Morning Report: Financial reform looks to pass House 6/7/17

Vital Statistics:

Last Change
S&P Futures 2432.0 1.3
Eurostoxx Index 390.4 1.6
Oil (WTI) 47.7 -0.5
US dollar index 88.1 0.1
10 Year Govt Bond Yield 2.15%
Current Coupon Fannie Mae TBA 103.47
Current Coupon Ginnie Mae TBA 104.33
30 Year Fixed Rate Mortgage 3.92

Stocks are flat this morning on no real news. Bonds and MBS are up small.

Mortgage Applications increased 7.1% last week. There was an adjustment made for the Memorial Day holiday. Purchases rose 10% while refis increased 3%. Mortgage rates fell to the lowest levels since November, however the refi share of applications fell again to 42%.

HSBC is calling for a 1.9% 10 year yield by the end of the year. This call is well below the average Street consensus view of a 10 year yield around 2.7%. Given the fact that nothing much is changing between Trump and Obama policy-wise (at least as far as legislation that will be passed) that probably is the right call. That move will be good for mortgage origination activity, however it will generally be bad for banks which rely on a big spread between short-term rates and long-term rates. Given that the Fed does tend to follow the markets, it will be interesting to see if they continue on their plan of 3 hikes this year.

House Democrats look like they aren’t going to offer much in the way of resistance to the financial deregulation bill (the CHOICE act). The bill is expected to pass the House this week on a party line vote, but Democrats have chosen not to force their Wall Street friendly members to walk the plank for the banks. The bill will go to the Senate, where it will undoubtedly need 60 votes to pass and will be watered down. There is a good chance that something will pass, as there is a pretty much bipartisan consensus that Dodd-Frank imposed too big of a regulatory burden on smaller banks.

Gallup’s Job Creation Index ticked up to a record last week. In May, 46% of respondents said their company was hiring, a 1% uptick from April, while the number of respondents who said their company was laying off workers was steady at 9%. The East Coast is lagging the rest of the country, which makes sense in that it is the most levered the financial industry which has been going through a wrenching technologically-driven transformation over the past 20 years. In fact, states like Connecticut (which have historically funded the majority of their budget on taxes from Fairfield County) are having major issues as the tax receipts have fallen off a cliff. This helps explain why the Northeast real estate indices have lagged the rest of the country (especially if you strip out New York City).

Realtors reported low inventory as a major issue in the latest survey. Lender closing delays was also cited as a major issue.

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