Morning Report: Negative equity falls

Vital Statistics:

	Last	Change	Percent
S&P Futures	2114.2	-3.9	-0.18%
Eurostoxx Index	2918.0	-71.0	-2.38%
Oil (WTI)	49.83	-0.7	-1.44%
LIBOR	0.658	0.001	0.21%
US Dollar Index (DXY)	94.13	0.180	0.19%
10 Year Govt Bond Yield	1.65%	-0.03%
Current Coupon Ginnie Mae TBA	105.8
Current Coupon Fannie Mae TBA	104.9
BankRate 30 Year Fixed Rate Mortgage	3.67

Stocks are lower this morning on no real news. Bonds and MBS are up as sovereign bonds rally globally. 

The 10 year has broken out of its range and is now trading at 1.65%. The catalyst has been lower rates throughout the world. The German 10 year Bund is now trading at 2 basis points. The Japanese Government Bond yields negative 13 basis points. At some point, gold has to become interesting as an investment. The knock on gold was always that there is no yield, but compared to long term sovereign bonds that have no yield and (probably) no upside, why not? Definitely a better risk / reward. 

Mortgage originator and servicer Walter Investment got slammed yesterday after the CEO resigned. Regulatory difficulties and costs were the catalyst. The stock has lost 82% of its value over the past year. 

In economic news, initial jobless claims fell to 264k from 268k the week before. So in spite of the low job creation numbers, we aren't seeing firms lay off people yet. 

Consumer confidence fell slightly in June to 94.3 from 94.7 according to the University of Michigan Consumer Sentiment Survey

268,000 homes regained positive equity in the first quarter, according to CoreLogic. They estimate that 4 million homes (or about 8% of the homes with a mortgage) have negative equity. 18% of homes have less than 20% equity. Negative equity remains a problem in the Northeast, the Rust Belt and FL, NV, and AZ. 

Ex Fed Head Narayana Kochlerakota argues the Fed should be doing more to get inflation up. Not only should they hold off on raising rates until the core PCE is above 2%, but it should pay nothing on excess reserves. 

Morning Report: Jobs report in line; December tightening a go

Vital Statistics:

	Last	Change	Percent
S&P Futures	2050.0	-1.2	-0.06%
Eurostoxx Index	3325.1	-18.3	-0.55%
Oil (WTI)	40.5	-0.6	-1.41%
LIBOR	0.436	0.014	3.27%
US Dollar Index (DXY)	98.16	0.539	0.55%
10 Year Govt Bond Yield	2.29%	-0.02%
Current Coupon Ginnie Mae TBA	104
Current Coupon Fannie Mae TBA	103.2
BankRate 30 Year Fixed Rate Mortgage	3.88

Stocks are lower after the jobs report came in as expected, which puts the Fed on track for their first tightening in 9 years in a couple of weeks. Bonds and MBS are up small.

Jobs report data dump:

• Nonfarm payrolls + 211k vs. 200k expected
• Unemployment rate 5%, in line with expectations
• Average Hourly Earnings +0.2% MOM / +2.3% YOY in line
• Underemployment rate 9.9% vs 9.7% expectations
• Labor Force Participation rate 62.5% vs. 62.4% expected

The general take on the jobs report is that it is good enough to give the Fed comfort to raise rates in two weeks. Digging in deeper, the increase in jobs were in construction (+46k), professional services (+28k), health care (+24k), restaurants (+23k) and retail (+31k). Mining and IT lost jobs. 

Homebuilder Hovnanian reported numbers this morning, Revenues were flat compared to last year, while margins fell as deliveries fell 2% in units. The dollar value of net contracts increased 29%, which bodes well for next year. Backlog is up 30%. 

Uber is now valued at $65 billion, which makes it about the 80th biggest company in the S&P 500, and gives it about the same market cap as Danaher. The bubble of the day is in these pre-IPO companies. By the time they actually go public, they are typically overvalued. 

Negative equity fell from 16.9% a year ago to 13.4% last quarter, according to Zillow. A normal number is closer to 5%. They have a cool interactive map where you can search by county to see what percentage is underwater.

We are beginning to see some softness at the super-high end of the US residential real estate market. Some of this is undoubtedly driven by foreign demand.