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: FHA annual premiums drop

Vital Statistics:

	Last	Change
S&P Futures	2268.5	-3.0
Eurostoxx Index	263.4	-2.0
Oil (WTI)	52.9	-1.1
US dollar index	92.8	0.0
10 Year Govt Bond Yield	2.37%
Current Coupon Fannie Mae TBA	103
Current Coupon Ginnie Mae TBA	104
30 Year Fixed Rate Mortgage	4.11

Stocks are lower this morning on overseas worries. Bonds and MBS are up.

The week after the jobs report is typically data-light, however we will have a lot of Fed-speak this week, especially today, Thursday, and Friday. 

The labor market conditions index slipped in December to -.3 from 1.2 in November. Note this is a meta-index of many leading and lagging indicators, so it is possible to have a so-so number just after a decent jobs report.

HUD announced they are cutting the annual insurance premium for most FHA loans by 25 basis points, which should save the typical homeowner about $500 annually. This will affect mortgages with a disbursement date after Jan 27. The reduction is due to the improving health of the housing market and the FHA's insurance fund. Since the crisis, FHA has increased premiums by 150% to restore capital reserves. This reduction reverses that move and brings annual premiums back down to close to pre-crisis levels. 

The current HUD Chairman, Julian Castro is worried that Ben Carson will roll back some of the HUD initiatives over the past several years. The one most likely to be on the chopping block is a controversial policy in which HUD sues local governments in order to force them to change their zoning laws in order to accommodate more multi-family housing. Westchester County in New York has been fighting this for the entire Obama administration. 

Notwithstanding the jump in wage inflation last month, overall wage inflation has been hard to come by, not only in the US, but globally. The relationship between unemployment and wages seems to have broken down. What is going on? First, the most likely explanation is that the new jobs being created pay less than the jobs that were lost. This is the most plausible explanation, as many of the construction jobs that were lost in the bubble never came back, and most of the employment growth is coming in lower-paying health care jobs. Second, workers lost so much bargaining power in the recession that they don't feel comfortable asking for more. A third explanation could be that the cost to employers has risen, but these costs are largely regulatory and don't flow through to wages. Regardless of the reason, wage growth is an imperfect representation of labor market strength. 

Now that it is becoming harder to find buildable lots, many homebuilders are returning to half-finished subdivisions that were abandoned as the housing bubble burst in 2007 and 2008. The supply of developed vacant lots (go-dirt) has fallen by 20% since 2011. The buyers seem to be the big national homebuilders like Lennar. The credit markets for homebuilders remains a case of "haves and have-nots." The big builders are able to issue corporate debt at super-low interest rates while the small guys are getting turned down by the local bank. 

Morning Report: Jobs report disappoints, but the Fed may still hike in June

Vital Statistics:

	Last	Change	Percent
S&P Futures	2056.2	3.5	0.17%
Eurostoxx Index	2973.5	36.6	1.25%
Oil (WTI)	44.82	0.2	0.36%
LIBOR	0.63	-0.002	-0.35%
US Dollar Index (DXY)	94.02	0.134	0.14%
10 Year Govt Bond Yield	1.77%	-0.01%
Current Coupon Ginnie Mae TBA	105.6
Current Coupon Fannie Mae TBA	105
BankRate 30 Year Fixed Rate Mortgage	3.58

Markets are up small despite some bad data out of China overnight. Bonds and MBS are up small.

Jobs report data dump:

• Payrolls + 160k
• Unemployment rate 5%
• Average hourly earnings + 0.3% MOM / +2.5% YOY
• Labor force participation rate 62.8%
• Underemployment rate 9.7%

Overall not a great report. The Labor Force Participation rate fell back, which is bad news for the economy overall. Earnings are up, which is about the only bright spot on the report. Strategists are beginning to worry about a deceleration in the economy, or even a mild recession. Tough to see how the Fed raises rates in June.

The Labor Market Conditions Index improved to -.09 from -2.1 last month. This is a meta-index of several leading and lagging indicators. 

Despite the weakness in the economy, Bill Gross and Mohammed El Arian are warning investors not to discount the Fed. Their point: wage growth is the most important part of that jobs report, and they are going up. A June hike is not the most likely outcome, however it shouldn't be ruled out either. 

The Fed wants to see a bit of inflation, but the convoy system in Asia is preventing it. Like the Japanese, China is propping up unprofitable factories, which is contributing to a glut of aluminum, steel, and other industrial goods. We saw this happen in the 1930s, which triggered trade wars and exacerbated a global deflationary vortex. We are seeing a similar thing today, with the backlash against free trade, and nationalistic candidates in Europe and the US. 

The biggest internet lender, Lending Club, is down big pre-open after the CEO resigned over a loan sale. Apparently the loan sale didn't have anything to do with pricing or credit, but it did violate the company's internal procedures. The company is currently facing trouble funding its loans in the capital markets. The stock is down close to $5 a share after trading at $19.50 just under a year ago. 

This year has not been kind to the stocks of non-bank lenders / servicers - Nationstar, Ocwen, Stonegate, Walters all down badly this year. 

Wondering how your property taxes compare to others in the country? CoreLogic has worked it out for you. 

Morning Report: Labor market slowly improving

Vital Statistics:

S&P Futures	1954.2	32.5	1.69%
Eurostoxx Index	3264.1	66.1	2.07%
Oil (WTI)	45.72	-0.3	-0.72%
LIBOR	0.332	-0.002	-0.45%
US Dollar Index (DXY)	96.06	-0.169	-0.18%
10 Year Govt Bond Yield	2.19%	0.06%
Current Coupon Ginnie Mae TBA	104.1	-0.3
Current Coupon Fannie Mae TBA	103.8	-0.2
BankRate 30 Year Fixed Rate Mortgage	3.83

Stocks are higher this morning on overseas strength. Bonds and MBS are down. 

The Labor Market Conditions Index rose 2.1% in August, better than the forecast. This is an index of various leading and lagging indicators. 

The jobs report last week probably didn't move the needle one way or the other with respect to the Fed's decision next week. Yes, payrolls disappointed, but the 2 month revision was strong. The labor force participation rate remained mired at 38 year lows, however the unemployment rate ticked down and wage inflation ticked up ever so slightly. Note that August's payroll miss seems to have a seasonal element to it and is usually revised upward. 

The bond market seems to be ready for a rate hike. The Fed Funds futures are forecasting a very slow pace of tightening, the yield curve remains positively sloped, with the 10 year bond relatively heavy. Option volatility shows little sign of panic. The 10 year bond forward contracts indicate that even if the Fed hikes rates, the 10 year should maintain levels right around here. 

The NFIB Small Business Optimism index edged up in August. Note that the survey was taken before the sell-off of the last few weeks. The labor data was decent - with businesses adding 0.13 workers, a historically strong number. Interestingly, 56% reported hiring or trying to hire, however 86% of those who are trying to hire are unable to find qualified candidates. (I wonder if "qualified" means someone with the wisdom of a 60 year old, the vision of a 50 year old, the efficiency of a 40 year old, the drive of a 30 year old and the paycheck of a 20 year old). Note that obama made an executive order over the weekend demanding that Federal contractors offer paid sick leave. 

China has spent $260 billion trying to support its stock market. That is 2.4% of GDP. Note that stocks are not a major part of household assets, at around 2%. Real estate and bank deposits account for 70% and 24% of assets respectively. Interestingly the LTV of a typical Chinese home mortgage is about 17%. To put that in perspective, the US LTV is at 39%, and peaked at 57% in 2009. 

Completed foreclosures dropped to 38,000 in July, according to CoreLogic. This is down 24% from last year, and 6% from June. Pre-financial crisis, 21,000 was a typical reading, so we have a way's to go yet. Foreclosure filings have ticked up this year as the judicial states start to address their foreclosure inventory. The Northeast and Florida remain the states with the highest foreclosure inventory. 

Morning Report: Distressed sales fall

Vital Statistics:

S&P Futures	2087.5	13.9	0.67%
Eurostoxx Index	3666.4	28.6	0.79%
Oil (WTI)	43.85	0.0	-0.05%
LIBOR	0.312	0.000	0.06%
US Dollar Index (DXY)	97.72	0.161	0.17%
10 Year Govt Bond Yield	2.21%	0.05%
Current Coupon Ginnie Mae TBA	104.3	0.1
Current Coupon Fannie Mae TBA	103.5	0.0
BankRate 30 Year Fixed Rate Mortgage	3.93

Markets are higher on M&A and strength in overseas markets overnight. Bonds and MBS are down.

This week promises to be slow as we are in the dog days of summer, the week after the jobs report inevitably has a dearth of data, and earnings season is winding down. I don't see much in the way of potential market-moving data, except for unit labor costs / productivity tomorrow. I think we would have to see a big surprise for that to move bonds around. Think we continue with the risk-on / risk-off dynamic where stock prices drive bond market movements. 

The Fed's new index - the Labor Market Conditions Index - rose 1.1% in July, and June was revised upward. This index is a meta-index of 24 different indicators. 

Consumer attitudes towards housing cooled somewhat in July, according to Fannie Mae's National Housing Survey. This seems to be driven by deterioration in people's financial situations and their attitudes towards the economy in general. Fannie Mae notes that the survey questions were being asked when we had both the Greek situation and the Chinese stock market meltdown going on, so perhaps that is coloring the data. Given the strong support of Bernie Sanders on the left and Donald Trump on the right, it looks like people are hopping mad about their financial condition and this isn't a spurious reading based on Greece and China. 

Distressed sales (short sales and REO) accounted for 10% of sales in May, the lowest since October 2007.

Commodities continue to drop as West Texas oil dips below $44 a barrel. Oil cannot get out of its own way, and if the Iran deal gets passed, another million barrels a day will hit the market. We have been watching Venezuela come apart at the seams as the state relies on high oil prices to provide revenue for social services. Another looming disaster is Norway, which not only is hurting from falling oil prices, but it also has a real estate bubble of its own. Another on reeling - just say the headine: Russian GDP contracted by 4.5% last quarter. 

As we creep up on the September FOMC meeting, sovereign wealth funds are dumping Treasuries. Japan dumped almost $10 billion in June, the most in two years. Not sure if this sort of selling is going to impact US rates in any meaningful way - where are sovereign wealth funds going to put their cash? German Bunds, which yield 68 basis point? Portuguese bonds yielding 20 basis points more than Treasuries? Given the relative attractiveness of US Treasuries and the US dollar, I don't see much in the way of foreign selling. As Bill Gross used to say: The US is the cleanest dirty shirt in the bunch.