Morning Report - Watch out for the FOMC minutes at 2:00 pm EST

Markets are higher after yesterday's bloodbath. Bonds and MBS are rallying.

Fears over global growth are beginning to worry the markets. One other thing to keep in the back of your mind is that third quarter earnings season is upon us as Alcoa reports after the close tonight. The rally in the dollar could end up crimping earnings for the big multinationals - something to keep in mind.

Today, we get the FOMC minutes around 2:00 pm. We could see some bond market volatility around that. LOs be aware.

Mortgage Applications rose 3.8% last week. Purchases rose 2.4% while refis rose 5%. During the week, bonds yields fell 4 basis points.

Job openings hit a 14 year high last month, according to the JOLTS survey. It looks like a lot of the growth was in health care and social assistance. Retail also reported a big increase in openings.

Home prices rose 6.4% annually in August, according to CoreLogic. Excluding distressed sales, they rose 5.9%.

Warren Buffet is perplexed by the lack of mortgage demand. Taking out a mortgage is the easiest way for a normal investor to short the bond market. Locking up money for 30 years at 4% is a no-brainer, considering that inflation has averaged about 4% over the past 60 years or so. Basically it is free money, and if we ever get another burst of 70s style inflation again, you are borrowing at a negative real rate. Warren has also been surprised by the lack of housing starts. As have many of us.

Morning Report - all about the FOMC minutes this week.

Markets are higher on election results in Brazil, which is putting a bid under emerging markets. Bonds and MBS are down small.

This week has very little economic data to worry about (typical for the week after the jobs report). The most important event will be the FOMC minutes on Wednesday.

The banking system is loading up on Treasuries. They have all this cash that they are not putting to work. Of course all of the lawsuits and buyback demands isn't helping things. Another interesting data point - S&P 500 companies are spending 95% of their profits on buybacks. This speaks to the lack of investment opportunities that companies see. It is the quintessential vote of economic pessimism.

A marriage of right and left - a new 15 year mortgage that uses the downpayment to buy down the rate closer to zero. A pilot program is already up and running. Interesting idea.

Last week's decision on Fannie and Fred left investors with a bruising. The plaintiffs vow to continue the fight, however understand that Fannie and Fred common stock is a litigation lottery ticket. The only way it is worth any money is if a court overturns the legislation forming the FHFA.

Morning Report - Jobs report data dump

Vital Statistics:

	Last	Change	Percent
S&P Futures	1949.8	11.2	0.58%
Eurostoxx Index	3126.9	20.5	0.66%
Oil (WTI)	90.48	-0.5	-0.58%
LIBOR	0.233	-0.003	-1.06%
US Dollar Index (DXY)	86.53	0.930	1.09%
10 Year Govt Bond Yield	2.44%	0.01%
Current Coupon Ginnie Mae TBA	106.4	-0.1
Current Coupon Fannie Mae TBA	105.7	-0.1
BankRate 30 Year Fixed Rate Mortgage	4.07

Markets are higher after a better-than-expected employment report. Bonds and MBS are down

Data dump from the jobs report:

• Nonfarm payrolls + 248k (+215k expected)
• Two month revision: + 69k (this is a good number)
• Unemployment rate 5.9% (6.1% expected)
• Labor force participation rate new low at 62.7%
• Average hourly earnings flat
• Average weekly hours increase to 34.6

The last time the labor force participation rate was this low was late 1977. This presents a dilemma for the Fed - will the labor force participation rate continue its decline? If so, then there is less slack in the labor market than we think. FWIW, I don't see the Fed doing anything dramatic until we start seeing wage growth, and that is still nowhere to be found. 

The ISM services index fell to 58.6 from 59.6 in August. This was slightly above the Street estimate of 58.5.

I know credit is tight, but what does it say when the Godfather of QE can't refi? I guess the CFPB wants to make sure the Bernank doesn't get a "predatory" loan.

Morning Report - Rental vacancies rising

Vital Statistics:

	Last	Change	Percent
S&P Futures	1939.9	-0.9	-0.05%
Eurostoxx Index	3193.4	-1.7	-0.05%
Oil (WTI)	89.31	-1.4	-1.57%
LIBOR	0.235	0.000	0.00%
US Dollar Index (DXY)	85.73	-0.240	-0.28%
10 Year Govt Bond Yield	2.41%	0.03%
Current Coupon Ginnie Mae TBA	106.6	0.5
Current Coupon Fannie Mae TBA	105.8	-0.1
BankRate 30 Year Fixed Rate Mortgage	4.08

Markets are flat as ECB President Mario Draghi speaks. Bonds and MBS are lower.

Initial Jobless Claims fell to 287k, as we continue to have boom - time levels in the first time unemployed. Separately, announced job cuts fell by 24% according to outplacement firm Challenger, Gray, and Christmas. Employers are beginning to hang onto their employees - the big question is what happens next? Do they get start bidding up for talent (i.e. increasing wages) or do they start to tap the long-term unemployed? The answer to that question will determine the Fed's posture going forward.

Auto sales were strong in September. The average age of a car in the US is something like 11.4 years, which is a record. 

The ISM New York rose from 57.1 to 63.7

Hiring has slowed, however. Small businesses are hiring at a slower pace than over the summer.

Completed foreclosures increased to 45,000 in August, according to Corelogic.They are up 1.1% compared to July, but down 22% year-over-year. The national foreclosure inventory is down 33% YOY, to 1.6% of mortgaged homes. 

All of the new multi-fam construction and REO-to-rental supply has finally caught up to the market. The vacancy rate for apartments rose to 4.2% in the third quarter, the first increase since 2009. Apartment developers are going to complete the most units this year since 1999. The divergence between multi-fam and SFR is striking. The punch line is that some of these professional investors are going to start to think about letting some supply go, which should finally give the first time homebuyer a chance to get in, which is good for the economy and also the mortgage banking business. 

Morning Report - Construction Spending falls

Vital Statistics:

	Last	Change	Percent
S&P Futures	1950.2	-15.3	-0.78%
Eurostoxx Index	3192.3	-33.7	-1.04%
Oil (WTI)	92.28	1.1	1.23%
LIBOR	0.235	0.002	0.86%
US Dollar Index (DXY)	85.94	0.008	0.01%
10 Year Govt Bond Yield	2.42%	-0.07%
Current Coupon Ginnie Mae TBA	106.4	0.2
Current Coupon Fannie Mae TBA	105.7	0.3
BankRate 30 Year Fixed Rate Mortgage	4.12

Markets are lower this morning on Euro-area weakness. Bonds and MBS are rallying.

Mortgage Applications fell .2% last week, according to the MBA. Purchases were flat, while refis dropped .3%. Contract interest rates for the 30 year fixed rate mortgage fell from 4.39% to 4.33%.

Construction spending fell .8% month-over-month in August, and is up 5% year-over-year. Private resi was down .1%, while non-residential was down 1.2%.

The ADP Employment change is predicting 213k private sector jobs for this Friday's jobs report. The Street is at 210k.

The ISM Manufacturing Index fell from 59 to 56.5, while prices paid rose from 58 to 59.5.

Fannie Mae investors lost a court ruling that threw out two lawsuits regarding Fannie's profits, which go 100% to the government. The stock is down a buck (or about 38%) on the open. It traded as low as 97 cents pre-open. The stock is more or less a litigation lottery ticket, and this Administration is bound and determined to see to it that shareholders are wiped out.

The CFPB slapped down Flagstar in its first servicing enforcement. They were fined $27.5 million and given a tongue-lashing by Cordray. Their sin was was failure to devote sufficient resources to administering loss mitigation programs for distressed borrowers. Note that if Republicans take the Senate, one of the first orders of business will be to introduce legislation to tame the CFPB.

Epic "fat finger" trade on the TSE last night - $617 billion worth of orders were voided after a data error caused someone tried to trade 57% of the float in Toyota.

The Fed is worried about leveraged loans. Excessively low interest rates have the unintended consequence of encouraging investors to reach for risk in order to hit return targets. I have been saying for some time that the stock market is assigning a 100% probability that the Fed can start hiking rates without someone blowing up.

Morning Report - Big drop in consumer confidence

Vital Statistics:

	Last	Change	Percent
S&P Futures	1973.2	3.7	0.19%
Eurostoxx Index	3219.3	32.4	1.02%
Oil (WTI)	94.75	0.2	0.19%
LIBOR	0.233	-0.001	-0.21%
US Dollar Index (DXY)	86.05	0.458	0.54%
10 Year Govt Bond Yield	2.51%	0.03%
Current Coupon Ginnie Mae TBA	106.1	-0.1
Current Coupon Fannie Mae TBA	105.3	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.11

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

House Prices fell .5% month over month, the third consecutive monthly decline according to Case-Shiller. On a year-over-year basis, they are still up 6.75%. 

Consumer confidence dropped markedly in in September, according to the Conference Board. It fell from an upward-revised 93.4 to 86. The present situation index fell from 93.9 to 89.4 and the Expectations index fell from 93.1 to 83.7.

The ISM Milwaukee Index came in at 63.18, better than the street expectations of 61. The Chicago Purchasing Manager Index came in at 60.5, below expectations as well. 

Dallas Fed President Richard Fisher would raise rates in the Spring of next year instead of waiting until the summer. Regardless, it is looking like the first rate hike will be at the June 2015 FOMC meeting, provided things continue on the same economic course. Note that the Fed Funds Futures are predicting the Fed will be less aggressive than advertised in the dot graphs. 

Note that inflationary pressures are moderating courtesy of a bear market in commodities, driven by a stronger dollar and slower Chinese growth. The PCE Price Index (the preferred inflation measure for the Fed) rose by only 1.5% last month, which is well below the Fed's target.

Speaking of commodities, the US is set to become the world's largest producer of liquid petroleum, passing Saudi Arabia for the first time since 1991. Cheap energy is going to be the basis for the next big boom in the US as manufacturing relocates back to the U.S.

A new paper from Brookings says the Fed and the Treasury should coordinate policies more. 

Employment has crawled back to peak levels in parts of the country, but 29 out of 50 states are still below that level. The states hit the hardest in the real estate bust - Nevada, Arizona, and Florida - are furthest from peak levels. 

Morning Report - Busy week ahead

Vital Statistics

	Last	Change	Percent
S&P Futures	1957.9	-18.0	-0.91%
Eurostoxx Index	3193.5	-26.1	-0.81%
Oil (WTI)	93.2	-0.3	-0.36%
LIBOR	0.233	-0.001	-0.21%
US Dollar Index (DXY)	85.5	-0.142	-0.17%
10 Year Govt Bond Yield	2.48%	-0.05%
Current Coupon Ginnie Mae TBA	106.1	0.0
Current Coupon Fannie Mae TBA	105.5	0.1
BankRate 30 Year Fixed Rate Mortgage	4.14

Stocks are lower this morning on the demonstrations in Hong Kong. Bonds and MBS are up.

This is a big week data-wise. We will get the ISM report, construction spending, Case-Shiller, and then the jobs report on Friday. Given that bonds again seem to be driven by overseas events, I think the jobs report will probably be a non-event for the bond market unless it is exceptionally strong or exceptionally weak. 

Pending Home Sales fell 1% in August after rising 3.2% in July. The West was up 2.6%, while the rest of the US was down. 

Bill Gross is out at PIMCO and has joined Janus Capital. This follows record outflows at the flagship Total Return Fund, which Gross ran. PIMCO anticipates another $10 billion will leave on the news.

Personal Incomes rose .3% in August, while Personal spending rose .5%. The PCE Core rate (the inflation measure the Fed prefers to use) rose 1.5% year-over-year, below their 2% target rate. 

Freddie Mac's Chief Economist told the New England Mortgage Banking Conference that 2015 could be the best year for home sales since 2007. They are forecasting mortgage rates to be around 5% by the end of 2015.