Morning Report: Despite good labor news, more people worried about their jobs

Vital Statistics:

			Last	Change
S&P futures			2859	3.5
Eurostoxx index			389.41	-0.28
Oil (WTI)			67.29	0.35
10 Year Government Bond Yield				2.94%
30 Year fixed rate mortgage				4.58%

Stocks are higher this morning on decent earnings. Bonds and MBS are up.

Very slow news day. 

Initial Jobless Claims fell to 213,000 last week, an exceptionally low level. The 4 week average is sitting at 45 year lows. 

Inflation at the wholesale level was surprisingly weak in the first of two inflation readings this week. The Producer Price Index was flat MOM and rose 3.3% YOY. Ex-food and energy, it rose 0.1% MOM / 2.7% YOY. Tariffs explain some of it, but freight and packaging costs pushing prices higher too. 

Freddie Mac has extended mortgage forbearance measures due to the wildfires in California. Borrowers in FEMA-declared disaster areas may be allowed to suspend mortgage payments without penalty for up to a year. Fannie Mae is expected to do something similar. 

Fannie Mae's Home Purchase Sentiment Index fell in July for the second consecutive month as inventory and affordability issues weighed on homebuyer moods. The net number of respondents who think it is a good time to buy fell by 4 percentage points and the number who think it is a good time to sell fell by 6. Most respondents think mortgage rates and home prices will rise over the next year. One interesting data point: a big jump in the number of people who are worried about their job. The net number of people (% who are concerned less the % who are not concerned) fell by 11 percentage points. This certainly flies in the face of the data out there, and sentiment surveys are usually not very predictive, but it is a surprise. 

Morning Report: Fed Beige Book points to strong labor market

Vital Statistics:

	Last	Change
S&P Futures	2729.3	6.0
Eurostoxx Index	374.0	1.3
Oil (WTI)	61.2	0.0
US dollar index	83.6	0.1
10 Year Govt Bond Yield	2.87%
Current Coupon Fannie Mae TBA	102.25
Current Coupon Ginnie Mae TBA	102.5
30 Year Fixed Rate Mortgage	4.4

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

Donald Trump is set to impose tariffs on steel and aluminum, however there is talk of exempting Canada and Mexico from them (which is where we get most of our foreign steel to begin with). That exemption will be used as leverage to renegotiate NAFTA. So far, the trade war is largely symbolic - Trump tweeted that he wanted to see a $1 billion decrease in our trade deficit with China, which is about $375 billion. In other words, it is a drop in the bucket, and all for show. That might have been an error however, some reports are saying he meant $100 billion, which probably makes more sense. That said, stocks are taking the trade war in stride, and bonds seem to have found a level here. 

Initial Jobless Claims rose to 231k last week from 220k. Job outplacement firm Challenger, Gray and Christmas reported that companies announced 35,369 job cuts in February. 

The overall economy grew at a modest to a moderate pace in January and February, according to the Fed's Beige Book survey. With regard to employment, it said: "On balance, employment grew at a moderate pace since the previous report. Across the country, contacts observed persistent labor market tightness and brisk demand for qualified workers, as well as increased activity at staffing placement services. Several Districts reported continued worker shortages across most sectors, with contacts often mentioning shortages in the construction, information technology, and manufacturing sectors. In many Districts, wage growth picked up to a moderate pace. Most Districts saw employers raise wages and expand benefit packages in response to tight labor market conditions. Contacts in a few Districts conveyed reports of modest increases in compensation following passage of the Tax Cuts and Jobs Act." The increases in wage inflation are a good sign for the economy overall, but not so much for interest rates. The Street is looking for a strong reading in wage growth in tomorrow's Employment Situation Report: an increase of 2.9% YOY. 

Buyer sentiment fell last month, according to the Fannie Mae Home Purchase Sentiment Index. “Volatility in consumer housing sentiment continued into February, with the new tax law beginning to impact respondents’ take-home pay and the stock market creating negative headlines due to early-month turbulence,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “Additionally, consumers’ expectations for higher mortgage rates suggest that consumers expect the Fed to hike rates a few more times in 2018. We will continue to track how consumer housing attitudes trend in the coming months as these various market forces play out.”

Morning Report: Neel Kashkari to business: stop whining

Vital Statistics:

	Last	Change
S&P Futures	2474.0	-3.3
Eurostoxx Index	381.1	-0.9
Oil (WTI)	49.4	0.0
US dollar index	86.2	-0.1
10 Year Govt Bond Yield	2.26%
Current Coupon Fannie Mae TBA	103.197
Current Coupon Ginnie Mae TBA	104.068
30 Year Fixed Rate Mortgage	3.92

Stocks are lower this morning on no real news. Bonds and MBS are flat.

Job openings increased by 461,000 to hit 6.2 million in June, according to the JOLTS job openings report. The quits rate was steady at 2.1% (or about 3.1 million people). The quits rate is an important number to the Fed and often signals impending wage growth. The quits rate was the lowest in the Northeast, at 1.7% while the highest in the South at 2.5%. 

Small business optimism increased in July, according to the NFIB. Small business continues to hire, adding .21 workers on average over the past several months. Finding qualified workers remains a problem, and 87% of those trying to hire found few or no qualified applicants. Apparently drug use remains a big issue - getting workers who can pass a drug test can be difficult. Regarding the political environment in DC, while there has been no movement on anything legislatively, there have also been no new regulations put in place, and we are seeing some regulations from the Obama administration reversed, which is having a positive effect on sentiment. 

Minneapolis Fed Head Neel Kashkari spoke yesterday of the tight labor market and dismissed the idea that there is a labor shortage. "Are you really struggling to find workers? If so, the proof for me is you are raising wages. If you are not raising wages, then it just sounds like whining," he said. While Kashkari is definitely the dove on the committee, if that sentiment is any indication of the rest of the FOMC, they will be content to nudge up the Fed Funds rate at their current cautious pace until they see wage growth. 

China is trying to take away the punch bowl and reduce overseas investment, in an effort to prevent them from experiencing a bust similar to Japan's in the late 80s. I guess they see parallels between Mitsubishi paying $2 billion for the Rockefeller Center, which ended up going bankrupt a few years later. While I think they are barking up the wrong tree here (industrial policy and a residential real estate bubble are the real issues) it will have some knock-on effects perhaps in our markets. The Chinese withdrawal is probably going to hit the Canadian residential real estate market hard, and you are already seeing transactions dry up in Toronto. Chinese money will be most felt in the ultra-expensive urban areas like Seattle, New York City, and San Francisco. If China does in fact go through a Depression, they will probably try and export their way out of it, which means less inflation in the US, and lower interest rates, at the margin. 

The Fannie Mae Home Purchase Sentiment Index ticked off of record highs last month as high prices and tight inventory led to a record low of people saying now is a good time to buy. Granted, the index only goes back to 2012, but it does show how high prices are scaring buyers away. Those that say it is a good time to sell also saw a big decrease, which was the main driver of the reading. That is surprising since you would think that tight inventory + demand would equal a great seller's market. Not sure what would be causing that. 

Delinquency rates are improving for the industry according to the latest CoreLogic Loan Performance Insight Report. 30 day + DQs fell to 4.5% in May, which is down 0.8% from last year. The number in foreclosure fell 0.3% to 0.7%. About the only place you are seeing increases in delinquency are the fracking areas (South Dakota, Louisiana, some parts of Texas) which have been affected by falling oil prices. 

Morning Report: Slow news week

Vital Statistics:

	Last	Change
S&P Futures	2422.0	-0.5
Eurostoxx Index	381.1	0.0
Oil (WTI)	43.9	-0.4
US dollar index	88.4	0.1
10 Year Govt Bond Yield	2.37%
Current Coupon Fannie Mae TBA	102.88
Current Coupon Ginnie Mae TBA	103.75
30 Year Fixed Rate Mortgage	4.05

Stocks and bonds are flattish this morning on no real news. 

The week after the jobs report is usually pretty data-light, and this week is no exception. We will have a lot of Fed Speak however. 

The Labor Market Conditions Index slipped in May, but is still reasonably strong. 

Fannie Mae's Home Purchase Sentiment index matched a record set last February. The number of people who say it is a good time to sell hit a record, which confirms what we already know, that it is a seller's market. Lenders think credit is going to ease somewhat over the next few months. The survey also showed that people are more confident in their personal financial situations and are less worried about losing their jobs. 

Washington has noticed the shortage of appraisers and is looking to find ways to address the issue. While appraisals are not at the top of the list for Dodd-Frank reform, they are beginning to be discussed, along with the role the Federal government has in the business. One of the ideas being considered involves reducing some of the duplicative educational requirements.

Deutsche Bank is warning investors over frothy equity market valuations as the world's central banks reverse course. They note that the ratio of stock market capitalization to GDP is approaching the peaks set in 2000 and 2008. I would counter that central banks worldwide are going from a posture of "ludicrous easing" to "ridiculous easing." Short term real interest rates are still negative in most of the world. In the US, the core inflation rate is anywhere from 1.5% - 2%, depending on what index you use. All US rates are below that range out to 3 years. So, even if the Fed hikes the Fed Funds rate another 50 basis points, we are still in negative territory. So, while you can characterize what the Fed is doing as "tightening," that really only indicates a direction. On a scale of 1 to 10 we are going from 9.9 to 9.8. 

We know that a shortage of skilled construction workers and lots are hampering homebuilding. Now, it looks like sticks and bricks are an issue as well. 21% of the builders surveyed in the NAHB homebuilder survey cite a shortage of framing lumber. The spot price of framing lumber is up about 10% YOY. 

Morning Report: Home purchase sentiment rises again

Vital Statistics:

	Last	Change
S&P Futures	2372.0	-3.5
Eurostoxx Index	372.8	-0.5
Oil (WTI)	53.6	0.4
US dollar index	91.7
10 Year Govt Bond Yield	2.50%
Current Coupon Fannie Mae TBA	101.86
Current Coupon Ginnie Mae TBA	103.19
30 Year Fixed Rate Mortgage	4.19

Stocks are lower this morning on no real news. Bonds and MBS are flattish.

Home prices rose 0.7% MOM and are up 6.9% YOY, according to CoreLogic. Including distressed sales, home prices are about 4% below their April 2006 peak. Other indices like the FHFA House Price Index have already surpassed their old bubble peaks. Of course they haven't really surpassed the bubble peaks on an inflation-adjusted basis - over the past 11 years, inflation has increased prices 20%. Currently, we have pockets of overvaluation in Florida, the Pacific NW, Texas, and parts of the Northeast.

Rising prices are helping homebuyer sentiment. The latest Fannie Mae Home Purchase sentiment index rose 5.6 percentage points to 88.3, a new record. Note that the index only started in 2010, so it has a limited history. The employment-related questions showed big improvements. People are not worried about losing their jobs, and a net 19% of respondents reported increased income over the past year. 

Redfin has some advice for Ben Carson regarding affordable housing policy. Punch line: increase subsidies, and try and coax local governments to change their zoning laws using carrots of infrastructure investment. 

Meanwhile, construction executives are the most optimistic they have been in years. Of course some of that optimism is predicated on a big infrastructure plan out of DC, which may or may not happen. 

The Republican replacement for Obamacare is out. The major changes include an elimination of the individual mandate, and block-granting Medicaid to the states. The Cadillac tax gets deferred until 2025 as well. The popular parts of Obamacare (allowing kids to stay on their parents' plan until their mid twenties and the the pre-existing condition coverage mandate) remain in place.