|US dollar index||91.3||0.0|
|10 Year Govt Bond Yield||2.37%|
|Current Coupon Fannie Mae TBA||103|
|Current Coupon Ginnie Mae TBA||104|
|30 Year Fixed Rate Mortgage||4.08|
Stocks are up after the European Central Bank extended its quantitative easing plan. Bonds and MBS are down as the ECB lowered the monthly stimulus amount unexpectedly.
Initial Jobless Claims ticked up to 258k last week. We are still bumping around 40 year lows on initial jobless claims..
Nomura lays out 10 “black swan” events that could roil markets in 2017. Black swan events are things that are highly improbable, but not impossible. While most of these are overseas events (China floating the yuan, etc) there are a couple for the US. First would be a jump in US productivity, which would be good news for the economy as a whole, and the second would be a fight between Trump and the Fed, which would be bearish. Trump has been a critic of the Fed’s low interest rate policies in the past, however he is now a politician, and politicians love low interest rates. I wouldn’t be surprised to see a more hawkish nominee for the Fed when Yellen’s term is up, however.
I would add one more: that Donald Trump begins to douse the animal spirits by naming and shaming companies which do things he doesn’t like. Granted, politicians have always intervened in potential plant movings, etc, but they did it quietly behind the scenes, not via Twitter. This could become an issue going forward and would be bearish for the economy and the stock market. Good for bonds, however.
JP Morgan is out with a call saying the Fed will only hike interest rates twice next year – at the June and December meetings. They also are forecasting 1.9% GDP growth for 2017, which is slightly lower than the Fed’s forecast of 2%. They also warn of protectionism and a possible trade war if Trump follows through on renegotiating NAFTA and other treaties, which will be a drag on the economy. They also believe Congress will be willing to pass only a portion of the stimulus that Trump is looking for.
Is the private label securitization market returning? We are starting to see some green shoots, as securitizations of non-QM paper by Caliber and Sterling will get AAA ratings. Over half the loans are in California and the average FICO is 712. The big question is how overcollateralized these bonds are.