Morning Report: Decent jobs report

Vital Statistics:

	Last	Change
S&P Futures	2579.0	2.3
Eurostoxx Index	395.2	0.3
Oil (WTI)	54.8	0.3
US dollar index	87.7	0.0
10 Year Govt Bond Yield	2.34%
Current Coupon Fannie Mae TBA	102.875
Current Coupon Ginnie Mae TBA	103.938
30 Year Fixed Rate Mortgage	3.95

Stocks are up small after the jobs report. Bonds and MBS are up small. 

Jobs report data dump:

• Nonfarm payrolls up 261,000 versus 325,000 expected
• 2 month payroll revision up 90,000
• Unemployment rate 4.1% versus 4.2% expected
• Labor force participation rate 62.7% vs 63% expected
• Average hourly earnings flat / up 2.4% YOY.

Overall, a decent report. Payrolls disappointed, but the 2 month revision more than made up for the miss. The unemployment rate is now the lowest since 2000. The drop in the labor force participation rate and flat hourly earnings were disappointing, however. This report won't make any difference to the Fed's thinking for December, and the market is basically calling a 25 basis point hike a sure thing at this point. 

Note that the miss in average hourly earnings was driven in part by the hurricanes. Restaurant and bar jobs were hit the hardest in the areas affected, and they are lower paying jobs. The loss of these low-paying restaurant and bar jobs in September artificially increased average wages overall. That effect was reversed in October. 

The PMI for services was flat in October, while the ISM Services index increased to 60.1. Hurricane effects could be coming into play here as well. 

Factory orders increased 1.2% in September, as the manufacturing sector continues to expand. 

If you heard a snap yesterday, that was the sound of McMansions in places like Darien, CT and McLean, VA cracking on the proposed sharp reduction in the mortgage interest deduction. Luxury homebuilder Toll Brothers was down 6% yesterday on the proposal, which lowers the MID cap to $500,000 and ends the deduction for second homes. The homebuilder ETF was only down 2.5%. Automaker Tesla was also hit 7% on the proposed elimination of the $7,500 electric car tax credit. I also wonder how this will affect jumbo delinquencies and demand for jumbo MBS.  

The NAHB is warning that the change in the mortgage interest deduction could trigger a housing recession. Their point is that it will cause weakness in some high end markets and that weakness will spread to others. FWIW, I think the sheer lack of inventory is the most important characteristic of the current housing market and that will dominate. That said, it won't be good for home prices in the million dollar range at the margin, and some markets in California could see a moderation of home prices. 

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: Earnings season has been a disappointment so far

Vital Statistics:

	Last	Change	Percent
S&P Futures	2107.9	5.0	0.24%
Eurostoxx Index	3466.2	23.5	0.68%
Oil (WTI)	48.07	0.2	0.35%
LIBOR	0.334	0.000	0.00%
US Dollar Index (DXY)	97.57	0.411	0.42%
10 Year Govt Bond Yield	2.21%	0.00%
Current Coupon Ginnie Mae TBA	104.5
Current Coupon Fannie Mae TBA	103.9
BankRate 30 Year Fixed Rate Mortgage	3.78

Stocks are higher this morning after Tesla beat earnings estimates. Bonds and MBS are flat. 

Mortgage Applications fell 0.8% last week as purchases fell 0.6% and refis fell 0.9%. Mortgage rates spiked after the FOMC decision, so that could have been a factor. 

The ADP Employment Change report came in at 182,000 jobs, which is exactly the forecast for Friday's jobs report. 

The ISM services index rose to 59.6 from 56.9 in October, one of the bright spots economically. 

There will be lots of Fed-Speak today, with Janet Yellen, Stanley Fischer, and William Dudley all speaking at various points today. Yellen testifies about banking regulation at 10:00 am before the House Financial Services Committee. New York Fed president William Dudley speaks at 2:30. and Stanley Fischer will speak after the market closes. I don't expect Yellen's testimony to be market moving. 

What's old is new again: Amazon is opening a bookstore.

We had numerous elections last night - as a general overview Republicans are cheering this morning, while Democrats are talking about low turnout..

Earnings season is in full swing, and so far the box scores are pretty dismal. This is the worst quarter for earnings since 2009. Blame low commodity prices for the most part - the energy patch is getting killed with oil at these levels. This will make the stock market even more vulnerable once the Fed starts pulling away the punch bowl. 

Speaking of low energy prices, Transcanada has pulled its application for the Keystone XL pipeline, which inexplicably became a cause celebre for the environmental movement. Tar sands oil doesn't make sense at sub-$50 oil prices. 

Morning Report - the low end of the housing market is outperforming

Vital Statistics:

	Last	Change	Percent
S&P Futures	2073.6	0.4	0.02%
Eurostoxx Index	3766.9	51.6	1.39%
Oil (WTI)	51.55	-0.6	-1.13%
LIBOR	0.274	0.003	1.11%
US Dollar Index (DXY)	97.67	0.888	0.92%
10 Year Govt Bond Yield	1.90%	0.01%
Current Coupon Ginnie Mae TBA	103.1	#N/A N/A
Current Coupon Fannie Mae TBA	102.3	-0.1
BankRate 30 Year Fixed Rate Mortgage	3.75

Markets are flattish this morning on no real news. Bonds and MBS are down small.

The ISM Services index slipped to 56.5 in March, while job openings hit their highest yet at 5.1 million. 

It looks like the big bond rally on the weak jobs report was overdone. That said, there is no denying it was a lousy report, with payrolls coming in at 126k versus 245k expected, and the labor force participation rate falling back to its post-disco lows of 62.7%. About the only bright spot was the increase in wages. Can't blame this jobs report on the weather, although we may be starting to feel the effects of the stronger dollar. 

Tomorrow, we will get the minutes from the FOMC meeting last month. The focus will be on the thinking behind the removal of the word "patient." Given the weakness in the economic data lately, the Fed may choose to make its first move in September. 

We are starting to see the low end of the housing market outperform the high end, according to CoreLogic. Prices rose 5.6% in February and remain about 12% below the peak. House prices at the lower price points increased over 9%, while the high end increased about 5%. CoreLogic says this is the hottest price appreciation prior to the Spring Selling Season in 9 years. They are forecasting another 5% increase in prices this year.