Morning Report: Markets rally on the French election 4/24/17

Vital Statistics:

Last Change
S&P Futures 2374.8 27.3
Eurostoxx Index 386.0 7.9
Oil (WTI) 49.9 0.3
US dollar index 89.5
10 Year Govt Bond Yield 2.29%
Current Coupon Fannie Mae TBA 102.78
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 3.98

Stocks are higher this morning after the French election had no surprises. Bonds and MBS are down on the risk-on trade.

We will have a lot of real estate related economic releases this week, however we don’t have much in the way of market moving data until Friday when we get the first look at Q1 GDP. We have Fed-Speak today and Friday.

The French election will pit a centrist against a right wing candidate. The far left candidate did not make it to the next round. Given this is just a first round election, the market’s sugar high probably won’t last all that long.

After the French election, the next big event is the the potential government shutdown on Friday. The sticking point is that Trump wants funding for the border wall, which Democrats are calling a non-starter. If Trump and the Democrats can’t get a deal (or Trump can’t get Republicans to help him out), we will get a partial government shutdown starting Saturday. This will be the big event this week, although markets are probably used to this sort of drama.

It is humorous to pick up the way the potential shutdown is spun in the media. When obama had to deal with shutdowns, it was the irresponsible Republicans who controlled Congress who were the villains. Now that Democrats won’t vote for a CR, the villain is now Trump. Plus ca change…

Note that the last time we had a shutdown, people weren’t able to get 4506-T’s out of the IRS during the shutdown. LO’s should plan accordingly to keep closings on track.

Economic activity took a step back in March, according to the Chicago Fed National Activity Index. Employment related indicators drove the decrease. Not sure how much of that is coming from retailers, who have been struggling as of late. This is a meta-index of leading and lagging indicators, however it certainly shows that the hard data (actual spending / employment / production numbers) is not catching up to the soft data (sentiment surveys).

Tight inventory has home prices on a tear, with the Black Knight Home Price Index up 0.8% MOM and 5.7% YOY. The index has now passed its bubble peak and is making new highs. The FHFA index and the CoreLogic indices have hit new highs as well, leaving only the Case-Shiller index still underwater. Mortgage originators are issuing tons of pre-qual letters, but the offers are not forthcoming since the market is so competitive. Buyers are now making offers without contingencies in order to get the home they want. The hottest market? Seattle, where prices rose 2.7% on a month-over-month basis. This is hard for the first time homebuyer who often needs some help paying closing costs. VA loans allow for seller’s concessions (which don’t cost the seller any money), which means you can get up to a 103% LTV loan.

Chris Whalen has a good piece on what the origination business will look like for 2017. Punch line: lower volumes, increasing purchase activity, and a widening of the credit box. He also speculates that CFPB Chairman Richard Cordroy’s response to Trump staffer Gary Cohn’s request to resign was to launch a new assault on Ocwen. There are rumors that JP Morgan might get back into the FHA lending business, and Wells has cut pricing on FHA loans as well. In terms of home price appreciation, housing affordability is stretched, but low inventories will proved price support.

Homebuilder DR Horton reported strong Q2 earnings as revenues and income rose 17%. New orders were up 14% in units and 17% in value. They took up guidance as well.

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