Morning Report: FOMC week

Vital Statistics:

	Last	Change	Percent
S&P Futures	2091.8	0.8	0.2%
Eurostoxx Index	3054.4	-6.4	-0.21%
Oil (WTI)	40.26	0.5	0.36%
LIBOR	0.628	-0.001	-0.20%
US Dollar Index (DXY)	94.76	-0.139	-0.15%
10 Year Govt Bond Yield	1.88%	0.00%
Current Coupon Ginnie Mae TBA	105.5
Current Coupon Fannie Mae TBA	104.8
BankRate 30 Year Fixed Rate Mortgage	3.67

Stocks are down this morning on lower commodity prices. Bonds and MBS are flat.

We have a lot of data this week, with new home sales, Case-Shiller, and GDP. The FOMC will meet Tuesday and Wednesday, although the market is predicting that the Fed won't hike rates. Given the posture of traders, the risk is probably on the hawkish side. Here is an analysis of what the markets will be looking for. 

New home sales fell to an annualized pace of 511k in March. 

Why did interest rates rise so suddenly and dramatically last week? Many market participants were scratching their heads wondering what was going on. One theory: The European Central Bank's decision to adopt a "wait and see" attitude towards future stimulus gives the Fed the opportunity to raise rates at the June FOMC meeting. 

Republicans John Kasich and Ted Cruz came to an agreement to split their delegates in order to deny Donald Trump the 1,237 delegates he needs to claim the nomination. Bernie Sanders is pretty much down to his last 48 hours or so and should exit this week sometime. In other news, Charles Koch (who took the Darth Vader of the left mantle from Dick Cheney) said he could vote for Hillary over the Republican nominees. Does that mean he will give money to her campaign? Probably not, however he will probably put money to work down-ticket. 

Former Fed Head Narayana Kocherlakota says the Fed must be more aggressive in combating deflationary expectations. 

The bond market is as dangerous as it has ever been, according to many bond managers. A small uptick in rates can wipe out a year's worth of return. The flip side: borrowing is as attractive as it has ever been. The trade is to get out of ARMs, which will have their rates determined by LIBOR and into a 30 year fixed. 

Freddie Mac makes some predictions for 2016: Mortgage origination will be $1.7 trillion (an increase of $50 billion from their last estimate), Q1 GDP of 1.1%, and an average fixed rate mortgage of 4% for 2016. 

Morning Report: Since the Fed hike, bond yields have dropped 42 basis points.

Vital Statistics:

	Last	Change	Percent
S&P Futures	1912.5	-18.8	-0.97%
Eurostoxx Index	2972.3	-48.7	-1.61%
Oil (WTI)	30.16	-1.5	-4.62%
LIBOR	0.613	-0.003	-0.49%
US Dollar Index (DXY)	98.89	-0.119	-0.12%
10 Year Govt Bond Yield	1.90%	-0.05%
Current Coupon Ginnie Mae TBA	105.1
Current Coupon Fannie Mae TBA	104.6
BankRate 30 Year Fixed Rate Mortgage	3.76

Stocks are getting roughed up a little as overseas markets and oil continue to fall. Bonds and MBS are up sharply, with the 10 year trading just below 1.9%.

The ISM New York Index fell from 62 to 54.6 while the IBD / TIPP Economic Optimism Index ticked up slightly to 47.8. 

The winners in Iowa last night were Ted Cruz and Hillary Clinton. Unofficially, the winners were Rubio and Bernie. The losers? Donald Trump and the pollsters who had him in the high 40s. He came nowhere near that. Note that there are allegations of tomfoolery on the Democratic side with vote counting..

The correlation between global stock markets and the price of oil is somewhat strange - historically, high oil prices were considered bad for stocks, not good. While the drop in oil prices is certainly not good news for the big integrated energy companies, it is great news for consumers. Overall, the US benefits from low oil prices. The action in the stock market may be viewing the oil price as the canary in the coal mine for the global economy. 

For the time being, the drop in commodities and stocks is keeping a lid on interest rates, which is a good thing for originators. The 10 year is heading back to late winter / early spring of 2015 lows. Fun fact, since the Fed raised the Fed Funds rate on December 16th, the 10 year bond yield has dropped 42 basis points. The trader in me says bond yields have fallen too far too fast.  Loan officers, if you have someone floating, try and lock 'em.  And wake up any potential borrowers who missed out on refinancing the last time around. 

Delinquency rates continue to fall, according to Fannie Mae. In December, the seriously delinquent rate fell to 1.55% from 1.58% in November and 1.89% a year ago. Home price appreciation and an improving job market are doing their jobs. 

With house price appreciation increasing well in excess of wage inflation, how affordable is housing these days? It depends on the statistic you use. If you look at the median house price versus the median income, you would conclude that housing affordability is approaching the lows of the bubble. However, if you look at the mortgage payment on the median house divided by median income, housing is at pre-bubble levels affordability-wise. Another argument to find people with ARMs and refi them in to 30 year fixed rate mortgages.