Morning Report - Strong ADP number

Vital Statistics:

	Last	Change	Percent
S&P Futures	1967.0	1.2	0.06%
Eurostoxx Index	3259.1	0.4	0.01%
Oil (WTI)	104.8	-0.6	-0.55%
LIBOR	0.235	0.003	1.21%
US Dollar Index (DXY)	79.97	0.156	0.20%
10 Year Govt Bond Yield	2.60%	0.03%
Current Coupon Ginnie Mae TBA	106.3	-0.1
Current Coupon Fannie Mae TBA	105.6	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.17

Stocks are higher (and bonds are lower) after an unusually strong ADP report. 

The ADP Employment Report estimated the economy added 281,000 jobs in June, versus expectations of 205,000. The official jobs report comes out tomorrow, and the consensus forecast is 215,000. The ADP number supports the forecast coming out of Markit last week of about 280,000 jobs as well. Construction added 36,000 jobs. More on the increase in hiring.. Maybe, finally, "recovery summer" will not be the running joke it has been since 2009.

Mortgage Applications fell .2% last week, according to the MBA. Purchases were down .7%, while refis were up .1%.  Disappointing print given that the 10 year dropped 9 bps last week and the Bankrate 30 year fixed rate mortgage fell from 4.22% to 4.14%. 

Home prices rose 1.4% in April, according to CoreLogic. Prices are 13.5% below their April 2006 peak. This increase in prices has been a double-edged sword - it has pulled many people out of negative equity, but it has decreased affordability, especially with the first time homebuyer. CoreLogic expects price appreciation to cool over the next year.

Morning Report - Strong auto sales

Vital Statistics:

	Last	Change	Percent
S&P Futures	1957.2	4.8	0.25%
Eurostoxx Index	3245.5	17.2	0.53%
Oil (WTI)	105.8	0.4	0.39%
LIBOR	0.232	0.001	0.48%
US Dollar Index (DXY)	79.81	0.030	0.04%
10 Year Govt Bond Yield	2.55%	0.02%
Current Coupon Ginnie Mae TBA	106.6	-0.2
Current Coupon Fannie Mae TBA	105.8	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.15

Stocks are modestly higher this morning on good Chinese manufacturing data. Bonds and MBS are down small.

The ISM Manufacturing Index came in at 55.3, a small drop from last month and slightly below consensus. Construction spending rose .1% in May, disappointing, but the April number was revised upward in a big way, from .2% to .8%.

Auto sales are coming in this morning and at first glance, they look pretty good. Chrysler sales are up 9% and even troubled GM's sales were up 1%. I think the average age of a car in the US is pushing 12 years, which is a record. This implies we are going to see a wave of auto buying as these cars become too expensive to keep fixing.

Financial repression has consequences. The Fed is rightfully worried about creating another credit bubble. One place to watch is commercial mortgages, where firms are refinancing old bubble-era debt at current rates. Spreads have narrowed 10 basis points this year to 77 basis points for the higher quality stuff, and LTVs have climbed to within 10% of their third quarter 2007 peak. Vacancy rates are still elevated, and are above the peak of the early 00's recession. 

The Supreme Court split the baby on a couple big decisions yesterday, ruling that companies don't have to cover abortifacients if they object to them for religious reasons, and ruled that non-union members don't have to pay dues for unions that negotiate on their behalf. Both decisions were narrowly written, but that won't stop the avalanche of "slippery slope" columns that are being written this morning. 

Morning Report - Pending Home Sales rise

Vital Statistics:

	Last	Change	Percent
S&P Futures	1951.4	-0.6	-0.03%
Eurostoxx Index	3231.3	3.4	0.11%
Oil (WTI)	105.4	-0.3	-0.28%
LIBOR	0.231	-0.004	-1.66%
US Dollar Index (DXY)	79.99	-0.054	-0.07%
10 Year Govt Bond Yield	2.52%	-0.02%
Current Coupon Ginnie Mae TBA	106.8	0.1
Current Coupon Fannie Mae TBA	106.1	0.1
BankRate 30 Year Fixed Rate Mortgage	4.14

Stocks are flat this morning on no real news. Bonds and MBS are flat.

Pending Home Sales increased 6.1% month-over-month in May, according to the NAR. All four regions experienced gains with the Northeast and the West experiencing the biggest gains. First time homebuyers accounted for 27% of new sales. Again, most of the action has been at the higher price points, while sales for homes under 250k are actually down 10%. Meanwhile, apartment rents are expected to increase 8% over the next few years. 

The ISM Milwaukee index fell to 60.57 from 63.49 the previous month. The Chicago Purchasing Manager's Index also fell. 

This week promises to be full of economic data, but it is a short week. Friday the market will be closed and I believe FINRA is recommending an early close for the bond market on Thursday. So expect a flurry of activity on Thursday after the jobs report and then a dull market as most of the Street will be on the L.I.E. by noon.

RealtyTrac has sliced and diced the data on distressed discounts. As expected, vacant properties take a big hit - in the 25% range, but bank-owned properties overall sold at a 3 percent premium on average. That said bank-owned vacant properties still had a deep discount. 

Freddie Mac has its mid year economic update and forecasts. They expect GDP to grow at 3% over the next couple of quarters. Home prices are expected to rise 5% this year and sales are expected to be just shy of 5.5 million units. 

Most people have noticed the rally in US Treasuries, but have not been focusing on the rally in emerging market debt. The BIS is worried about a potential bubble brewing in sovereign debt markets worldwide. The BIS distinguishes between financial cycles (which last 15-20 years and are characterized by debt and asset prices) and business cycles, which last 1 - 8 years. According to BIS, we have just bottomed from our financial cycle, and are finally on the upswing. 

Morning Report - Homebuilder earnings

Vital Statistics:

	Last	Change	Percent
S&P Futures	1944.2	-4.5	-0.23%
Eurostoxx Index	3230.7	-2.5	-0.08%
Oil (WTI)	106.1	0.2	0.23%
LIBOR	0.235	0.001	0.21%
US Dollar Index (DXY)	80.14	-0.081	-0.10%
10 Year Govt Bond Yield	2.52%	-0.01%
Current Coupon Ginnie Mae TBA	106.6	0.0
Current Coupon Fannie Mae TBA	106.1	0.1
BankRate 30 Year Fixed Rate Mortgage	4.16

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

KB Home reported second quarter earnings this morning. Revenues increased 8% on a 10% increase in average selling prices and a 2.5% decline in deliveries. Margins continued to expand. It will be interesting to see how long the builders can keep increasing the top line through price increases and volume decreases. The stock is up an eighth this morning.

Lennar also reported yesterday. Revenues increased 28% on a 12% increase in deliveries and a 14% increase in ASPs. Like KB, margins are increasing. Lennar is ready to launch a starter home product once first time homebuyers are able to get mortgages. (Gee, Lennar, don't you have a mortgage origination arm?). The spring selling season was weaker than expected, but the homebuilding market is heating up. May was a great month, apparently. 

The Kansas City Fed Manufacturing Index came out yesterday. It eased somewhat, but is still reasonably strong. Some companies mentioned that it is hard to find skilled workers, however once company said the problem was finding "workers who are reliable and possess a strong work ethic." Overall, the comments seemed relatively bullish, with another company saying that "Compensation levels have been increased within all grades to compete with other employers. Production employees received 4-5.5% average wage increases this past year compared to 3% for all other areas of the company." The missing piece to the inflation picture has been wage growth. If we are starting to see it, bond investors should start eyeing the exit.

Jack Lew spoke yesterday, and announced that the HAMP program would be extended through 2016. Also, the Administration will tap Treasury funds to push for more low-income rental housing. He also called on Congress to allow Ginnie Mae to securitize loans made under the FHA risk-sharing program. Treasury is also seeking public comments on what it can do to foster a more robust private-sector mortgage securitization market. 

Morning Report - Sovereign bond bubble?

Vital Statistics:

	Last	Change	Percent
S&P Futures	1949.0	-0.4	-0.02%
Eurostoxx Index	3253.1	0.7	0.02%
Oil (WTI)	106.2	-0.3	-0.27%
LIBOR	0.234	0.000	0.11%
US Dollar Index (DXY)	80.23	0.007	0.01%
10 Year Govt Bond Yield	2.54%	-0.02%
Current Coupon Ginnie Mae TBA	106.5	0.0
Current Coupon Fannie Mae TBA	105.9	0.1
BankRate 30 Year Fixed Rate Mortgage	4.16

Stocks are flat this morning after a disappointing personal spending report. Bonds and MBS are up

Personal Incomes rose .4% in May, in line with expectations, but spending came in at .2%, lower than the .4% estimate. Services spending dropped, while spending on durables increased. The PCE core rate (the Fed's preferred measure of inflation) came in at 1.5%, lower than the Fed's target rate

Initial Jobless Claims came in at 312k, more or less in line with expectations. 

Note that the Markit PMI data came out yesterday and both the composite and the services numbers were at post-recession highs. Markit is forecasting a payrolls number next week of 250k, which is way above the ADP forecast of 208k and the Street forecast of 209k. 

The war on the financial system continues. NY AG Eric Schneiderman just announced he is suing Barclay's. Remember, the road to the NY Governor's Mansion is paved with Wall Street lawsuits. Separately, Obama nominated the woman who railroaded Arthur Anderson into a guilty plea (only to have it overturned by the Supreme Court) to head the Criminal Division at DOJ. She has a fundamentally dim view of business in general and Wall Street in particular - considers us the wise guys of Wall Street, deserving brutal prosecutorial tactics. And the left wonders why credit is so tight...

Is the worldwide unprecedented easing by central banks causing a bubble in sovereign debt? Wilbur Ross and Steven Roach think so. Remember the PIIGS (Portugal, Ireland, Italy, Greece, Spain) problem children of the EU? Their 10 year bonds are yielding: Portugal: 2.84%, Greece 5.85%, Portugal, 3.5%, Spain 2.64%, Ireland, 2.34%. Irish 10 year sovereigns are trading at a lower yield than US treasuries. Two years ago, they were yielding 14%. Memories are short..

On the plus side, mortgage rates continue to fall, which is helping drive business. Chart: Bankrate 30 year fixed rate mortgage:

Morning Report - Terrible GDP revision, but it is all in the technical notes

Vital Statistics:

	Last	Change	Percent
S&P Futures	1939.1	-4.1	-0.21%
Eurostoxx Index	3250.8	-34.0	-1.04%
Oil (WTI)	106.1	0.0	0.05%
LIBOR	0.234	0.000	0.11%
US Dollar Index (DXY)	80.16	-0.170	-0.21%
10 Year Govt Bond Yield	2.54%	-0.04%
Current Coupon Ginnie Mae TBA	106.6	0.1
Current Coupon Fannie Mae TBA	105.9	0.1
BankRate 30 Year Fixed Rate Mortgage	4.19

Markets are lower this morning after a dismal revision to first quarter GDP. Bonds and MBS are flying on the number

First quarter GDP fell at a downward revised rate of 2.9% in the first quarter. The initial estimate was a .1% increase, which was revised downward to -1%, which was finally revised down to 2.9%. There were some obamacare-related revisions in personal consumption expenditures which drove the decrease in the number. 

Personal consumption rose 1% in Q1, versus an expected increase of 2.4%.Finally, durable goods orders fell 1% although if you strip out defense, air and transportation the number isn't that bad. 

Was first quarter GDP as bad as all that? I think you have to take the number with a huge grain of salt. Weather did have an effect, but it looks like there was some obamacare bean-counting issues happening that made the number so low. Simply put, the last time we had a similar GDP report was 2008 / 2009 and no one is going to argue that Q1 was as bad as then. The rest of the data is reasonably strong. Chalk this one up to technical revisions. The bond market is taking that view as well. 

Case in point: The Markit PMI and Services PMI numbers came in above 61, which is a good number. If the ISM reported a PMI number above 61, we would be talking a manufacturing pace that would correspond to 4% GDP growth. Of course manufacturing doesn't have the impact on the economy it used to, but still... 

Insurers are beginning to tally up the effects of Obamacare and what it will mean for premiums next year. People enrolled in the new plans under Obamacare are showing higher rates of serious health conditions than other insurance customers, who tend to hang on to their old plans. This means prices are going way up next year for these new plans. So, either premiums are going to have to rise a lot, or government subsidies will have to rise a lot. Remember, the only reason why the insurance companies went along with Obamacare in the first place is because the government is going to backstop any losses they take. If Obama demands that they hold down prices to keep voters happy, then government will have to pick up the tab. Maybe Elmendorf's CBO can figure out a way to obfuscate the issue so the Administration can claim it is bending the cost curve down, or at least claim we cannot say Obamacare is increasing costs. 

The upshot: Higher healthcare costs = less disposable income. Which means less spending and a weaker economy. If there is a multiplier on health care spend, it cannot be that big. 

Mortgage Applications fell 1% last week as well. Both purchases and refis fell. 

Foreclosure starts fell to 78.8k in April, according to Black Knight Financial Services. We are starting to see more progress in the judicial states, however Massachusetts instituted a new foreclosure prevention (home price appreciation prevention) program, which is keeping its pipeline high.  

Morning Report - Housing data dump

Vital Statistics:

	Last	Change	Percent
S&P Futures	1950.4	-2.6	-0.13%
Eurostoxx Index	3284.3	1.8	0.05%
Oil (WTI)	106.1	0.0	-0.03%
LIBOR	0.234	0.001	0.43%
US Dollar Index (DXY)	80.26	-0.017	-0.02%
10 Year Govt Bond Yield	2.60%	-0.03%
Current Coupon Ginnie Mae TBA	106.5	0.0
Current Coupon Fannie Mae TBA	105.6	-0.1
BankRate 30 Year Fixed Rate Mortgage	4.21

Markets are lower this morning on no real news. Bonds and MBS are up small. Philly Fed Head Charles Plosser said that he could see 2.4% GDP growth for the rest of the year and more slack taken out of the labor market.

New Home Sales spiked to 504k in May, much higher than the 439k estimate. The median sales price of a new home was 282k and the seasonally-adjusted estimate of new homes for sale was 189,000, or about 4.5 months' supply. This Friday, we will hear from homebuilder KB Home when they report second quarter earnings. 

Consumer Confidence rose to 85.2 from 83 last month, and higher than the 83.5 forecast on the street. This is the highest level since January 2008. Perceptions on the economy and the job market are improving, although they are still highly negative.

The Richmond Fed Manufacturing Index came in stronger than expected. We are seeing pricing pressures build. Prices paid (the cost of inputs) rose at a 1.11% rate, while prices received rose at a .37% annualized rate. Eventually producers will pass those increases on, which will eventually get inflation closer to the Fed's comfort zone. 

Home prices were flat month-over-month in April, according to the FHFA. On a year-over-year basis, they were up just shy of 6%. Prices are back at July 2005 levels. 

Home prices posted an 11% gain, according to Case-Shiller. Home price appreciation is leveling off.

And if that weren't enough, The Black Knight Financial Services Home Price Report has prices up .9% month-over-month and up 6.4% year-over-year.

The reason for the difference between the reports? FHFA covers only sales with a conforming mortgage, while Case-Shiller covers everything. The Black Knight report uses an algorithm to correct for distressed and short sales. Regardless of the index you use, the easy money has been made in home price appreciation and now we should see house prices begin to track wage growth again. 

Treasury Secretary Jake Lew is expected to announce expanded programs to help struggling mortgage borrowers on June 26. The new aid will "build on previous administration initiatives that helped stabilize the housing market." Treasury said. We know that the administration is considering a program for the first time homebuyer that gives a break on MI payments if they borrower goes through counseling. I doubt that we are going to see something dramatic like an expansion of HARP eligibility dates. The administration also seems to think that easing buyback requirements will loosen credit. It may, it may not. As noted in the article, if it were a game changer, Obama would be announcing it himself, not having Lew do it at a housing conference.