Morning Report: Job openings at 6 million

Vital Statistics:

	Last	Change
S&P Futures	2651.8	0.8
Eurostoxx Index	389.0	-0.2
Oil (WTI)	57.5	0.2
US dollar index	87.2	-0.1
10 Year Govt Bond Yield	2.37%
Current Coupon Fannie Mae TBA	102.625
Current Coupon Ginnie Mae TBA	103.625
30 Year Fixed Rate Mortgage	3.92

Stocks are flat this morning after a bomb went off in New York City's Penn Station. Bonds and MBS are up small. 

This week will be dominated by the FOMC meeting on Tuesday and Wednesday. The markets are forecasting a 25 basis point hike in the Fed Funds rate, but the economic forecasts will be the focus, as well as the dot plot. It will be interesting to see the 2018 GDP forecast. The Fed was consistently high in their GDP estimates during the Obama administration, however their 2.1% forecast for 2017 looks to have been way light, given that the NY Fed just upped its Q4 GDP estimate to 3.92%. That would put 2017 GDP growth just shy of 3% for the year. 

Job openings were largely unchanged at 6 million in October, according to the JOLTS survey. The hires rate increased to 5.6 million. The quits rate was unchanged at 2.2%. The quits rate is the most important number in this release, as increases in the rate usually correspond to increases in wage growth. 

So far, the Fed's tightening has had almost no effect on the market. In the old days, a couple Fed Funds hikes and you would start to see a slowdown. If anything, the economy is accelerating, not decelerating. JP Morgan believes that we won't see a meaningful effect on the economy until we get to a real 1% Fed Funds rate, where "real" means inflation-adjusted. Currently, the Fed Funds real rate is negative (inflation is higher than the Fed Funds rate). Once the Fed Funds rate is 1.5% higher (or around 2.5%, we should see an impact, which makes that a 2019 event, not a 2018 event.

35% of new home sales in October were for homes that hadn't even begun construction, the highest number since 2005. Shortages of skilled labor, along with increasing commodity prices are preventing new home sales and housing starts from being high enough to meet demand. Housing will almost certainly be the engine to propel US economic growth over the next few years. 

Last week, a news story suggested that the Trump CFPB would back off the banks, referring mainly to Wells Fargo. He then tweeted that the story is false, and if anything, he would increase penalties on the banks for bad behavior. 

Morning Report: Decent jobs report

Vital Statistics:

	Last	Change
S&P Futures	2378.0	11.8
Eurostoxx Index	374.8	1.9
Oil (WTI)	49.9	0.6
US dollar index	91.9
10 Year Govt Bond Yield	2.60%
Current Coupon Fannie Mae TBA	101.438
Current Coupon Ginnie Mae TBA	102.784
30 Year Fixed Rate Mortgage	4.21

Stocks are higher this morning after a strong jobs report. Bonds and MBS are up small. 

Jobs report data dump:

• Payrolls up 235k vs 200k expected
• unemployment rate 4.7%
• labor force participation rate 63%
• average hourly earnings up 0.2% MOM, up 2.8% YOY

Overall a decent report. Didn't match the ADP number on payrolls, but ADP generally correlates with the revised BLS report, not the first one. Looks like the Fed is going to hike next week. Note another big increase in construction employment, to 58k, which is the highest since 2007. Bonds had already sold off on the strong ADP number, so they are recouping some of those losses today. 

Donald Trump met with community bankers yesterday and promised to ease the regulatory burden the state has imposed on them. There has generally been bipartisan agreement that the regulatory burden on small banks has been too heavy, and that it is inhibiting credit to small business. 

Goldman is out with a call this morning forecasting that the Fed will hike 3x this year: March, June, and September. They expect the Fed to end their reinvestment of maturing assets in the fourth quarter this year. The end of reinvestment shouldn't have a major effect on mortgage rates, since spreads were largely insensitive to QE in the first place. 

The Fed funds futures are now forecasting a 50% chance of a June rate hike, up from about 20% a couple weeks ago. 

Household net worth increased to record levels in the fourth quarter, according to the Federal Reserve. The ratio of net worth to disposable income hit 6.5x, which matches bubble-era highs.