Morning Report: Fed minutes this afternoon 7/5/17

Vital Statistics:

Last Change
S&P Futures 2421.5 1.5
Eurostoxx Index 379.4 -1.3
Oil (WTI) 46.3 1.4
US dollar index 87.7 0.1
10 Year Govt Bond Yield 2.30%
Current Coupon Fannie Mae TBA 102.88
Current Coupon Ginnie Mae TBA 103.75
30 Year Fixed Rate Mortgage 4

Stocks are up small after the long weekend. Bonds and MBS are down.

At 2:00 pm we will get the minutes from the June FOMC meeting. There is the always the possibility of market movement from these things, so just be aware. Here are the things the markets will be looking for.

Construction spending was flat MOM in May and up 4.5% YOY. Private residential construction was up 11% YOY.

Manufacturing continues to accelerate, according the ISM PMI report, which hit a 3 year high. The index level would historically correspond with a 4.6% increase in GDP. The average for the first half of the year would correspond to a 4.1% increase in GDP. Of course manufacturing doesn’t have the share of GDP it used to, but it is a good indication that things are getting better.

Bond yields have been backing up, largely on overseas events. Bonds in Europe are selling off and dragging US yields higher on the relative value trade. The current projections for the upcoming FOMC meetings have become slightly more in favor of rate hikes, but we are still looking at no change at the July meeting, and only a 18% chance of a hike in September. The markets are also looking to the September meeting for more clarity regarding balance sheet reduction.

Home Price appreciation continues to accelerate, as the CoreLogic home price index rose 1.2% MOM and is up 6.6% YOY. Rental inflation rose 3.1%, so the increase in home prices is a bit of a double-edged sword. Those who already own homes are getting the benefit of home price appreciation while the first time homebuyer is squeezed.

Upcoming changes that will affect mortgage credit. Tax liens and civil judgements will be expunged from credit reports, which could amount to a 20 point increase in FICOs for some people. Second, Fannie Mae is increasing the DTI ratio from 45 to 50 in order to take into account high levels of student loan debt.

HUD is recommending that Fannie Mae tweak upward its affordable housing goals for 2018-2020. Most goals are unchanged, but a couple were pushed up slightly.

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