Morning Report: Neel Kashkari to business: stop whining 8/8/17

Vital Statistics:

Last Change
S&P Futures 2474.0 -3.3
Eurostoxx Index 381.1 -0.9
Oil (WTI) 49.4 0.0
US dollar index 86.2 -0.1
10 Year Govt Bond Yield 2.26%
Current Coupon Fannie Mae TBA 103.197
Current Coupon Ginnie Mae TBA 104.068
30 Year Fixed Rate Mortgage 3.92

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

Job openings increased by 461,000 to hit 6.2 million in June, according to the JOLTS job openings report. The quits rate was steady at 2.1% (or about 3.1 million people). The quits rate is an important number to the Fed and often signals impending wage growth. The quits rate was the lowest in the Northeast, at 1.7% while the highest in the South at 2.5%.

Small business optimism increased in July, according to the NFIB. Small business continues to hire, adding .21 workers on average over the past several months. Finding qualified workers remains a problem, and 87% of those trying to hire found few or no qualified applicants. Apparently drug use remains a big issue – getting workers who can pass a drug test can be difficult. Regarding the political environment in DC, while there has been no movement on anything legislatively, there have also been no new regulations put in place, and we are seeing some regulations from the Obama administration reversed, which is having a positive effect on sentiment.

Minneapolis Fed Head Neel Kashkari spoke yesterday of the tight labor market and dismissed the idea that there is a labor shortage. “Are you really struggling to find workers? If so, the proof for me is you are raising wages. If you are not raising wages, then it just sounds like whining,” he said. While Kashkari is definitely the dove on the committee, if that sentiment is any indication of the rest of the FOMC, they will be content to nudge up the Fed Funds rate at their current cautious pace until they see wage growth.

China is trying to take away the punch bowl and reduce overseas investment, in an effort to prevent them from experiencing a bust similar to Japan’s in the late 80s. I guess they see parallels between Mitsubishi paying $2 billion for the Rockefeller Center, which ended up going bankrupt a few years later. While I think they are barking up the wrong tree here (industrial policy and a residential real estate bubble are the real issues) it will have some knock-on effects perhaps in our markets. The Chinese withdrawal is probably going to hit the Canadian residential real estate market hard, and you are already seeing transactions dry up in Toronto. Chinese money will be most felt in the ultra-expensive urban areas like Seattle, New York City, and San Francisco. If China does in fact go through a Depression, they will probably try and export their way out of it, which means less inflation in the US, and lower interest rates, at the margin.

The Fannie Mae Home Purchase Sentiment Index ticked off of record highs last month as high prices and tight inventory led to a record low of people saying now is a good time to buy. Granted, the index only goes back to 2012, but it does show how high prices are scaring buyers away. Those that say it is a good time to sell also saw a big decrease, which was the main driver of the reading. That is surprising since you would think that tight inventory + demand would equal a great seller’s market. Not sure what would be causing that.

Delinquency rates are improving for the industry according to the latest CoreLogic Loan Performance Insight Report. 30 day + DQs fell to 4.5% in May, which is down 0.8% from last year. The number in foreclosure fell 0.3% to 0.7%. About the only place you are seeing increases in delinquency are the fracking areas (South Dakota, Louisiana, some parts of Texas) which have been affected by falling oil prices.

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