Morning Report: Productivity flat 6/5/17

Vital Statistics:

Last Change
S&P Futures 2435.8 -2.0
Eurostoxx Index 391.8 -0.7
Oil (WTI) 47.1 -0.5
US dollar index 88.3  
10 Year Govt Bond Yield 2.18%
Current Coupon Fannie Mae TBA 102.6
Current Coupon Ginnie Mae TBA 103.81
30 Year Fixed Rate Mortgage 3.9

Stocks are lower this morning after we saw terror attacks in London. Bonds and MBS are down as well.

Four nations over the weekend cut diplomatic ties with Qatar, one of the Middle East’s biggest financial centers. The issue is over political interference, terrorism, and ties with Iran. Oil is selling off on the news.

The week after the jobs report is generally data-light and that is the case this week as well. We are entering the blackout period for the Fed ahead of the FOMC meeting, which means no Fed-speak either. Should be a relatively calm week.

Nonfarm productivity was flat in the first quarter as unit labor costs rose 2.2%. Productivity is the biggest driver of wage increases (because it is generally non-inflationary) and the lack of productivity has been a big reason why wages have been going nowhere for the past 10 years.

Factory orders fell 0.2% last month, despite strength from aircraft orders. The ISM services index came in at a strong 56.9, just missing Street expectations.

The Fed Funds futures are now pricing in a 96% chance of a rate hike next week. The implied probability of rate hikes continues to increase as the yield curve flattens. This means the long end of the curve (which is the biggest influence on mortgage rates) is sanguine about the economy and the risk of inflation.

How regulation is impacting the supply of starter homes by increasing the cost to build them. In the DC area, about $75 of the price of a new home is driven by government mandates. Meanwhile, D.R. Horton is in a bidding war for Austin Texas based Forestar.

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