The positive July jobs report may encourage some Federal Open Market Committee members to argue for a Fed rate hike at the September meeting. However, we remain convinced that the Fed will hold the target rate steady this year given global uncertainties and anemic output growth. Although much of the financial volatility from Brexit has subsided, long-term Treasury yields continue to face downward pressure and we expect them to remain low for some time.”

More from Fannie on the housing market: “Housing market fundamentals remain a mixed bag. During the second quarter of 2016, both new and existing home sales rose to expansion highs, while single-family starts pulled back, remaining historically low for an expansion,” said Duncan. “Tight housing inventory from a lack of new construction continues to create affordability challenges, particularly at the lower end of the market. Robust rental demand during the second quarter of the year has created the lowest rental vacancy rate in decades. In addition, the homeownership rate dropped to below 63 percent in the second quarter, but we are seeing some tentative signs of older Millennials moving toward homeownership. We expect homebuyers will benefit from improving job and wage growth, more favorable lending standards, and continued low mortgage rates through the rest of the year, with the 30-year fixed-rate mortgage rate projected to average 3.4 percent during the fourth quarter.”

Talk about bad timing: Donald Trump got into the mortgage business in 2006. He did make an interesting point about bubbles and the madness of crowds. “Are you the type of person who takes advantage of positive situations when they present themselves, riding them out as long as they last? Or do you heed every message of doom and gloom, avoiding risks that could be some remarkable opportunities?” If you sold stocks in 1996 when Alan Greenspan discussed "irrational exuberance" in the stock market, you missed out on the lion's share of the growth. Also, the most money is made right at the end of the move when it goes parabolic. 

Following on Donald Trump, many recognize we have a bubble in sovereign debt. Black Rock believes that supply-demand imbalances will keep the bubble inflated for the near term. Meanwhile, Paul Singer suggests that bonds come with a warning label: "Hold such instruments at your own risk; danger of serious injury or death to your capital!"

Note that the European Central Bank and the Bank of Japan are now buying private placements from corporate issuers.  I guess the big question is "what happens when these bond issues go bad?" The European Central Bank is supporting 3.3 trillion euros of assets on 100 billion euros of capital, or about a 32:1 leverage ratio. The Fed is even worse, supporting $4.5 trillion in assets on just $40 billion worth of capital for a 112:1 leverage ratio. It won't take much of a move in asset prices to wipe out the equity of either entity. 

Morning Report: Markets yawn at the new ECB stimulus

Vital Statistics:

	Last	Change	Percent
S&P Futures	1989.1	0.4	0.07%
Eurostoxx Index	3029.0	16.1	0.54%
Oil (WTI)	34.96	0.4	1.13%
LIBOR	0.635	0.003	0.51%
US Dollar Index (DXY)	97.37	-0.224	-0.23%
10 Year Govt Bond Yield	1.94%	0.06%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.6
BankRate 30 Year Fixed Rate Mortgage	3.71

Stocks are flat this morning after the ECB's new stimulus plans earned a big yawn from the markets. Bonds and MBS are down.

The ECB cut interest rates again, and threw a kitchen sink worth of QE, lender subsidies, and other goodies.They will also start buying corporate debt. Not sure what the markets were looking for, but Euro rates are higher this morning with the German Bund yielding 32 basis points, up 8. This is what is dragging US rates higher. Buy the rumor, sell the fact, I guess.

Initial Jobless Claims came in at 259k, while the Bloomberg Consumer Comfort Index ticked up slightly to 43.8.

Americans have regained most of the wealth lost when the real estate bubble burst. Homeowners' equity has more or less doubled since the lows of 2009. Since 2013, real estate has outperformed ther S&P 500 by 16 percentage points.

Bank of America is forecasting home prices will rise 3.6% this year.

Is the global economy going through a great metamorphosis?

Morning Report: The ECB disappoints, send bond yields higher

Vital Statistics:

	Last	Change	Percent
S&P Futures	2082.5	0.9	0.04%
Eurostoxx Index	3370.2	-98.4	-2.84%
Oil (WTI)	40.63	0.7	1.73%
LIBOR	0.422	0.006	1.44%
US Dollar Index (DXY)	98.52	-1.472	-1.47%
10 Year Govt Bond Yield	2.23%	0.05%
Current Coupon Ginnie Mae TBA	104.2
Current Coupon Fannie Mae TBA	103.5
BankRate 30 Year Fixed Rate Mortgage	3.8

Stocks are flat after the ECB cut rates again and promised more stimulus. Bonds and MBS are down. 

ECB President Mario Draghi announced more quantitative easing and a cut in rates. They maintained their main rate at 0.05% and cut the deposit rate to -.3%. Apparently it wasn't enough as bond yields are up worldwide.

Janet Yellen will be speaking in front of Congress starting at 10:00 am. 

The ISM Non-Manufacturing Index fell from 59.1 to 55.9 in November, coming in well below expectations. Note the ISM Manufacturing Index also missed estimates and came in below 50, which indicates deceleration in the manufacturing sector. The employment sub-index fell, and some business owners are blaming Obamacare for higher costs.

Factory Orders rose 1.5%, a bit better than expectations, while durable goods orders were revised downward to 2.9%. Capital Goods Orders ex-defense and aircraft (a proxy for business capital expenditures) rose 1.3%. 

Job cut announcements fell 13.9% to 31,000, according to outplacement firm Challenger, Gray and Christmas. This is the lowest level in over a year. 

Initial Jobless Claims rose 9k to 269k. Initial Jobless Claims are still at multi-decade lows, which is amazing when you take into account population growth.

The Bloomberg Consumer Comfort index fell again last week to the lowest level in a year. Consumers are becoming more pessimistic about the economy, with 31% having a positive view and 69% having a negative view. FWIW, November same store sales are coming in this morning from the retailers, and they look to be disappointing.

Bill Gross's latest investment outlook is out. He is advising clients to gradually de-risk their portfolios during 2016. His thesis is that years of QE have essentially hollowed out real economies as it allows zombie corporations to continue to exist and it punishes savers and insurance companies / pension funds. Of course he is talking his own book to some extent. There is no doubt that the fear of the unintended long-term consequences of ZIRP and QE are coming into play with the Fed's plan to raise interest rates in the US. 

Morning Report: China cuts rates

Vital Statistics:

	Last	Change	Percent
S&P Futures	2069.3	16.2	0.79%
Eurostoxx Index	3439.4	86.3	2.57%
Oil (WTI)	45.22	-0.2	-0.35%
LIBOR	0.316	-0.004	-1.25%
US Dollar Index (DXY)	96.71	0.335	0.35%
10 Year Govt Bond Yield	2.09%	0.06%
Current Coupon Ginnie Mae TBA	105
Current Coupon Fannie Mae TBA	104.5
BankRate 30 Year Fixed Rate Mortgage	3.78

Stocks are higher this morning after China cut interest rates. Bonds and MBS are down. 

Definitely a risk-on feel to the markets after yesterday's torrid rally. China's easing and yesterday's comments from the ECB regarding further QE are putting green on the screen. All of this stimulus is going to make it harder for the Fed to raise rates.  Economists are beginning to warn of a global recession.

China's official growth rate is just shy of the government's 7% goal. Nobody actually believes that number however - estimates by foreign economists are closer to 3%.

The Markit US Manufacturing PMI rose in October.

The House Financial Services Committee spent some time yesterday looking at the future of HUD. The hearing looked at how HUD could help people escape poverty instead of simply pushing people to build more affordable housing. HUD has been very aggressive in suing local communities to change their zoning laws. 

Morning Report - Pending Home Sales hits a 9 year high.

Vital Statistics:

	Last	Change	Percent
S&P Futures	2117.1	-3.8	-0.18%
Eurostoxx Index	3658.5	-24.3	-0.66%
Oil (WTI)	57.02	-0.5	-0.85%
LIBOR	0.286	0.001	0.47%
US Dollar Index (DXY)	97.43	0.062	0.06%
10 Year Govt Bond Yield	2.14%	0.01%
Current Coupon Ginnie Mae TBA	102.2	0.1
Current Coupon Fannie Mae TBA	101.1	0.0
BankRate 30 Year Fixed Rate Mortgage	3.94

Stocks are lower this morning on overseas weakness. Bonds and MBS are flat.

Pending Home Sales rose 3.4% in April, and reached their highest level in 9 years, according to the NAR. Good news for originators focused on the purchase business. After a weak start to the year, sales in the Northeast and the Midwest picked up smartly. Sales in the West were almost flat. NAR expects to see existing home sales come in at 5.24 million in 2015, and the median house price to rise 6.7%. This is ALL inventory-driven, and these increases are vulnerable if wage inflation doesn't pick up soon. The ratio of the median house price to median income has topped 4x and is already well above its historical norm of 3.15x - 3.55x. At the height of the bubble, the ratio hit 4.8x. 

Initial Jobless Claims came in at 282k, the 12th straight week below 300k. A 300k level in initial jobless claims is usually associated with strong economies. People who have jobs are definitely not losing them, however the long-term unemployed and the involuntarily employed part-time are still trying to return. I still think you won't see meaningful moves out of the Fed until we start seeing wage inflation, and that has been slow to materialize.

The Bloomberg Consumer Comfort Index fell to 40.9 from 42.4 in the prior week. This is a 5 month low. The view of the state of the economy has fallen markedly over the past 5 weeks, however people's personal financial situation has not changed. Consumers are still more reluctant to spend money, which is a result of their perception of the economy. Note that we will get the second revision to GDP tomorrow, and the Street is forecasting that Q1 GDP contracted by 0.8%. 

Debt talks with Greece appear to be going nowhere still. The ECB is worried about contagion if a deal is not reached quickly. “In the absence of a quick agreement on structural implementation needs, the risk of an upward adjustment of the risk premia demanded on vulnerable euro-area sovereigns could materialize,” the ECB said in its twice-yearly Financial Stability Review published Thursday in Frankfurt. What this means is that you could see the yields on the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) go one direction, while yields on Northern European debt move the other way. That said, you have to put this in perspective. The US 10-year yields 2.14% and the dollar is strengthening. The Italian 10 year yields 1.85%. Spain yields 1.82%. Ireland 1.2%, Portugal 2.52%. All in the context of Euro weakness. The yields on PIIGS debt is being artificially held down by central bank activity, and the fear is that they could begin to reflect economic reality.