Morning Report: The Bank of England cuts rates, sending Treasuries higher 8/4/16

Vital Statistics:

Last Change
S&P Futures 2160.0 3.0
Eurostoxx Index 336.9 1.0
Oil (WTI) 40.8 0.0
US dollar index 86.5 -0.5
10 Year Govt Bond Yield 1.51%
Current Coupon Fannie Mae TBA 103.3
Current Coupon Ginnie Mae TBA 104.2
30 Year Fixed Rate Mortgage 3.5

Stocks are higher this morning after the Bank of England cut rates and instituted QE. Bonds and MBS are up.

In response to Brexit, the Bank of England cut rates and introduced a bond-buying program for corporate and sovereign debt. This is causing global sovereigns to rally, and the German Bund is now trading at -7 basis points again. The US 10-year seems to correlate the most with the German Bund lately, so if it continues to rally, look for lower rates in the US.

Job cuts increased in July to 45,346, which is up 19% from last month, but is down 57% from a year ago. Military discharges and continued cuts in the energy sector drove the increase. Texas and California bore the brunt of the job cuts.

Initial Jobless Claims ticked up to 269k last week, however we have been below 300k for months, which is a very low level.

The Bloomberg Consumer Comfort index ticked up slightly last week to 43 from 42.9.

Factory Orders fell 1.5% from a downward-revised -1.2% in May. The manufacturing sector continues to exhibit a slowdown.

The ISM Services Index ticked down to 55.5 from 56.5 last month. The ISM Services index has been much stronger than the manufacturing index.

Nationstar reported better than expected earnings in the second quarter, although they took a big hit on their servicing portfolio. That said, while others are running from the servicing business, Nationstar is doubling down, and looks to build their business, with the addition of Seneca and USAA as clients. USAA had used Dovenmuhle in the past. Originations were up 24% QOQ and consumer direct accounted for 60% of the volume. Nationstar was up 12% for the day and is the highest in 9 months.

Mortgage REIT Annaly Capital reported a drop in book value per share as volatility hurt results. Given the widening of MBS spreads at the end of the second quarter, this is to be expected, although peer American Capital Agency did report a small increase. Annaly just completed its acquisition of Hatteras. Aside from the Fed, mortgage REITs are some of the biggest purchasers of mortgage backed securities, and can move around TBAs which influences mortgage rates, so it pays to keep tabs on how they are doing.

Separately, Fannie Mae reported a drop in net income.

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