Morning Report: FOMC minutes

Vital Statistics:

	Last	Change
S&P Futures	2348.0	1.5
Eurostoxx Index	379.8	-0.3
Oil (WTI)	51.4	0.2
US dollar index	90.5
10 Year Govt Bond Yield	2.35%
Current Coupon Fannie Mae TBA	102.53
Current Coupon Ginnie Mae TBA	103.813
30 Year Fixed Rate Mortgage	4.07

Stocks are lower this morning after the FOMC worried about stock prices. Bonds and MBS are down small. 

Job cuts rose 17% in March, according to outplacement firm Challenger, Gray and Christmas. Telecom and retail were the two main sectors to trim staff. Note that this report only measures announced job cuts (in press releases), not actual job cuts. We are still seeing losses in the energy patch, however it is much slower than the past two years when we lost over 200k jobs. 

On the other side of the coin, hiring announcements continue to hit records, with the Home Despot announcing 80,000 seasonal hires in March. 

Initial Jobless Claims fell to 234k last week, while the Gallup Good Jobs index improved. The drop in initial jobless claims was the most in 2 years. 

The FOMC minutes showed the Fed is beginning to discount the possibility of a big Trump fiscal expansion. The failure of health care reform means that the available resources for a big infrastructure spend or tax cuts is much less. The Fed also discussed what to do with their $4.5 trillion balance sheet, and how to go about shrinking it. The terms "gradual" and "phase out" were used, which means they probably aren't going to stop reinvesting maturing principal all at once and will perhaps take a couple of meetings to see how it goes. The Fed's fear is that the additional contractionary effects of reducing the balance sheet along with rate hikes will be too much and push the economy into a recession. 

The staff also noted that stock values are above historical norms, which is undoubtedly another reason for them to go slowly. The worst-kept secret in financial markets is that the Fed targets asset prices and uses them to guide policy. 

Goldman Chief Economist Jan Hatzius says that reducing the Fed's balance sheet is probably a good step to clear the decks for whoever will be the new Fed President ahead of the end of Janet Yellen's term in early 2018. 

The left has set up a new website to keep track of HUD and what they are doing. They want to ensure that affordable housing targets don't fall by the wayside as HUD works on housing reform. Given the tight housing inventory these days, affordable housing is a huge need. 

Donald Trump economic adviser Gary Cohn supports some sort of return to the Glass-Steagall days, where consumer banking is separated from the underwriting and trading functions of investment banks. Some Senators and policy types were surprised to hear a Wall Street type advising that. The conversation regarding deposits will be further complicated by the emerging fintech sector which wants access to those deposits as well. 

The Senate is expected to exercise the nuclear option today and eliminate the filibuster for Supreme Court nominees. Neil Gorsuch will probably be confirmed on Friday. 

Morning Report: Big week for Washington

Vital Statistics:

	Last	Change
S&P Futures	2358.5	-0.8
Eurostoxx Index	381.4	0.3
Oil (WTI)	50.8	0.0
US dollar index	90.4
10 Year Govt Bond Yield	2.38%
Current Coupon Fannie Mae TBA	103.41
Current Coupon Ginnie Mae TBA	103.7
30 Year Fixed Rate Mortgage	4.13

Stocks are flattish on no real news. Bonds and MBS are flat as well.

The ISM Manufacturing Report ticked up slightly in March. New orders and production slipped while employment gained. Prices rose as well. The reading of 57.2 would correspond historically with about a 4.4% increase in real GDP.

Construction spending rose 0.8% MOM in February and is up 3.0% annualized. Residential construction rose 1.8% MOM and is up 6.3% YOY. 

We have a relatively news heavy week coming up with the FOMC minutes and the jobs report. We will also get the ISM data this week. 

This week will give will also be important politically. Republican Supreme Court nominee Neil Gorsuch will be voted on in the Senate. Minority leader Chuck Schumer has demanded a 60 vote threshold to confirm him (here is the current state of affairs there), and Mitch McConnell has said Gorsuch is getting confirmed one way or the other, which is a threat to change Senate rules on judicial nominations (the nuclear option). If the Democrats filibuster Gorsuch and McConnell changes the rules, it pretty much poisons the well for any sort of bipartisan legislation like health care reform, tax reform, or financial reform. This would be good for rates at the margin. 

Cash-out refinances are about 44% of all refis these days, which is a pickup from the depths of the bubble, but nowhere near the heady times of the bubble years where people used cash out refis to fund consumption. Today, cash-out refinances are used more to refinance debt, especially credit card debt. 

As a general rule, when stocks and bonds disagree, go with what bonds are telling you. Mohammed El-Arian breaks that rule to say the bond market has it wrong. His point is that the bond market is underestimating how assertive the Fed is becoming. 

Good article for the first time homebuyer.. All the stuff that can come up and surprise you. Bonus tip: Don't load up on credit for all the things you will need for your new house until after your loan closes.