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: Inflation returning?

Vital Statistics:

	Last	Change	Percent
S&P Futures	1999.9	-6.5	-0.32%
Eurostoxx Index	3056.1	-11.1	-0.36%
Oil (WTI)	36.84	0.5	1.38%
LIBOR	0.64	0.006	0.90%
US Dollar Index (DXY)	96.96	0.329	0.34%
10 Year Govt Bond Yield	1.99%	0.02%
Current Coupon Ginnie Mae TBA	105
Current Coupon Fannie Mae TBA	103.9
BankRate 30 Year Fixed Rate Mortgage	3.67

Markets are lower this morning after inflation comes in a little hotter than expected. Bonds and MBS are down.

The consumer price index fell 0.2% month-over month, but the core index, which excludes food and energy, rose 0.3% and is up 2.3% year-over-year. This makes the FOMC statement (and the press conference that follows) more significant this afternoon. Remember, the decision will be out at 2:00 pm EST, so expect some volatility in bonds around that time. 

Bonds sold off on the CPI number and the more dramatic move was in the 2-year, not the 10-year. The 2 year yield increased 3 basis points on the news to .99%. Movements in the 2-year signify the market's expectations about what the Fed is up to. The 10 year is more driven by longer-range economic forecasts. The 10 year was up, sold off on the news and is now flat on the day. 

Housing starts rose to an annualized pace of 1.178 million in February and January was revised upward to 1.12 million. Building Permits fell however to 1.17million from 1.2 million. The drop in permits was driven by multi-family construction as single-fam remains slow and steady. 

Mortgage Applications fell 3.3% as purchases rose 0.3% and refis fell 5.6%. Refis now constitute 55% of the total number of loans, down about 9 percentage points over the last month. 

The strong dollar is still making life tough for manufacturers. Industrial production fell 0.5% month-over-month, while manufacturing production rose 0.2%. Capacity Utilization fell to 76.7%.

Marco Rubio is out after losing his home state of Florida to Donald Trump. John Kasich won Ohio, which keeps him in the race and makes him the de facto "Establishment Candidate. Ted Cruz is still in and he is probably going to split the Trump vote, while Kasich solidifies the establishment vote. Policy-wise, Kasich and Hillary are almost identical. Trump is warning that there will be riots if he has the delegates (or is close) and loses a contested convention. The convention is 4 months away. A lot can happen. 

On the Democratic side, Hillary did well, so we can stick a fork in the #FeelTheBern hashtag.