Morning Report: Construction spending falls

Vital Statistics:

	Last	Change
S&P Futures	2155.5	-5.0
Eurostoxx Index	343.2	0.2
Oil (WTI)	48.6	0.4
US dollar index	86.6	0.4
10 Year Govt Bond Yield	1.60%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.46

Markets are down this morning on no real news. Bonds and MBS are down as well. 

The big event this week will be the jobs report on Friday. We will also have a lot of Fed-speak as well. 

The PMI Manufacturing Index slipped in September, while the ISM manufacturing index rose. 

Construction spending fell 0.7% in August.  It is also down 0.3% on a year-over-year basis. Residential construction spending fell 0.2% and is up 1.3% for the year. Public construction was down 2.2% and is down 8.8% on a year-over-year basis. Note both Hillary Clinton and Donald Trump support a big infrastructure spending program. 

Delinquencies are down in August according to the Black Knight Mortgage Monitor. The pre-sale foreclosure inventory is now down around 1%, although the inventory is still concentrated in the Northeast, Florida, and Chicago areas. Cash-out refinances increased to 42% of all refis. 

After Friday's weak consumer spending data, the Atlanta Fed took down their estimate of Q3 GDP to 2.4% from 2.8%. 

Portfolio Managers are forecasting the bond bull market will continue into the 4th quarter as global growth is simply too weak to push up inflation. Of course they are talking their books, but they are probably correct. Separately, Henderson of the UK bought Janus Capital this morning. 

Over the weekend, the New York Times got ahold of Donald Trump's taxes from 1995, where he showed a $916 million loss, which he has used to write off taxes owed going forward. Of course, using business losses to offset business income is as legal as eating a hot dog at the ballpark, so there probably isn't a lot of political "there" there. Separately, Julian Assange claims he has emails which will finish Hillary Clinton, though WikiLeaks is delaying the release.

China continues to grapple with its housing bubble in hopes of engineering a soft landing. Watch the video at the end of the story, where investors storm an entrance in order to buy property. 

Morning Report: Mortgage delinquencies flat

Vital Statistics:

	Last	Change	Percent
S&P Futures	2070.5	12.5	0.61%
Eurostoxx Index	2983.1	26.4	0.89%
Oil (WTI)	46.66	0.4	0.93%
LIBOR	0.628	-0.002	-0.24%
US Dollar Index (DXY)	94.08	0.260	0.28%
10 Year Govt Bond Yield	1.75%	0.01%
Current Coupon Ginnie Mae TBA	105.8
Current Coupon Fannie Mae TBA	104.8
BankRate 30 Year Fixed Rate Mortgage	3.58

Markets are higher this morning as commodities rally and the UK central bank maintained interest rates. Bonds and MBS are down small.

Mortgage delinquencies were flat at 4.77% in the first quarter, according to the MBA. The foreclosure percentage fell to 1.74% from 1.77%. We are back to pre-crisis levels in delinquencies.

Initial Jobless Claims rose by 20k to 294 last week, the highest level in over a year. We are seeing more and more evidence that the US economy might be slowing a little. 

The other evidence of a slowdown? Lousy earnings from the retailers. Macy's got slammed by 15% yesterday on lousy numbers. Today's victim is Kohls, down over 7%. 

Consumer comfort slipped to 41.7 from 42, according to the Bloomberg Consumer Comfort Index. 

Interesting article on the dynamic that is driving long term yields lower: Right now, there is about $9 trillion worth of government bonds out there with negative yields. This is pushing investors to buy longer-dated stuff in order to get a positive yield.  Japan recently sold 30 year bonds at a yield of 31.9 basis points, which makes sense given that everything with maturities of 15 years or less is negative. Spain sold 50 year bonds and Italy is exploring a 50 year bond sale. Given the strong US dollar, and the 10 year's yield of 1.75%, any slowdown in the US economy should result in tremendous demand for US treasuries. Which means low mortgage rates are probably here to stay. Also, it looks like the slowdown in US corporate issuance is over. 

Import prices rose 0.3% on a month over month basis, but are down 5.7% year-over-year. Yet another indication that inflation is going nowhere.

Reuters did a poll of economists, and about 1/3 think the Fed will hike rates in June. Traders are handicapping an 8% chance via the Fed Funds futures. 

Interesting article on the new hard money lenders in the WSJ. (Behind the paywall unfortunately). They are lending money in the high single digits. There seems to be an arbitrage between underwriting and the box that bank mortgages will fit in. In other words, banks will decline a loan for a technical reason, which makes the loan unsaleable. These people look beyond that and decide if the risk is worth taking. If the rate is 10%, they might be getting compensated for that risk.