Morning Report: Janet Yellen is constructive on the economy

Vital Statistics:

	Last	Change
S&P Futures	2554.8	2.0
Eurostoxx Index	391.7	0.3
Oil (WTI)	52.3	0.8
US dollar index	86.4	0.1
10 Year Govt Bond Yield	2.29%
Current Coupon Fannie Mae TBA	102.875
Current Coupon Ginnie Mae TBA	103.938
30 Year Fixed Rate Mortgage	3.86

Stocks are higher this morning on no real news. Bonds and MBS are down small. 

Janet Yellen discussed the strong economy on Sunday, and again hinted that we will see another rate hike in December. The hurricanes will probably depress growth slightly, but the economy should rebound by year's end. The consumer is still pretty strong, according to Friday's retail sales report. Persistently slow inflation has been a surprise, however.

Manufacturing was strong in the NY area according to the Empire State Manufacturing Survey. The index came in at 30, which is the highest reading in 3 years. An increase in shipments and hiring drove the increase, which is one data point that shows the increase in sentiment indicators is actually translating into more business. 

Boston Fed President Eric Rosengren thinks we might see 3-4 rate hikes in 2018. This assumes that employment continues to rise and inflation begins to pick up. Friday's consumer price index report was weak, however with core inflation rising 0.1% MOM and 1.7% YOY, below the Fed's 2% inflation target. 

This week is the 30 year anniversary of the Crash of 87, and given the run up in the market, people are looking for another one. A lot will depend on earnings season, which is just starting. Given that the market is now dominated by high frequency traders that basically turn off their machines once volatility spikes you could see selling into a vacuum. Cheap commissions and sub-penny bid/ask spreads have pretty much eliminated the market-makers and the NYSE specialist from the game.

Average home sizes are falling in the US after rising for pretty much 3 decades. The average square footage decreased to 2420 square feet from the record of 2520 set in 2015. The Baby Boomer McMansion trend has run its course and builders are beginning to focus on starter homes in order to attract the Millennials. 

Morning Report: foreigners are investing in MBS again

Vital Statistics:

	Last	Change
S&P Futures	2185.0	5.0
Eurostoxx Index	346.5	0.4
Oil (WTI)	44.8	0.3
US dollar index	86.3	-0.2
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

Markets are higher this morning as emerging markets rally. Bonds and MBS are down

We will get a lot of data this week with housing starts and the FOMC minutes on Wednesday. The minutes are probably the most likely event to affect bonds. Earnings season is largely over except for the retailers.

The Empire State Manufacturing Survey fell in August, according to the NY Fed. New orders were flat. Employment contracted.The 6 month outlook dimmed as well. 

Foreign investors are beginning to wade into TBAs again as sovereign debt yields continue to offer nothing. Ginnie Mae TBAs stand to benefit the most, which means FHA and VA pricing should improve relative to Fannie Mae pricing. The next event to watch from the Fed will be their own TBA purchasing. The Fed is still re-investing maturing proceeds of their MBS portfolio back into the market. Part of policy normalization will involve ending this practice. 

Friday's weak retail sales data caused some strategists to take down their Q3 GDP numbers from the mid 2% to the low 2% range. 

Homebuilder sentiment improved in August to 60 from 58. We are entering the seasonal slowdown for the builders, which coincides with football season. 

Morning Report: consumer sentiment is falling

Vital Statistics:

	Last	Change	Percent
S&P Futures	2075.8	-0.8	-0.04%
Eurostoxx Index	3054.4	-6.4	-0.21%
Oil (WTI)	40.52	-1.0	-2.36%
LIBOR	0.628	-0.001	-0.20%
US Dollar Index (DXY)	94.76	-0.139	-0.15%
10 Year Govt Bond Yield	1.78%	-0.01%
Current Coupon Ginnie Mae TBA	105.5
Current Coupon Fannie Mae TBA	104.8
BankRate 30 Year Fixed Rate Mortgage	3.62

Markets are lower this morning as commodity prices fall. Bonds and MBS are up.

The Empire Manufacturing Index increased in April to the highest level in over a year. The bad news is that industrial production, manufacturing production and capacity utilization all fell in March. Some of that is going to be due to low oil prices, however global demand continues to fall. Economists are looking for weak Q1 GDP numbers, possibly below 1%. 

Consumer Sentiment dipped in April, as increasing gasoline prices rose. Most consumers think the economy is getting worse. This was borne out in the Fannie Mae Housing sentiment index where consumers are the most pessimistic about the economy in two years. 

Citigroup posted better than expected earnings this morning based on cost cutting. They launched a new round of layoffs, with up to 2,000 people being let go. Cost-cutting is the theme of banking right now, as Goldman is also calling for the deepest cuts in years. 

Foreclosures are declining in importance in most markets - in fact foreclosure activity is below pre-recession levels in just over a third of metro areas, according to RealtyTrac. “Despite a seasonal bump higher in March, foreclosure activity in most markets continues to trend lower and back toward more healthy, stable levels,” said Daren Blomquist, senior vice president at RealtyTrac. “More than one-third of the 216 local markets we analyzed were below their pre-recession foreclosure activity averages in the first quarter, and we would expect a growing number of markets to move below that milestone the rest of this year — while the number of markets with a lingering low-grade fever of foreclosure activity continues to shrink.”

We are starting to see weakness at the very high end of the real estate market. A combination of fevered building of luxury urban properties and waning overseas demand has created a glut of property in places like Miami, where prices are sliding 6% - 8%. The top 10% of condos saw a 15% price decline. Ever since the bust, luxury has been the only place that has been consistently working for builders. 

Economists are becoming less convinced we will see 2 more rate hikes this year. Given the fragile global economy and the complete absence of inflation, the risks of hiking are growing larger. Until you see wage inflation, it is hard to imagine any real inflation pushing through to consumers. Even then, the Fed has said they want to let the labor economy "run hot" for a while, which probably means they will accept moderate wage inflation for some period in order to get the labor force participation rate back up. 

Morning Report: A disappointing Empire State Manufacturing report

Vital Statistics:

	Last	Change	Percent
S&P Futures	2081.4	-8.0	-0.38%
Eurostoxx Index	3471.0	-20.1	-0.57%
Oil (WTI)	41.84	-0.7	-1.55%
LIBOR	0.324	0.004	1.23%
US Dollar Index (DXY)	96.6	0.084	0.09%
10 Year Govt Bond Yield	2.15%	-0.04%
Current Coupon Ginnie Mae TBA	104.1	-0.2
Current Coupon Fannie Mae TBA	103.4	-0.1
BankRate 30 Year Fixed Rate Mortgage	3.9

Markets are lower after a bad reading on the Empire State Manufacturing Survey. Bonds and MBS are up.

The Empire State Manufacturing Survey hit a 6 year low, as it tumbled from 3.9 to -15. This is generally not a market-moving index and it can be volatile, but given the dearth of things to trade on this morning, this is what people are focusing on. 

Homebuilder sentiment rose from 60 to 61 in July, according to the NAHB. 

The highlight of the week will be the FOMC minutes on Wednesday. Bloomberg has a helpful primer on how to read them. 

Oil has dropped below $42 a barrel and is back at 6 year lows. Interestingly, the consumer sentiment indices seem to have decoupled from oil prices. We saw that in the falling University of Michigan Consumer Sentiment survey last week. Oil's drop may appear to be a momentum trade, although speccies are still net long. 

Meanwhile in politics, Donald Trump remains the Republican headache that won't go away, and the email crisis remains the Democratic headache that won't go away. Bill and Obama went golfing over the weekend, so the fix is presumably in. That said, the Administration has thrown the book at every low-level type who mishandled classified info.

Morning Report - Hospital Thataway

Vital Statistics:

	Last	Change	Percent
S&P Futures	2097.5	6.6	0.32%
Eurostoxx Index	3808.6	24.0	0.63%
Oil (WTI)	54.39	1.1	2.06%
LIBOR	0.275	-0.002	-0.61%
US Dollar Index (DXY)	99.16	0.429	0.43%
10 Year Govt Bond Yield	1.89%	-0.01%
Current Coupon Ginnie Mae TBA	103.6	0.2
Current Coupon Fannie Mae TBA	102.5	0.2
BankRate 30 Year Fixed Rate Mortgage	3.79

Markets are higher this morning as ECB President Mario Draghi speaks and bank earnings continue to trickle in.

Mortgage Applications fell 2.3% last week. Purchases were down 3.1%, while refis were down 1.8%.

Some weaker economic data this morning: the Empire Manufacturing Index fell steeply in April, to -1.19 vs. 6.9 expected, while industrial production fell .6% and capacity utilization fell to 78.4%. Can't blame this on the weather - blame the dollar.  

Bank of America reported that mortgage originations increased 18% QOQ and 54% on a YOY basis. Between JPM, BAC, and WFC, it looks like the mortgage business is improving quite a bit. Maybe the long-awaited turn in the real estate sector is upon us. We will get more data tomorrow with housing starts and building permits. 

Builder confidence rose 4 points in March, according to the NAHB. 

Hillary officially launched her campaign over the weekend, unveiling her new logo, which looks like "Hospital Thataway."  Suffice it to say, the H logo appears to be a bomb, and the interwebs are already making fun of it.