Morning Report: Yellen calms the markets

Vital Statistics:

	Last	Change	Percent
S&P Futures	1866.6	-17.9	0.92%
Eurostoxx Index	2882.8	-13.8	-0.48%
Oil (WTI)	27.85	-0.1	-0.40%
LIBOR	0.619	0.001	0.10%
US Dollar Index (DXY)	96.44	-0.850	-0.87%
10 Year Govt Bond Yield	1.74%	0.02%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.69

Stocks are higher this morning based on prepared testimony for Janet Yellen's appearance before Congress. Bonds and MBS are down small.

Keep in mind that the Chinese stock market is closed all week in observance of the Chinese New Year, so the biggest catalyst for downside movement in the markets will be absent this week. 

Janet Yellen is traveling to the Hill for her Humphrey Hawkins testimony. In her prepared remarks she did spend some time talking about the turmoil in the financial markets and that acknowledgement was soothing enough to stocks to give them a boost. Overall, however the message is that the US economy is improving, and rate are going up gradually. The rest of the testimony will probably be a bunch of ideological questions from various congresscritters trying to get the Chairman of the Fed to agree with their ideological worldview. 

Goldman is forecasting 3 rate hikes in 2016. Given the overall weakness in the global economy and the rush to negative interest rates globally, it may not affect long-term interest rates in the US (or mortgage rates for that matter).

Blackrock is forecasting that US growth has probably peaked for the near term as more and more central banks enter the negative interest rate vortex. I wonder what our grandkids will think about today's PhD standard. If it ends up not working, do we go back to the gold standard?

In New Hampshire, Bernie Sanders won the Democratic primary vote, and Donald Trump won the Republican primary vote. John Kasich had a surprisingly strong showing.

Mortgage Applications rose 9.3% last week as purchases were up 0.2% and refis were up 15.8%. The refi index has had a nice run since rates started collapsing, but we are nowhere where we used to be compared to 2013.

Competition in the jumbo market is fierce, and the typical rate for a jumbo is now 15 basis points below a conforming mortgage. Historically, jumbos have cost an extra 25 basis points to the borrower. 

Do you think your underwriters are approving too many shaky loans? Move them to Seattle. Are they too conservative? Move them to San Diego. 

Morning Report: The global engines of growth are stalling

Vital Statistics:

	Last	Change	Percent
S&P Futures	1847.6	-4.9	-0.12%
Eurostoxx Index	2882.8	-13.8	-0.48%
Oil (WTI)	32.15	-0.1	-0.40%
LIBOR	0.619	0.001	0.10%
US Dollar Index (DXY)	96.44	-0.850	-0.87%
10 Year Govt Bond Yield	1.73%	-0.02%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.69

Markets are down after yesterday's blood bath. Bonds and MBS are up small.

Since the Fed tightened rates at the December meeting, the 10 year bond yield has fallen by 58 basis points. Fun fact: The Japanese 10 year bond yield is now negative.

In economic data, the NFIB Small Business Optimism Index fell from 95.2 to 93.9 last week. This is surprisingly tame given the activity in the markets over the past couple months. That said, small business optimism didn't ride the post-2009 rally in the markets up, so it probably will be a little insulated on the way down. Hiring plans remain intact, which is a good sign, however finding qualified applicants continues to be an issue. 

Job openings are pushing close to new highs, according to the JOLTS job report. Quits are increasing, which is a bullish sign for the labor markets.

Wholesale sales and inventories both fell in December. We are seeing a buildup in inventory, which is bearish for the economy.

Bottom line: the markets are signalling pain in the global economy, but it is hard to draw the conclusion that conditions in the US are driving it. If anything, the US appears to be taking its historical role of the engine of growth in a soft global economy.

The canary in the coal mine (besides oil) has been the absolute carnage in the banking sector, especially overseas. Deutsche Bank has been cut in half since September. Same as Credit Suisse. Citigroup is down 27% since Jan 1. So is BNP Paribas. Not sure what this is signalling (exposure to energy? exposure to China?) but it is a big warning button for the global economy and it is flashing red.

Even though the economy has recovered, the hatred of the financial sector hasn't changed, and it is being channeled through Bernie Sanders. The ironic thing is that the "Wall Street" they are railing against hasn't existed for 10 years. Regardless it isn't an environment conducive to risk-taking. 

Speaking of politics, the New Hampshire Primaries are today. Clinton and Sanders look neck and neck, and Trump looks to be ahead of the pack for the Republicans. 

Completed Foreclosures fell to 32,000 in December, which is down 2.4% from November and 22.6% year-over-year. 

Morning Report: Wage inflation is beginning to creep up

Vital Statistics:

	Last	Change	Percent
S&P Futures	1896.6	-11.9	-0.62%
Eurostoxx Index	2882.8	-13.8	-0.48%
Oil (WTI)	32.15	-0.1	-0.40%
LIBOR	0.619	0.001	0.10%
US Dollar Index (DXY)	96.44	-0.850	-0.87%
10 Year Govt Bond Yield	1.87%	-0.02%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.69

Stocks are lower this morning after the jobs report. Bonds and MBS are down

Jobs report data dump:

• Nonfarm payrolls + 151k vs 190k expected
• Unemployment rate 4.9%
• Average Weekly Hours 34.6
• Average Hourly Earnings up 2.5%
• Labor force participation rate

Overall a good report, Payrolls are disappointing, but the rest is strong. We are starting to see the beginning of wage inflation with average hourly earnings up 2.5%. December's number was revised upward from 2.5% to 2.7%. Stocks and bonds are down as this report will keep pressure on the Fed to maintain its posture of normalizing rates. The 2-year yield is higher by 4 basis points.

Higher wage inflation coupled with no inflation equates to lower profit margins. Ironically, this is the sort of "middle class economy" that politicians are promising to bring back. Good for workers, not so much for investors. 

The rise in the dollar and the corresponding fall in commodity prices is wreaking havoc on other economies though. Citi is saying fear oilmageddon. This will be felt not only in developing economies like Russia and Brazil, but also developed economies like Canada and Norway. Norway's "economic miracle" may have simply been a massive leveraged bet on oil and real estate. 

Obama proposed slapping a $10 per barrel tax on oil. Obviously that is going nowhere..

1 in 3 houses are still bought with cash, according to CoreLogic. This is a drop of 3 percentage points from a year ago. 

Morning Report: Dismal economic numbers this morning

Vital Statistics:

	Last	Change	Percent
S&P Futures	1896.6	-11.9	-0.62%
Eurostoxx Index	2882.8	-13.8	-0.48%
Oil (WTI)	32.15	-0.1	-0.40%
LIBOR	0.619	0.001	0.10%
US Dollar Index (DXY)	96.44	-0.850	-0.87%
10 Year Govt Bond Yield	1.87%	-0.02%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.69

Stocks are lower this morning after we got some disappointing economic data. Bonds and MBS are up small.

Dismal economic numbers all around this morning

Productivity fell 3% in the fourth quarter and unit labor costs rose 4.5%. This is a recipe for falling profits in 2016. Given the tepid GDP growth being forecast for next year (sub 2%), companies will focus most on cost-cutting. Given the excess capacity in the manufacturing economy, companies have been reluctant to spend on capital expenditures, which has depressed productivity. Definitely not a recipe for releasing the animal spirits, although if builders start to address the tight supply, it will provide a good boost for the economy. 

Factory orders fell 2.9% in December, which was below the Street estimate. November's numbers were revised downward as well. 

Durable Goods orders fell 5% in December as well. Capital Goods orders (a proxy for capital expenditures by business) fell by 5%. This directly relates to the lousy productivity numbers above. 

Announced job cuts increased 41.6%, to over 75,000 according to outplacement firm Challenger and Gray. Most of the cuts are coming in retail and energy.  

Initial Jobless Claims rose 285k last week. 

The Bloomberg Consumer Comfort Index fell from 44.6 to 44.2 last week. 

Don't underestimate the Fed, which is the message from major strategists. Goldman Sachs Chief Economist Jan Hatzius is calling for a 3% 10 year by the end of the year. 

On the other hand, mortgage REIT American Capital Agency is calling for the Fed to abandon its "tightening bias" by the end of 2016. They see a hard landing in China, continued weakness in emerging markets, and undervalued Treasuries versus other benchmark sovereigns. 

In a testament to the change occurring in the financial markets, lenders like Quicken and SoFi will be advertising during the Super Bowl this year. 

Both Republicans and Democrats agree the economy is lousy, and both sides are going back to their boilerplate explanations. Democrats blame Wall Street and the rich, while Republicans blame government. The funny thing is that the "Wall Street" they rail against hasn't existed for almost 10 years.

Morning Report: How's that working for you?

Vital Statistics:

S&P Futures	1909.9	12.5	0.66%
Eurostoxx Index	2933.6	-18.2	-0.62%
Oil (WTI)	30.73	0.9	2.84%
LIBOR	0.619	0.006	0.98%
US Dollar Index (DXY)	98.32	-0.555	-0.56%
10 Year Govt Bond Yield	1.88%	0.04%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.71

Stocks are higher this morning after oil rebounds overnight. Bonds and MBS are down. 

Mortgage Applications fell 2.6% last week as purchases fell 7% and refis rose 0.3%. 

The ISM Non-Manufacturing Index fell to 53.5 from 55.8 in January

The ADP Employment Change report came in at 205k. The Street is forecasting 190k in Friday's jobs report. 

Bill Gross's latest Investment Outlook takes some shots at central bankers, and asks why we think negative interest rates are going to generate growth. As he says "How's that working for you?" While the consumer has deleveraged over the past 10 years, corporate america has not. That said, corporate america has taken advantage of record-low interest rates to refinance and extend high coupon debt with lower coupon debt. When people are willing to lend you money at 2% for 20 years, why not take it?

Speaking of negative interest rates, it seems the only nation anymore that isn't playing the beggar thy neighbor devaulation game is the US. Exports are falling, while imports are rising. This is the reason why we are seeing everyone - from Republicans to Democrats - willing to take potshots at free trade. Of course foreigners can accept one of two things in payment for their imports: goods and services from the US or IOUs (Treasuries). So far, they seem to want the IOUs. Which means interest rates are lower than they ultimately would be. Still manufacturing job losses are easy to point to versus interest rates and the benefits of cheaper imports. 

Another day, another settlement with the banks: Wells is paying FHA $1.2 billion over "failure to properly review early payment defaults in 2010-2012." And the government is scratching its head wondering why banks like JP Morgan are reducing / exiting FHA lending... At what point do these constant suits and settlements become simply a surtax on banking?

Morning Report: Since the Fed hike, bond yields have dropped 42 basis points.

Vital Statistics:

	Last	Change	Percent
S&P Futures	1912.5	-18.8	-0.97%
Eurostoxx Index	2972.3	-48.7	-1.61%
Oil (WTI)	30.16	-1.5	-4.62%
LIBOR	0.613	-0.003	-0.49%
US Dollar Index (DXY)	98.89	-0.119	-0.12%
10 Year Govt Bond Yield	1.90%	-0.05%
Current Coupon Ginnie Mae TBA	105.1
Current Coupon Fannie Mae TBA	104.6
BankRate 30 Year Fixed Rate Mortgage	3.76

Stocks are getting roughed up a little as overseas markets and oil continue to fall. Bonds and MBS are up sharply, with the 10 year trading just below 1.9%.

The ISM New York Index fell from 62 to 54.6 while the IBD / TIPP Economic Optimism Index ticked up slightly to 47.8. 

The winners in Iowa last night were Ted Cruz and Hillary Clinton. Unofficially, the winners were Rubio and Bernie. The losers? Donald Trump and the pollsters who had him in the high 40s. He came nowhere near that. Note that there are allegations of tomfoolery on the Democratic side with vote counting..

The correlation between global stock markets and the price of oil is somewhat strange - historically, high oil prices were considered bad for stocks, not good. While the drop in oil prices is certainly not good news for the big integrated energy companies, it is great news for consumers. Overall, the US benefits from low oil prices. The action in the stock market may be viewing the oil price as the canary in the coal mine for the global economy. 

For the time being, the drop in commodities and stocks is keeping a lid on interest rates, which is a good thing for originators. The 10 year is heading back to late winter / early spring of 2015 lows. Fun fact, since the Fed raised the Fed Funds rate on December 16th, the 10 year bond yield has dropped 42 basis points. The trader in me says bond yields have fallen too far too fast.  Loan officers, if you have someone floating, try and lock 'em.  And wake up any potential borrowers who missed out on refinancing the last time around. 

Delinquency rates continue to fall, according to Fannie Mae. In December, the seriously delinquent rate fell to 1.55% from 1.58% in November and 1.89% a year ago. Home price appreciation and an improving job market are doing their jobs. 

With house price appreciation increasing well in excess of wage inflation, how affordable is housing these days? It depends on the statistic you use. If you look at the median house price versus the median income, you would conclude that housing affordability is approaching the lows of the bubble. However, if you look at the mortgage payment on the median house divided by median income, housing is at pre-bubble levels affordability-wise. Another argument to find people with ARMs and refi them in to 30 year fixed rate mortgages. 

Morning Report: Big week ahead.

Vital Statistics:

	Last	Change	Percent
S&P Futures	1918.6	-11.5	-0.60%
Eurostoxx Index	2998.5	-46.6	-1.53%
Oil (WTI)	32.32	-1.3	-3.87%
LIBOR	0.613	-0.003	-0.49%
US Dollar Index (DXY)	99.26	-0.343	-0.34%
10 Year Govt Bond Yield	1.94%	0.02%
Current Coupon Ginnie Mae TBA	105.3
Current Coupon Fannie Mae TBA	104.6
BankRate 30 Year Fixed Rate Mortgage	3.76

Stocks are being weighed down by commodity weakness. Bonds and MBS are down small.

We have a big week of economic data, with the ISM numbers, construction spending, and the jobs report on Friday. Friday's jobs report will be the highlight of the week. 

Personal Income rose 0.3% in December, which was a little better than expected, although that money wasn't spent. Personal Spending was flat in December, which means the Great American Deleveraging continues to take place.

Inflation remains nowhere to be found, with the PCE Deflator negative in December on a month-over-month basis and up 0.6% YOY. The core PCE was flat in December and up 1.4% YOY. 

The ISM Manufacturing Index fell to 52.4 from 52.7 last month, while the ISM Manufacturing Index rose slightly to 48.2 from 48. 

Construction Spending rose 0.1% in December after falling 0.6% in November. 

Here are Realtor.com's list of the 20 hottest real estate markets right now. Very California-centric, however some surprises in Stockton, Detroit MI, and Fort Wayne, IN.