Morning Report: Durable Goods orders increase

Vital Statistics;

			Last	Change
S&P futures			2836.5	-4.75
Eurostoxx index			388.69	1.55
Oil (WTI)			69.2	-0.1
10 Year Government Bond Yield				2.96%
30 Year fixed rate mortgage				4.62%

Stocks are lower after fAANG leader Facebook reported a slowdown in revenues. The stock is under severe pressure this morning, having traded down 24% last night. Bonds and MBS are flat.

As expected, the ECB kept rates unchanged and reiterated their plan to end QE this year. German Bunds are down in Europe, which is pulling US rates higher as well.

Durable goods orders rose 1%, which was lower than expected. Capital Goods orders rose 0.6%, which is better than expected. May numbers were revised upward as well. Capital Goods Orders are a proxy for business capital expenditures and it looks like we are breaching the $68 billion level where we have historically stalled out.

Initial Jobless Claims rose from a 48 year low to 217,000.

The US and the EU have come to an agreement on trade, where the Europeans will import more soybeans and LNG in exchange for an easing in auto tariffs. Euro automakers are up big this morning. They still have to come to an agreement on steel and aluminum tariffs however. Still it is good news for the markets and takes some of the pressure off.

PulteGroup reported strong earnings that beat consensus estimates. Revenues increased 25% and we saw margin expansion. New orders were only up 3%, however. Despite their strong growth, Pulte sold some land and bought back a lot of stock. Given the deceleration in new orders, it raises the question if they are sensing that the market is slowing down a little. With affordable land hard to come by, selling inventory and buying back stock in lieu of investing more in the business is a cautionary sign.

Maxine Waters (who will lead the House Financial Services Committee if Democrats take the House) said that reforming the GSEs will be a priority  Both liberals and conservatives would like to see the government less involved in residential real estate finance, and there is broad agreement on the model they would like to see. The problem is that there doesn't appear to be the demand from private capital to pick up the slack, at least not yet. The private label securitization market is still a shadow of its former self and there are many governance issues that need to be solved before we see the buy side increase their appetite.

The FHFA announced that it will not make a decision about updating the credit scoring model and instead will continue to come up with new rules. Consumer advocates have complained that FICO scores are preventing some credit-worthy borrowers from accessing mortgages. Separately, Jeb Hensarling sounded like he is being considered to replace Mel Watt.

New rules intended to prevent the serial refinancing of VA IRRRLs are creating problems for some VA loans that were originated prior to the law change. These loans are not eligible for Ginnie Mae multi-issuer pools, which effectively "orphans" them. As a result, these loans are going to be illiquid and will probably trade at scratch and dent levels, exposing some originators to big losses.

Morning Report: house prices are getting ahead of themselves again

Vital Statistics:

	Last	Change
S&P Futures	2173.0	9.0
Eurostoxx Index	339.4	2.0
Oil (WTI)	44.9	-0.2
US dollar index	88.0	0.2
10 Year Govt Bond Yield	1.62%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.52

Markets are higher this morning after the ECB hinted at further stimulus down the road. Bonds and MBS are down.

The Fed Funds futures are now pricing in a 47% chance of 1 more rate hike this year. That probability was 20% about 10 days ago. That is what has been driving the 10 year yield back up. 

We have a bunch of economic data this morning.

Existing home sales rose 1.1% to an annual pace of 5.57 million, according to the NAR. This is up 3% YOY, and is the highest level since February 2007. All regions except the Northeast reported an increase. The median home price rose 4.8% to $247,700. This puts the median home price to median income ratio at 4.3x, which is extended versus its historical range of 3.2x - 3.6x. Of course interest rates are influencing this as well, but it looks like home prices are beginning to run a little too far, too fast. Below is a chart of incomes versus home prices, indexed back to 1975. This doesn't really speak to bubble behavior - it speaks to the caution out of the homebuilders who are reluctant to add supply. The current inventory of houses for sale is about 4.6 month's worth, while a balanced market is about 6.5 months. 

Initial Jobless Claims slipped 1,000 to 253k last week. We should be seeing an increase given this is the season for re-tooling factories, however we aren't, and we are hitting all-time lows for initial jobless claims, which goes back to the 1960s. To put it in perspective, the last time initial jobless claims were around these levels, we had a military draft. 

House prices rose 0.2% month-over-month in May and are up 5.2% YOY, according to the FHFA House Price Index. The East Coast continues to lag while the Left Coast is still hitting high single digit YOY appreciation. The index as a whole has recouped all of the losses from the real estate bust. Remember, the FHFA House Price index only looks at houses with a conforming mortgage, so it ignores the extremes of both ends of the spectrum - distressed and jumbo.

The Philly Fed index fell to -2.9 while the Chicago Fed National Activity Index rebounded to +.15. The Bloomberg Consumer Comfort Index slipped again to 42.9, while the Index of Leading Economic Indicators rose to 0.3%. 

PulteGroup announced earnings this morning, beating estimates and announcing a new value creation plan. They will buy back up to $1.5 billion in stock over the next 18 months, and reduce land investment. This is a bit of a surprise given that revenues increased 41%, and average selling prices increased 11%. Pulte has been targeting the first time homebuyer pretty aggressively, and given the pent-up demand, they probably should be investing in the business instead of buying back stock. 

D.R. Horton also announced this morning, with earnings coming in line with expectations. Revenues increased 9% and earnings increased 13%. 

Morning Report: Good numbers out of the builders

Vital Statistics:

	Last	Change	Percent
S&P Futures	2102.8	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	1.87%	0.03%
Current Coupon Ginnie Mae TBA	105.5
Current Coupon Fannie Mae TBA	104.8
BankRate 30 Year Fixed Rate Mortgage	3.62

Markets are flattish after the European Central Bank declined to initiate further stimulus measures. Bonds and MBS are down.

The Chicago Fed National Activity Index fell slightly in March as the economy continues to grow slightly below trend. 

Initial Jobless Claims printed below  250k last week, The last time we saw an initial jobless print below 250k? Late 1973. For all the fears of mass layoffs in the oil patch, we aren't seeing evidence of it in the jobless numbers. 

The FHFA House Price Index rose 0.4% in February, according to the FHFA House Price Index. Prices are up 5.6% overall. The index, which only looks at a subset of the housing market, has surpassed its bubble highs. The West Coast markets continue to be the hottest, while New England continues to bring up the rear. 

In other economic news, the Philly Fed manufacturing index fell, while the index of leading economic indicators improved. Consumer comfort fell.

Homebuilder PulteGroup reported better than expected earnings this morning. Revenues increased 28%, while backlog rose 31%. Average selling prices rose 9%. The CEO characterized the housing market this way: "Looking to the broader housing market, we remain pleased with overall demand and expect new home sales will continue to move higher over the coming years as the industry benefits from an improving economy, ongoing employment and wage gains, low interest rates, a limited supply of homes and the gradual release of pent-up demand, We believe our business is extremely well positioned to be successful in this type of operating environment given our disciplined investment practices and focus on investing in high returning projects."

We also heard from D.R. Horton this morning, who also put out better-than expected numbers. Revenues increased 16%, while backlog increased 14%. D.R. Horton is up about 80 cents a share this morning. They took up guidance for the year, which means perhaps the slowdown in the energy sector is not affecting their geographies. DHI has a lot of Texas exposure. 

Millennials may want to buy a home, but they are not saving enough for a downpayment. The article assumes a 20% downpayment is required, and doesn't mention FHA loans, which only require 3.5% down. If journalists aren't aware that you don't need 20% down, it means the industry still has some more educating to do. 

Morning Report: NY goes all-in on the minimum wage

Vital Statistics:

	Last	Change	Percent
S&P Futures	2107.7	-0.2	-0.01%
Eurostoxx Index	3639.5	3.9	0.11%
Oil (WTI)	49.52	0.3	0.67%
LIBOR	0.294	-0.001	-0.31%
US Dollar Index (DXY)	97.25	-0.346	-0.35%
10 Year Govt Bond Yield	2.34%	0.02%
Current Coupon Ginnie Mae TBA	104	0.0
Current Coupon Fannie Mae TBA	103.2	0.0
BankRate 30 Year Fixed Rate Mortgage	4.14

Markets are flattish as earnings reports continue to pile in. Bonds and MBS are flat.

Initial Jobless Claims fell to 255k last week, the lowest level since 1973. People that have jobs are keeping them, unfilled jobs are at the highest level since the boom days of 2000, people that work part time and want to work full time can't find jobs, and the labor force participation rate is at almost 40 year lows. What is wrong with this picture? A massive mismatch between the skills employers want and the the skills the unemployed actually have. This is evident in the real estate sector, where skilled construction labor is in a dire shortage. 

The Conference Board's Index of Leading Economic Indicators came in much better than expectations, at +0.6% versus expectations of +0.3%. May was revised upward to +0.8%. Housing related indicators are finally driving the index higher, which is primarily a result of the big increases in building permits we have seen over the past two months. Labor continues to be the drag on the index. 

In other economic data, The Chicago Fed National Activity Index rose to .08 in June from -.08 in May. Production and employment indicators drove the increase. The Bloomberg Consumer Comfort Index fell slightly last week. 

The Greek Parliament approved the austerity package Tsipras and Europe was asking for. The ECB extended its emergency liquidity package by something like 900 million euros. I guess Greece is going to be out of the headlines for a while. 

The other major international economic story - the meltdown in Chinese stocks - seems to have been arrested as well as state funds have been supporting the market. The Chinese have taken a page from the Japanese Ministry of Finance and have decided to try the old "use state funds and moral suasion to force buying and stop selling" in order to hold up the market. Japan did this in the late 90s (they were called Price Keeping Operations) and tried to prevent the market from falling below 13,000 in order to protect the banks. Eventually the market won and the Nikkei eventually fell below 7,000. I suspect China will see the same fate, but this will be a titanic battle of wills between Big Communist Government and Mr. Market. So far, Mr. Market has an undefeated record. 

Between the strong labor data, and the fading of international worries, worries about a September liftoff will move to the forefront again. Low commodity prices are giving the Fed an excuse not to move, but they are probably behind the curve at this point. Inflation is great for debtors (or at least people who owe money at a fixed rate) but is bad for creditors. Note the biggest creditor out there is the Fed, who owns about 4.5 trillion of US Treasuries and mortgage backed securities. 

New York State is going all-in on the minimum wage experiment - $15 an hour (or 31k a year plus benefits) for even 16 year old fast food workers. Note this isn't New York City, where they might be able to get away with it, but New York State. The difference in the cost of living between, say Syracuse and Manhattan is night and day. The high priest of progressive economics, Paul Krugman seems to think the laws of supply and demand don't apply to the labor market, so we will see how this plays out. IMO, the most obvious changes will be to cut teenagers out of the labor force entirely, and companies will continue to substitute technology for labor. Not sure how the left intends to deal with the technology issue - they probably imagine they can tax (or regulate) it away. What we do know is that if the left's meddling in the labor market doesn't give them the results they had hoped for, they will blame laissez-faire economics and the free market. 

Speaking of the left, NYC Mayor DeBlinkins decided to back off from going after Uber. Progressive ideology aside, it is a bear to get a cab on the Upper East Side.

Homebuilder PulteGroup reported earnings that beat the street but revenues missed. Pulte said their first time buyer segment was showing "good results." Pulte also intends to accelerate land spending in the second half of the year, which signals further that they plan to push through volume as it is getting harder to increase prices, especially at the low end. Pulte (as opposed to companies like Toll and Lennar) has exposure to the lagging portions of the housing sector - the Midwest, the Northeast, and the first time homebuyer. 

Morning Report - Homebuilder earnings and new home sales disappoint

Vital Statistics:

	Last	Change	Percent
S&P Futures	2095.2	-5.0	-0.24%
Eurostoxx Index	3682.6	-41.9	-1.13%
Oil (WTI)	56.64	0.5	0.85%
LIBOR	0.277	0.001	0.45%
US Dollar Index (DXY)	97.87	-0.060	-0.06%
10 Year Govt Bond Yield	1.96%	-0.01%
Current Coupon Ginnie Mae TBA	103.1	0.0
Current Coupon Fannie Mae TBA	102.2	0.1
BankRate 30 Year Fixed Rate Mortgage	3.77

Stocks are lower on overseas economic weakness. Bonds and MBS are flattish.

Initial Jobless Claims came in at 295, a little higher than expected. The Bloomberg Consumer Comfort index slipped to 45.4 from 46.6.

New Home Sales dropped to an annualized pace of 481k in March, from 543k in February. This was a big miss - the Street was at 515k. 

We heard from homebuilder D.R. Horton yesterday. They beat expectations, but the margin and revenue guidance was on the light side, so the stock was sold off. D.R. Horton is very exposed to Texas and has yet to see any evidence of an slowdown in that economy. Horton was encouraged by the demand and is seeing strong growth in its Express brand, which is targeted at the first time homebuyer. The downside is that the margins in Express are lower. 

Pulte reported this morning, and missed expectations. Revenues were light, however orders were up 6% and ASPs were up 2% to 323k. The company noted at strong start to the spring selling season, and characterized the housing recovery as "sustained but slow."

Interesting stuff on the state of part-time workers. US part-time employment is reaching historical norms and that indicates the slack in the labor market is going away. Interestingly they polled workers who put in 30 hours a week or less. Of those people, a third were happy with their hours or wanted to work less. Only 23% wanted a traditional 40 hour a week job. Of those working more than 30 hours, about a quarter wanted to work less. Punch line: as the slack is taken up, wages are going to have to go up. Which means the Fed is more likely to mover sooner rather than later. 

The Clinton Foundation is under the microscope right now, and the New York Times has a piece about how the State Department approved a Russian nuclear deal after a big donation to the Clinton Foundation. WaPo has a piece on the foundation and Bill Clinton's speaking fees. There is supposedly a tell-all book coming out on the Clinton Foundation as well. Whatever comes out of it, the Democratic Party is all-in on Hillary and will dismiss any revelations as partisan poo-flinging regardless of the merits. 

Morning Report - G fee review - much ado about nothing

Vital Statistics:

	Last	Change	Percent
S&P Futures	2086.9	11.4	0.55%
Eurostoxx Index	3696.2	22.2	0.60%
Oil (WTI)	55.28	-0.5	-0.83%
LIBOR	0.276	0.001	0.24%
US Dollar Index (DXY)	97.88	0.363	0.37%
10 Year Govt Bond Yield	1.86%	-0.01%
Current Coupon Ginnie Mae TBA	103.7	0.3
Current Coupon Fannie Mae TBA	102.6	0.1
BankRate 30 Year Fixed Rate Mortgage	3.79

Markets are higher this morning on overseas strength. Bonds and MBS are flattish.

This week doesn't have any data which will move the bond market, but we do have some important numbers nonetheless. On Wednesday, we will get existing home sales and the FHFA House Price Index. On Thursday, we will get New Home Sales. Finally, we will get earnings from Pulte an D.R. Horton. Hopefully their comments will help reconcile the strong builder sentiment with the lousy housing starts numbers. 

Note that Pulte is saying that the housing market remains strong, despite the "volatile" numbers. They see high single digit growth in housing. M&A is hot: buy building product stocks. 

The Chicago Fed National Activity Index fell to -.42 in March, giving further ammo to the argument that the deceleration that started in January and February was not simply weather driven. The 3 month moving average, which is a more stable, indicates that the economy is operating below its historical trend. 

William Dudley is speaking at the Bloomberg Americas Monetary Summit this morning. His main points - the Fed will be data-dependent (boilerplate), and the Fed is cognizant of the risks or liftoff on emerging markets. Even if rates do go up, monetary policy will still be easy. That said, ECB and BOJ easing does make credit conditions more supportive. The stock market is blithely assuming that the economy will handle rate hikes as easily as it handled the end of QE and is therefore vulnerable, IMO. 

The Fannie Mae and Freddie Mac guarantee fee review is finished, and it looks like not much is going to change. The 25 basis point adverse delivery fee is gone, but there are new fees imposed, so it looks to be more or less a wash. Borrowers with lower credit are going to pay slightly less, while high bal, investment properties, and cash out refis will become slightly more expensive. 

Jon Corzine (of MF Global fame) is considering starting a hedge fund. Proving you can get away with anything in this country if you are politically connected.