Morning Report - Job Openings highest since 2001

Vital Statistics:

	Last	Change	Percent
S&P Futures	2040.9	-18.5	-0.90%
Eurostoxx Index	3190.7	-57.3	-1.76%
Oil (WTI)	62.9	-0.1	-0.24%
LIBOR	0.236	0.000	0.11%
US Dollar Index (DXY)	88.62	-0.425	-0.48%
10 Year Govt Bond Yield	2.21%	-0.05%
Current Coupon Ginnie Mae TBA	104.7	0.3
Current Coupon Fannie Mae TBA	104.3	0.2
BankRate 30 Year Fixed Rate Mortgage	4.12

Markets are lower worldwide after a big sell-off in China. Bonds and MBS are rallying. 

The Chinese government instituted new regulations for local debt last night, which sent the markets reeling. Chinese stocks have been on a tear recently (up something like 30% since Nov 1) so the news was an excuse for some major profit-taking, which sent the indices down something like 5%. 

Small business optimism picked up a bit in December, as the NFIB Small Business Optimism approached the historical average before the Great Recession began. A big increase in economic optimism drove the increase. Earnings trends are heading higher, and some are planning to increase employment, which is good news for the economy.

Another good data point for the market: Job openings rose to 4.834MM in October from 4.685MM in September. This almost matches August's number, which was the highest since early 2001. Combine that with a steady diet of sub 300k initial jobless claims prints and the leading indicators of the labor market are looking strong. Now about that wage growth...

New 3% down loans are expected to have only a marginal effect on increasing credit availability. Separately, This is all part of an attempt to get the first time homebuyer back into the market, which has been the Achilles Heel of this housing recovery. The problem is that while a 3% downpayment isn't necessarily daunting, the credit score the banks require is - something like 755. For young adults with student loan debt, that sort of score probably just isn't in the cards. Here are the FAQs for the 3% down loans from Freddie Mac.

Obamacare Architect Jonathon Gruber heads to Capitol Hill today to discuss the obfuscation and white lies involved in the selling of Obamacare. In an unfortunate (for him and Obama) minute of candor, he discussed how the the plan relied on the "stupidity of the American voters" to get it through, and how the "Cadillac Tax" was a brilliant piece of wordsmithing that set in motion the eventual taxability of employer-provided health care benefits. Don't expect much out of Gruber - he will probably apologize for the language he used and spend the rest of the time lawyered up and will simply relay previously prepared talking points. Note that the Medicaid subsidy issue is going to be taken up by the Supreme Court as well, which could throw the whole thing in peril. 

Morning Report - Judicial vs. non-judicial home price appreciation

Vital Statistics:

	Last	Change	Percent
S&P Futures	2068.9	-7.2	-0.35%
Eurostoxx Index	3254.3	-23.1	-0.70%
Oil (WTI)	64.6	-1.2	-1.88%
LIBOR	0.236	0.000	0.11%
US Dollar Index (DXY)	89.37	0.039	0.04%
10 Year Govt Bond Yield	2.29%	-0.01%
Current Coupon Ginnie Mae TBA	104.5	0.0
Current Coupon Fannie Mae TBA	103.8	0.0
BankRate 30 Year Fixed Rate Mortgage	4.14

Markets are lower this morning on no real news. Bonds and MBS are up.

The week after the jobs report is typically data-light, and this week is no exception. The highlights from a bond market perspective will probably be the JOLTS job openings on Tuesday and retail sales on Thursday. We will also hear from luxury home builder Toll Brothers on Wed morning. 

The latest Black Knight Mortgage Monitor is out. Foreclosure starts dropped by 10.5% to 81,400 and the foreclosure inventory dropped to 3.6MM homes, which is down 18% year-over-year. They have a cool chart that illustrates the difference between the judicial and non-judicial states in terms of home price appreciation, both in terms of decline and rebound. You can see how the judicial states have experienced much lower rebounds off the bottom than the non-judicial states. It would be interesting to see compare the peak to trough price declines of judicial vs. non-judicial states. I suspect we would find that having tougher foreclosure requirements did not help support house prices. 

S&P lowered the ratings on Italy's sovereign debt to BBB- from BBB, which is one level above junk status. Yet, Italian sovereigns are trading at 1.97%, 33 basis points lower than AA+ rated US Treasuries. This is all about the ECB and QE, but it shows again that all of this central bank manipulation of global sovereign bond markets has created some major dislocations. Of the 5 PIIGS, only Portugal and Greece have higher yields than the US 10-year. Strange times.

There were no changes in the federal limits on conforming loans for 2015.

San Francisco is looking at using eminent domain to steal from bondholders help people in who are in foreclosure keep their homes. The city is also trying to issue about $400 million in GO munis, and something like this cannot help. 

Morning Report - Not too shabby jobs report

Vital Statistics:

	Last	Change	Percent
S&P Futures	2073.1	1.2	0.06%
Eurostoxx Index	3257.6	66.4	2.08%
Oil (WTI)	66.62	-0.2	-0.28%
LIBOR	0.235	0.000	0.11%
US Dollar Index (DXY)	89.28	0.578	0.65%
10 Year Govt Bond Yield	2.30%	0.07%
Current Coupon Ginnie Mae TBA	104.7	-0.1
Current Coupon Fannie Mae TBA	103.7	-0.4
BankRate 30 Year Fixed Rate Mortgage	4.08

Markets are higher after a good jobs report. Bonds and MBS are getting slammed.

A not-too-shabby jobs report today. Payrolls increased by 321k, much better than the 230k estimate and the 208k ADP number. The two month revision was +44k. The unemployment rate held steady at 5.8% as did the labor force participation rate at 62.8%. We had a nice month-over-month increase in wages: up 0.4%, however on an annual basis, it was steady at 2.1%. 

One strange anomaly: the household survey and the establishment survey differed in a big way - the household survey (which is conducted by sending questionnaires to individual houses) showed no employment growth, while the establishment survey (which is conducted by sending questionnaires to businesses) showed strong payroll growth. The market is clearly choosing to focus on the establishment data. 

We could finally be hitting the point where the lagging employment indicators are catching up with the leading indicators. Recoveries after asset bubbles tend to be bathtub-shaped. We could finally be at the inflection point. Lower energy prices are going to be a big help as well. 

Of course lower energy prices are not great for everyone - especially those companies in the energy patch. The big new distressed trade is energy debt as many over-leveraged and now cannot borrow. Shades of the mid / late 1980s.

Of course with lower energy prices, Washington is chomping at the bit to raise the gas tax. 

Why can Apple borrow money more cheaply than the US government? Believe it or not, the 2.29% 10 year can't get any respect. 

It is an old cliche that all real estate is local. When I talk to people in San Diego, they describe a completely different housing market than the one I see up here in the Northeast. Interestingly, on the way to work today, I saw the first single family home being built since probably 2007. So maybe the Northeast is getting better at long last..

Morning Report - foreclosures continue to fall

Vital Statistics:

	Last	Change	Percent
S&P Futures	2069.2	-3.4	-0.16%
Eurostoxx Index	3261.1	13.4	0.41%
Oil (WTI)	67.01	-0.4	-0.55%
LIBOR	0.235	0.000	0.00%
US Dollar Index (DXY)	88.8	-0.159	-0.18%
10 Year Govt Bond Yield	2.26%	-0.02%
Current Coupon Ginnie Mae TBA	104.6	-0.1
Current Coupon Fannie Mae TBA	103.9	0.1
BankRate 30 Year Fixed Rate Mortgage	3.94

Markets are lower as ECB President Mario Draghi addresses further action the ECB might take to boost growth. Bonds and MBS are flat.

It looks like Mario Draghi is kicking the QE can down the road a little more, and will address further stimulus measures in the first quarter. The Euro is rallying.

Initial Jobless Claims came in at 297k during the holiday shortened week. Announced job cuts fell 21% in November, according to outplacement firm Challenger, Gray and Christmas.

 

The ISM Non-Manufacturing Index rose to 59.9% in November as business activity and new orders surged. The employment index decreased however. 

Completed Foreclosures fell to 41,000 in October, according to CoreLogic. This is a 26.4% decline from a year ago, and a 34% drop from September. The 12 month sum of foreclosures is at its lowest point since October 2000. Approximately 605,000 homes are in some stage of foreclosure compared to 875,000 a year ago. This represents about 1.6% of all homes with a mortgage. Unsurprisingly, the judicial states contain the highest inventory, with New Jersey at 5.5%, and New York and Florida at 4.1%. 

The latest Beige Book shows that conditions improved overall during the months of October and November. The only disappointing news was that wage inflation remains "subdued." Separately, Obama met with the Business Roundtable yesterday to push for wage increases. The Administration is also pushing for businesses to consider hiring the long-term unemployed. This is pretty much going to be an "either / or" type of situation. 

Morning Report - ADP forecasting a weaker jobs report this Friday

Vital Statistics:

	Last	Change	Percent
S&P Futures	2066.2	0.3	0.01%
Eurostoxx Index	3244.8	6.5	0.20%
Oil (WTI)	67.6	0.7	1.08%
LIBOR	0.235	0.001	0.43%
US Dollar Index (DXY)	88.85	0.205	0.23%
10 Year Govt Bond Yield	2.29%	-0.01%
Current Coupon Ginnie Mae TBA	104.6	-0.1
Current Coupon Fannie Mae TBA	103.8	0.0
BankRate 30 Year Fixed Rate Mortgage	4.08

Markets are flattish on no real news. Bonds and MBS are flat as well.

Mortgage Applications fell 7.3% last week, which isn't a surprise given the holidays. Purchases rose 2.5% while refis fell 13.4%. 

ADP is forecasting the payroll number will come in at 208k this Friday. The Street is forecasting 230k. 

Productivity rose 2.3% in the third quarter, while unit labor costs fell 1%. Output increased 4.9% and hours worked increased 2.5%. Compensation rose 1.3% while productivity rose 2.3%, which means unit labor costs are -1%. These numbers do not suggest inflation is any sort of immediate or medium-term threat at all, which is bond bullish. 

Speaking of bond bullish, Amazon.com just did a $6 billion (!) bond issue, which contained a $1.5 billion tranche of 30 year bonds yielding 4.95%. The funds will be used for general corporate purposes. If you look at their balance sheet, they already have $7 billion in cash vs. $3 billion in debt outstanding, so it isn't like they need the money. 30 years at under 5%. 7 years ago, the 30 year yielded more than that. 

The latest kerfuffle in Washington doesn't involve immigration - it involves a bunch of expiring tax breaks. Many of them are for individuals - tax breaks for teachers, tuition, mortgage debt forgiveness, mortgage PMI, and mortgage forgiveness. There are a number of business breaks in there as well. The Senate came up with a two year extension, but Obama promised to veto it because it doesn't address the earned income tax credit and child tax credits that expire in 2017. He wants them to be made permanent. It looks like a 1 year extension bill is in the works. If this doesn't get resolved, it could make for an interesting start to the tax year. 

From the polar vortex making November the coldest in decades to El Nino ushering in a mild December, natural gas investors have been taken for a ride over the past six weeks or so. Fun fact - on the NYSE, they have Bloomberg or CNBC on the big TV monitors. In the commodity pits, they have on the Weather Channel. This is why. Look at the volatility of nat gas over the past month. roughly $3.50 to $4.50 and back to $3.80. Pretty amazing. 

Morning Report - Construction Spending is coming back

Vital Statistics:

	Last	Change	Percent
S&P Futures	2059.7	8.9	0.43%
Eurostoxx Index	3228.5	-4.4	-0.14%
Oil (WTI)	68.04	-1.0	-1.39%
LIBOR	0.234	0.000	0.00%
US Dollar Index (DXY)	88.5	0.555	0.63%
10 Year Govt Bond Yield	2.28%	0.04%
Current Coupon Ginnie Mae TBA	104.6	-0.2
Current Coupon Fannie Mae TBA	103.9	-0.3
BankRate 30 Year Fixed Rate Mortgage	4.06

Stocks are higher this morning on no real news. Bonds and MBS are giving back some of Friday's big gain. 

Construction Spending rose 1.1% in October, and September's number was revised upward from - .4% to - .1%.  Private residential construction rose 1.3%. Federal construction spending rose 19.3% and overall public construction increased 2.3%. Construction spending is still 20% off its peak level in 2006. 

Chart: Construction Spending 2000 - Present

Construction Spending as a percent of GDP:

As you can see from the two charts above, we construction spending has been heavily depressed since the bubble burst 8 years ago. This represents pent-up demand which will drive the economy going forward. If oil prices remain low, 2015 could be a good year and the economy might be able to weather higher interest rates, although I don't think the Fed raises rates by more than a symbolic amount until wage inflation starts. Given the bid that is underneath worldwide bonds, the Fed could raise short term interest rates and longer-term rates might not even move all that much. 

Home Prices increased 6.1% year-over-year in October, according to CoreLogic. They remain 12.4% below their April 2006 peak. 

Zillow is predicting Millennials will be the biggest home buying group in 2015 and rent inflation will outstrip home price appreciation. We are already seeing the home price indices reflect higher growth at the lower price points than the higher price points. 

While Black Friday sales were tepid for the most part, Cyber Monday sales were brisk, up 8.5%. Consumer confidence indices are pushing through post-bubble highs, and lower gas prices should help improve consumer spending. 

Morning Report - Bonds rally as oil tanks

Vital Statistics

	Last	Change	Percent
S&P Futures	2056.8	-9.5	-0.46%
Eurostoxx Index	3234.5	-16.4	-0.51%
Oil (WTI)	66.32	0.2	0.26%
LIBOR	0.234	0.000	0.00%
US Dollar Index (DXY)	87.99	-0.369	-0.42%
10 Year Govt Bond Yield	2.16%	0.00%
Current Coupon Ginnie Mae TBA	105	0.3
Current Coupon Fannie Mae TBA	104.1	0.1
BankRate 30 Year Fixed Rate Mortgage	3.92

Markets are lower this morning on overseas weakness as the Chinese PMI came in weaker than expected. Bonds and MBS are flat.

The story of the last few days has been the precipitous decline in the price of oil, which is collapsing at a faster rate than it did in the 2008 crisis. The fracking boom in the US is playing a big role here, along with OPEC's decision to to maintain output. This is going to have major implications for the US economy and also foreign policy (mainly good).

Chart: WTI Crude 2007 - Present:

As oil falls, so do bond yields. Last week, the 10 year dropped 15 basis points to close out at 2.164%. There are lots of reasons to be skeptical of Friday's closing print - namely (a) low volume as many desks were staffed with skeleton crews and (b) end-of-month position squaring and window-dressing. That said, bonds are holding onto gains first thing this morning. LOs, if you had some borrowers that wanted to refi and missed their chance, wake them up. Due to the holidays, they probably don't know what has been happening in bonds..

Chart: 10 year bond yield. 

Note that while bond yields fell 15 basis points, mortgage rates fell by only 6 basis points or so. We saw this the last time yields fell quickly - mortgage rates didn't follow the move down all that much until it became obvious that the move wasn't a fluke. Note TBAs picked up about half a point last week. 

We have some important economic data this week, with the ISM, Construction Spending, and the Employment Situation Report. We will also get same store sales from the retailers, which should provide some insight into Black Friday. Retailers should benefit from the gift of low gas prices, however it looks like Black Friday was a disappointment this year. 

The WSJ is reporting that some of the bigger lenders (like Wells and SunTrust) are preparing to ease lending standards in response to the new R&W guidelines out of the GSEs.