Morning Report: Decent Jobs report 2/3/17

Vital Statistics:

Last Change
S&P Futures 2281.3 4.5
Eurostoxx Index 364.1 2.2
Oil (WTI) 53.8 0.2
US dollar index 90.6 0.1
10 Year Govt Bond Yield 2.47%
Current Coupon Fannie Mae TBA 102.1
Current Coupon Ginnie Mae TBA 103.2
30 Year Fixed Rate Mortgage 4.19

Stocks are up after a decent jobs report. Bonds and MBS are up as well.

Jobs report data dump:

  • Nonfarm payrolls up 227,000
  • 2 month prior revision down 39,000
  • Unemployment rate 4.8%
  • Underemployment rate 9.4%
  • Labor force participation rate 62.9%
  • Average hourly earnings up 0.2% MOM / up 2.5% YOY

Overall, a pretty decent report. Payrolls were much better than expectations, although the downward revision of 40,000 to November offset that somewhat. The employment to population ratio ticked up from 59.7 to 59.9, which is something the Fed pays close attention to. The year-over-year increase in wages took a step back, but part of that is due to very strong January 2016 number which fell off the YOY comparison. In terms of industries, we saw big increases in construction and retail. The oil patch is hiring again as well. In some ways this was a Goldilocks type report: strong enough to make the stock market happy, and weak enough in wage growth to keep bonds from selling off.

The ISM non-manufacturing index took a step back in January from December’s strong pace. Factory orders increased 1.3%.

President Trump has ordered a comprehensive review of Dodd-Frank and suspended Obama’s fiduciary rule executive order which was to take effect in April. The goal of the review is to remove regulatory burdens to the financial industry and to increase investor options, according to an administration official. Areas of focus include reforming the CFPB, the Volcker rule, and the fiduciary order. Critics claim that the CFPB is restricting credit, the Volcker rule is restricting liquidity in the markets, and the fiduciary rule amounts to a gag order for retirement advisors.

US CEOs are meeting with Donald Trump today, as the relationship between the two becomes more tenuous. The problems are twofold. First, the left is organizing boycotts on any company associated with the Trump administration, while culminated in Uber’s CEO resigning from Trump’s business panel after the #deleteUber campaign. Second, fears of immigration limits are worrying many, particularly in the tech space. Finally Trump’s naming and shaming of companies via Twitter is causing uncertainty as well.

Interesting article in the Wall Street Journal about the future of the labor market and the business world’s continued move towards outsourcing, even within the US. Companies like Pratt and Whitney are now using UPS to handle parts of the logistics chain that used to be done by Pratt and Whitney employees. This obviously gives the company more flexibility and they don’t have to deal with the HR issues of hiring and firing. Temporary worker agencies continue to grow and allows companies to have “just in time” employee management. Accenture sees a future where the only full time employees at some companies are C-level: the rest will be temps. I wonder if it will work out the way these companies imagine however. Once these agencies control vast parts of the company’s operations, the agency will be able to hold up a company for higher rates the way unions used to hold up companies for higher wages.

Freddie Mac has a somewhat gloomy outlook for origination next year, forecasting a drop of 25% from 2016’s level of $2 trillion in origination. They see the 30 year mortgage rate averaging 4.4% and total home sales falling from 6 million to 5.75 million. House price growth is expected to moderate to 4.7% from 6%. Freddie Mac is baking in some possibility of expansionary fiscal policy coming out of Washington, especially with respect to tax reform, where an increase in the standard deduction will reduce the incentive to itemize and reduce the subsidy from the mortgage interest deduction. They do point out that increases in interest rates have been generally short-lived over the past 8 years as slow global growth and excess savings find their way into the bond market. Freddie Mac caveats this outlook with the fact that the new administration provides a lot of uncertainty. FWIW, it is looking like it will take 60 votes to get anything done in the Senate, which means a fiscal status quo. That will likely mean only 2 hikes in 2017, not 3. Rates may not be going up as much as people think.

You can see the refinanceable population has decreased significantly as rates have risen:

refinanciable population.PNG

The CFPB had another setback in the PHH case.

20 Responses

  1. I’d say the last five paragraphs of this piece make the pro-refugee case better than any other piece I’ve seen recently.

    “The Anti-Refugee Movement Is America at Its Most Ignorant
    The Trump movement can’t even understand self-interest

    By Matt Taibbi”

    Trump’s opponents seem to feel that they don’t have to make a case on the merits of the policy at all, but that simply calling Trump’s proposals racist and anti-American will suffice to discredit them with the public.

    Oh, and of course the occasional sick burn when there’s a gaffe made by one of his spokesman.

    Liked by 1 person

  2. Back to my bunk!

    Liked by 1 person

  3. Fuck, That’s nothing.. Trump is gonna eliminate Dodd Frank with the stroke of a pen.

    No shit.

    Liked by 1 person

  4. For a lefty, this article is very soothing.

    Shorter version: We are better than them.

    Liked by 1 person

  5. Talk about your Black Bloc…


  6. FWIW, it is looking like it will take 60 votes to get anything done in the Senate

    I don’t think so.


  7. For whatever reason, the media made that game out to be the Patriots = Trump and now look what’s happened.

    Plus, fucking Brady is married to a supermodel!

    Some people have WAY to much talent.

    Liked by 1 person

    • “For whatever reason”

      Brady had a Trump hat in his locker room earlier in the season that was caught on camera.


      • I know, I was more referring to the Super Bowl, that it became a game of Trump vs All Right Thinking People.

        The media got prison raped.



        • “that it became a game of Trump vs All Right Thinking People. ”

          Like everything else these days.

          “You are either with us, or against us”


        • Sums it up nicely:

          “In Trump’s America, the bad guys are on a roll.

          The Super Bowl was about politics only in the way that practically everything is now. Calling what Lady Gaga did a political statement stretches the term to its breaking point. And advertisers seemed to have looked at the election results and Donald Trump’s poll numbers and realized that what Americans want right now is to feel better about a crumbling world by throwing money at multinational corporations that superficially share their values. The lazy political jokes were going to come no matter who won—if the Falcons won it would be cathartic, if the Patriots won it would be yet another victory for the lizard people. It didn’t help, of course, that the Falcons squandered a 25-point lead and a 98.9 win probability in a way that was reminiscent of Hillary Clinton’s stunning election defeat. (The metaphor, however, still isn’t very good—the Falcons were underdogs going into the Super Bowl.) ”


        • All Matt Ryan had to do was NOT TAKE A SACK!

          That’s it. Don’t get sacked and you win.

          Think SF is walking back their offer to Shanahan?


        • Brent:

          All Matt Ryan had to do was NOT TAKE A SACK!

          Yup. What was he passing for, anyway? 3 runs and a FG. Done. Bad play calling.


  8. This is telling. Vox’s problem with Showtime’s documentary on the 2016 election is that it’s too neutral and doesn’t take a side:

    “Trumped, a new documentary, is a baffling exercise in faux neutrality
    Showtime’s follow-up to The Circus inadvertently reveals what’s wrong with modern political coverage.
    Updated by Alissa Wilkinson
    Feb 5, 2017, 10:32am EST”

    I have a different take, in that I think it may be engaging in some revisionism.

    I watched parts of the original series, The Circus, and at the time I don’t believe that they focused on the leaked E-mails and the Comey announcements as much as the did in the final documentary. But I may be misremembering myself, so I want to go back and watch both of them side by side to see how if they changed their editorial decisions between the two after the election was over.

    Liked by 1 person

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