Morning Report: Slow week coming up

Vital Statistics:

	Last	Change
S&P Futures	2437.0	7.3
Eurostoxx Index	391.4	2.8
Oil (WTI)	44.8	0.1
US dollar index	88.6	0.2
10 Year Govt Bond Yield	2.17%
Current Coupon Fannie Mae TBA	103.31
Current Coupon Ginnie Mae TBA	104.375
30 Year Fixed Rate Mortgage	3.89

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

Slow news day.

We don't have much in the way of important economic data this week (new home sales on Friday is probably the biggest), but we do have a lot of Fed-speak. Also, the Fed will release the results from its latest stress tests on Thursday afternoon. We will get some more housing data with existing home sales and the FHFA House Price Index. 

Where do the Fed Funds futures stand after the FOMC meeting last week? For the upcoming July meeting, a 97% chance of no changes to rates. For the Sep meeting, an 87% chance of no changes, and for December a 54% chance of no moves. The Fed continues to insist that the weak inflation numbers are transitory, however the markets don't seem to believe them. Note that monetary policy is a partisan issue as well. 

Another reason why inventory is so tight? 10% of the housing starts last year were tear-downs, which means a new structure is replacing an older one, so there is no net change in housing inventory. 

Debt supernova? Bill Gross warns of the possible negative consequences of $9.5 trillion in negative-yielding sovereign debt. The problem with the supernova theory is that most of the buyers of this negative yielding debt are central banks, not retail investors, and central banks are doing it for policy reasons. It is still strange though, Grandpa tell me again about how you had to pay money to lend to the government?

Elizabeth Warren wants the Fed to fire Wells Fargo's Board of Directors. 

Morning Report: manufacturing disappoints

Vital Statistics:

	Last	Change
S&P Futures	2126.5	-0.5
Eurostoxx Index	338.0	-2.0
Oil (WTI)	40.4	0.0
US dollar index	88.3	-0.2
10 Year Govt Bond Yield	1.78%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.58

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

Manufacturing in the US rose slightly in September, but came in lower than expected. August's numbers were revised downward. Industrial Production rose 0.1%, while manufacturing production rose 0.2%. Capacity Utilization rose to 75.4%. The strength in the dollar is probably driving the weakness. 

Manufacturing dropped in New York last month, according to the Empire State Manufacturing Index. The index fell for the third month in a row. 

The black swan event for the financial markets? A democratic party sweep in November. If so, buy infrastructure stocks, sell pharma and financials. 

Meanwhile, turnout is looking to be low this year as voters dislike both candidates and are tuning out all the rhetoric. 

Elizabeth Warren fired a shot across the bow of the SS Hillary, directing her to demote SEC Chair Mary Jo White. Her sin? Not going along with the left who wants more disclosure of political activities and donations for corporations. Of course this has absolutely nothing to do with investor protection: it is more about using the regulatory power of the SEC to silence opinions that she doesn't approve of (mainly businesses that donate to the Chamber of Commerce or other groups that argue for lighter regulation or lower taxes). 

Morning Report: ADP forecasting 200,000 jobs in September

Vital Statistics:

	Last	Change	Percent
S&P Futures	1894.9	20.4	1.09%
Eurostoxx Index	3105.2	75.3	2.48%
Oil (WTI)	45.02	-0.2	-0.46%
LIBOR	0.327	0.001	0.15%
US Dollar Index (DXY)	96.19	0.330	0.34%
10 Year Govt Bond Yield	2.08%	0.03%
Current Coupon Ginnie Mae TBA	104.5	-0.1
Current Coupon Fannie Mae TBA	104.2	-0.1
BankRate 30 Year Fixed Rate Mortgage	3.85

Stocks are up this morning on no real news. Feels like end of month / quarter window dressing. Bonds and MBS are down small

The economy added 200,000 jobs in September, according to ADP. This is bang in line with the Street estimate for payrolls on Friday. Note that the initial reports of late summer payrolls seem to consistently miss on the downside and are usually revised upward in subsequent months. 

Mortgage Applications fell 6.7% last week as purchases fell 5.6% and refis fell 7.5%. 

The ISM Milwaukee index fell to 39.44 from 47.7 last month. The Chicago Purchasing Manager Index fell to 48.7 from 54.4. The strong dollar is taking its toll on manufacturers. 

All cash sales dropped to 31% in June, according to Corelogic. The historical, pre-bubble average is close to 25%. This speaks to the lack of first time homebuyers. It also speaks to an increase in gettable loans as that number reverts to the mean, even if home sales remain flat.

One of the big questions facing the Fed concerns falling unemployment and a falling labor force participation rate. Intuitively, you would think that as unemployment falls, people who are not currently in the labor force but want to be would find jobs, which would push up the participation rate. If the labor force participation rate remains low, that means the potential growth of the economy remains low, which means a slow, plodding recovery that won't feel like any sort of economic boom. It also means inflation should, at least in theory, come back as companies bid up the wages of the fewer workers that are left. So far we aren't seeing that. Millennials should be picking up the slack of retiring boomers but so far it hasn't happened. And if Millennials don't do it, then you need to pick up immigration. 

Elizabeth Warren is mad that the government is selling distressed mortgages to hedge funds and private equity firms and wants them sold to non-profit firms. She is of the opinion that hedge funds and private equity firms pursue foreclosure too quickly and said “The heart of it is these loan sales need to come with strings attached with basic outcomes for homeowners.” She is either posing for the cameras or completely uninformed: They do come with strings attached. You usually cannot foreclose for at least a year and must hold the loans for a period of several years. 

Heading into campaign season, Americans' trust in the media is at an all time low. 

Morning Report - Optimism on housing, but pessimism on the economy

Vital Statistics:

	Last	Change	Percent
S&P Futures	2110.1	3.2	0.15%
Eurostoxx Index	3571.8	45.3	1.28%
Oil (WTI)	60.88	-0.5	-0.90%
LIBOR	0.286	0.003	1.17%
US Dollar Index (DXY)	95.07	0.423	0.45%
10 Year Govt Bond Yield	2.44%	-0.05%
Current Coupon Ginnie Mae TBA	100.2	-0.2
Current Coupon Fannie Mae TBA	98.81	0.3
BankRate 30 Year Fixed Rate Mortgage	4.14

Stocks are higher this morning after retail sales came in better than expected. Bonds and MBS are up.

Retail Sales rose 1.2% in May, matching estimates. The control group, which strips out some of the more volatile components rose 0.7%, higher than the 0.5% estimate. The big gainers were building supplies, autos and gasoline. 

Import prices rose 1.3% on a month-over-month basis. Business Inventories picked up 0.4% as well.

Initial Jobless Claims came in at 279,000, a strong number. This is the 14th consecutive week below 300k. 

The Bloomberg Consumer Comfort index slipped to 40.1 from 40.5. These sorts of consumer confidence / sentiment indices are really inverse gasoline price indices. 

2015 could be the best year in housing since 2006, according to the NAR. Rising rates are not discouraging buyers - in fact the opposite is happening. Buyers are worried that affordability is going down and that is motivating them to buy now. 

Separately, consumers are getting more bullish on housing, according to the Fannie Mae National Housing Survey. They are not getting more bullish on the economy however, even though their incomes are rising. Pessimism about the economy is at a six month high. 

The left is all up in arms after Jamie Dimon said that Elizabeth Warren doesn't understand the business of banking. I have seen stories where she confuses lending and servicing, so Jamie has a point. She has found her niche as the Ted Cruz of the Left - happy to play to the base and annoy her adversaries with overheated rhetoric. It is okay, Liz, even the really smart people don't understand it all that well.

Morning Report - ADP employment report misses

Vital Statistics:

	Last	Change	Percent
S&P Futures	2052.1	-9.4	-0.47%
Eurostoxx Index	3738.4	33.4	1.04%
Oil (WTI)	47.28	0.28	0.73%
LIBOR	0.269	-0.001	-0.30%
US Dollar Index (DXY)	98.135	-0.252	-0.26%
10 Year Govt Bond Yield	1.88%	-0.05%
Current Coupon Ginnie Mae TBA	102.5	0.0
Current Coupon Fannie Mae TBA	101.9	0.2
BankRate 30 Year Fixed Rate Mortgage	3.79

Stocks are lower this morning after the ADP jobs data came in light. Bonds and MBS are up.

Construction spending fell by .1% in February and January was revised down by 1.7%. Residential construction continues to lag the economy, however office construction is picking up. This is somewhat surprising given vacancy rates are still elevated.

The ISM Manufacturing Index fell to 51.5 in March. This is the first look at March data, and you can't blame the weather this time.

Payrolls increased by 189k in March, according to ADP. The Street is currently predicting that Friday's jobs report will show an increase of 245k. Note that the government will be open on Good Friday however the stock markets will be closed and bonds will have an early close. We could see some volatility in bonds if the payroll data is unusually weak or wage inflation in unusually high.

It looks like the dumb money is piling into the Chinese stock market, and much of it is leveraged. This was after the government started telling people that stocks were cheap. The government already has problems with an over-built real estate market and is pulling policy levers to support prices. Historically governments have never been able to manage the deflation of asset prices in an orderly manner, and it is unlikely the Chinese government will be able to either. Their banking system is already on shaky ground. What that means for the US is unclear. We should see Chinese money exit the luxury real estate market in the US, but what happens to Treasuries is anyone's guess.

Student loan debt is a big problem for the first time homebuyer, as everyone knows. At the same time, there is a movement to begin debt strikes, where students refuse to pay back their loans. At the moment, it is limited to the failing private for-profit universities, however if this gains traction, it could spread. The left, led by Elizabeth Warren, has been egging this on a bit, but they are playing with fire. The government backs these loans and will have to eat the losses if this movement grows.