Morning Report: Markets cool on a June hike after Italian elections 5/29/18

Vital Statistics:

Last Change
S&P futures 2700 -18
Eurostoxx index 384.87 -4.95
Oil (WTI) 66.97 -0.91
10 Year Government Bond Yield 2.87%
30 Year fixed rate mortgage 4.54%

Stocks are lower this morning as Italian sovereign debt is getting slammed on the election results. Bonds and MBS are up on the flight to quality.

Over the weekend, Italy failed to establish a coalition of Eurosceptics and their president rejected a Eurosceptic finance minister. The fact that Italy came so close to electing a government that would consider exiting the EU has bond traders selling Italian sovereigns. Between this and Brexit, many observers are wondering if the whole EU experiment is beginning to unravel. How much of this is merely symbolic remains to be seen, but in the meantime the flight to quality trade is on, and that means lower rates.

Italian 10 year bonds are trading at 3.16%, which is up 143 basis points over the past several days. Spain is wider as well, while the rest of the Eurozone (Germany, France) is tighter. The canary in the coal mine for rates however will be the Eurozone banks, and cost of credit protection is going up. Unicredit and San Paolo Imi are up almost 100 basis points, Deutsche Bank (which has other non-Italian headaches) is up 40, and most other Euro banks are up modestly. As of now, this is mainly a European bank phenomenon, however Citi is also up small.

US yields are lower across the board, from the 2 year to the 30 year. Convexity buying will probably give the move legs at least for the near term. The Fed Funds futures are now handicapping a 78% chance for a hike at the upcoming meeting. It was at 95% a week ago. If the Italian debt problem gathers momentum, it will inevitably cause financial stress to rise and that will give the Fed an excuse to sit the next meeting out. As long as inflation is behaving, they can afford this luxury. Falling oil prices are helping as well.

fed funds futures

The Italian vote will probably be sometime this fall, so it at least appears as there won’t be an immediate resolution. Bottom line for the mortgage originators, like the Brits did in 2016, the Italians just might have saved your year.

Aside from Italy, we have a lot of data this week, with GDP on Wednesday, personal income / spending on Thursday, and the jobs report on Friday. European newsflow will be the dominant force, however any sort of weakness in the numbers will probably have an outsized impact as the Street is really leaning the wrong way here.

Home prices increased 6.5% YOY in March, according to the Case-Shiller Home Price Index. Seattle, San Francisco, and Las Vegas all posted double-digit increases, while Chicago and Washington DC brought up the rear.

Consumer confidence increased in May, according to the Conference Board. The Present Situation component increased more than the Expectations component. This is surprising given that these consumer confidence indices are often an inverse gasoline price index.

6 trends from the MBA Secondary conference last week: The main points are that margins are falling and volumes are shrinking. Many independent originators are not going to make it through the year. JP Morgan may increase it footprint in FHA after the regulators loosened the thumbscrews. Ginnie Mae will issue a report this summer talking about the future of digital mortgages for the industry. The GSEs are looking to implement technology to allow originators to sell off servicing rights easier, and there remains a need for ways to increase the credit box for the first time homebuyer, who is still often shut out of the market.

Speaking of the first time homeuyer, they decreased activity in the first quarter, according to Freddie Mac. Homes purchased by first time homebuyers slipped by 2% to 411,000. 81% of first time homebuyers used low down-payment mortgages.

First time homebuyers are going to struggle to compete with all-cash buyers. Now, a new startup intends to disrupt homebuying by allowing borrowers who need a mortgage to offer cash instead to the seller (essentially the startup bears the risk if the borrower somehow can’t get a mortgage). “We’re taking that single value proposition that a lot of these institutions and iBuyers have, which is access to capital, and we’re democratizing that capital for the benefit of consumers instead of using it for corporate profits,” said Ribbon CEO Shaival Shah. “Cash discounts that consumers earn from our program flow directly back to the consumer. Based on our early deal volume, customers are seeing an average of 5 percent savings to the purchase price by using Ribbon.” The startup is backed by Bain Capital and a few others.

Interesting perspective in the “robots are going to take our jobs” scare. Historically, improvements in farming, technology, industry have caused jobs to disappear. Obama Administration economist Austan Goolsbee argues that if robots and AI increase productivity (meaning we get more output from less input) that makes us richer. The question for jobs is inevitably how fast the adjustment process happens. The longer it takes, the easier the transition. The paper reads quite easily for an academic paper and provides some needed perspective.

 

24 Responses

  1. Must be a tiny, insignificant demographic then. Who should the bicyclists be?

    Liked by 1 person

    • of all the things to wring your hands over…

      Liked by 1 person

      • Related:

        “As ‘Solo: A Star Wars Story’ Flops, Are Movies About White Men Box Office Poison?
        Scott Mendelson”

        https://www.forbes.com/sites/scottmendelson/2018/05/29/as-solo-a-star-wars-story-flops-are-movies-about-white-men-box-office-poison/

        In Forbes of all places.

        Liked by 1 person

        • Click-bait, obviously. Which is going to continue to poison online articles and especially headlines as competition continues.

          Love this line:

          I am hesitant to give the vocal minority who didn’t just dislike The Last Jedi (that’s allowed) but viewed it as SJW propaganda (that’s evil) too much credit.

          Viewing something as SJW propaganda is evil? What about viewing something as right wing propaganda? Is that evil? Also from everything I’ve read, he’s lying that Han Solo is less SJW. Pansexual Lando and a feminist droid activist, plus strong women save incompetent Han left and right . . . sounds cut out of the same ideological cloth of TLJ, and also like it has the same crappy writing, plotting, and resentment of OT characters and apathy towards the OT mythology.

          Anyway, if Mendelson believes this, he’s drunk far too much of the progressive Kool-Aid:

          Not every film starring a young white male lead is doomed to struggle overseas (Kingsman: The Secret Service). Not every female-led or minority-centric biggie is going to kick butt here (Pacific Rim: Uprising) and abroad (Ghost in the Shell). Yet, there is enough evidence to suggest that it doesn’t hurt to have your movie centered on a racial minority or a woman (of any color). The key will still be making movies, of all sizes, that are demographically-specific event movies. It’s why It and Girls Trip were events, but King Arthur and The Mummy were not.

          People liked It because it was a well-done motion picture based on a popular Stephen King novel. Performances were good, movie was entertaining, nostalgia was appropriate tweaked, updating of the setting to the 80s worked really well . . . not because it was demographically-specific. Girls Trip was popular because it was a movie that looked funny that people wanted to see. It also–while being demographically-“specific”–is not comparable to The Mummy or King Arthur. King Arthur was a movie I could not watch for more than ten minutes, it was so awful. And that had nothing to do with demographics.

          The Mummy sounds like it was bad because crazy Tom Cruise was given far too much creative control. Haven’t watched it yet, but I will, but the point stands: demographic-specificity. That doesn’t mean there isn’t a market for demographically targeted movies, but demographic targeting is no more a recipe for success than making an action movie or a comedy. Movies fail because people don’t want to see them or don’t know about them or they don’t open on enough screens or whatever. Movies succeed because people want to see them and know about them and the movies are available to be seen.

          It is an awfully written article. Really, Forbes? Really?

          Like

        • I saw Solo with my 9-year-old.
          I enjoyed it. it was fun and that’s all. It’s not going to be discussed frame-by-frame like Star War IV, but whatever. the internet doesn’t like fun anymore.

          Liked by 1 person

        • Glad you liked it, but after TLJ I’m waiting for HBO before I watch any more of those movies. Also I can’t get over Alden as Solo. The casting doesn’t work for me.

          Like

    • Who should the bicyclists be?

      Hot women in spandex, obviously.

      Make it so.

      Liked by 1 person

    • Yrigoyen’s Instagram account, made private on May 24 and then deleted, appears to have liked numerous posts from right-wing pages, including that of conservative personality Tomi Lahren and a clothing company called Merica Supply Co.

      OMG he’s a NAZI!

      Like

    • Brent:

      The left is officially venturing into thoughtcrime territory.

      They’ve been there for quite some time. At least ever since the first public accommodations anti-discrimination law was passed. What is a prohibition on discrimination for certain reasons if not a prohibition on certain thoughts?

      Like

      • A prohibition of an action is not a prohibition of a thought. Never was, never will be. Once had a client who remarked that she wanted to throttle her 2 yr old but like most parents who have been there she didn’t do it. She was restrained by her morality and her common sense, I suspect, and her underlying love for the child, more than by the law, but who knows?

        Thought and conduct are different. Ask George about what enlisted men think of officers in general.

        Like

        • Mark:

          A prohibition of an action is not a prohibition of a thought.

          Agreed. But a prohibition on action that exists or ceases to exist dependending solely on the thought process motivating the actor is a prohibition on thought. Always has been, always will be.

          Thought and conduct are different.

          Agreed, which is why I say that anti-discrimination laws are thought crimes. It isn’t the act that is prohibited. It is the thought process compelling the act that is prohibited.

          Consider: Employer A is white, and refuses to hire job candidate B, who is black. Is this refusal prohibited by anti-discrimation laws, or not? Can you answer that question without knowing the thought process of the employer?

          Like

        • Can you answer that question without knowing the thought process of the employer?

          More often than not, “yes”. Probably far more often than not, actually. Discrimination on the basis of race is a result that is being subjected to the law. There may be close cases but in my experience when I could show legit non-racial purpose by the employer my guy won. Thus when the Persian born pizza cook was fired and filed a CR claim showing his work history nipped it in the bud. It did not even matter that my guy would have preferred a non-Persian cook who spoke more comprehensible English, or that he had been very precise in keeping the employee’s time in order to catch him out,and hired a white guy to replace him. Persian guy was a sucky employee. Boom.

          Like

        • Mark:

          More often than not, “yes”.

          Then go ahead…answer it. Is it prohibited by law or not?

          There may be close cases but in my experience when I could show legit non-racial purpose by the employer my guy won.

          That is just another way of saying that when you could demonstrate that his motivating thoughts were unlikely to have been racial, your guy won. Besides which, you are just talking about the likelihood of the guy being found guilty. The real question is whether he actually was guilty. And that depends entirely on what his motivating thoughts were at the time of the firing.

          “Purpose” exists only as a matter of thought. If you need to show a specific purpose in order to prosecute someone for discrimination, then it is his thoughts that are the key factor driving prosecution. I seriously don’t understand how this is at all questionable.

          Person A refuses to hire black guy B, thinking “damn, this guy strikes me as too stupid to work here”. He has not broken the law.

          Person A refuses to hire black guy B, thinking “damn, I can’t hire a black guy”. He has broken the law.

          Note that the act is exactly the same in each case, and the only difference between having broken the law and not having broken the law is the thought process behind the act.

          Like

        • Person A refuses to hire black guy B, thinking “damn, this guy strikes me as too stupid to work here”. He has not broken the law.

          Person A refuses to hire black guy B, thinking “damn, I can’t hire a black guy”. He has broken the law.

          The law treats either case as suspicious, until it isn’t. The burden is relatively easily shifted by objective evidence.

          Of course, if the employer says to the CRC or the EEOC that he only hires whites as a matter of policy than the employer loses. However, it remains the act that is punished.

          The flip side to your examples exists widely. There are racist [in thought] employers who hire regardless of race. There may even have been some before 1965. I don’t know. Just guessing.

          Like

        • Mark:

          The law treats either case as suspicious, until it isn’t. The burden is relatively easily shifted by objective evidence.

          Yes, but suspicious of what exactly, objective evidence of what exactly?

          His action, ie what he did, is not in any doubt. No one disputes it. He refused to hire the guy. There is no “suspicion” needed. There is no “objective evidence” needed. Again, no one disputes what he did. The only thing that is in doubt, and the only thing that is “suspicious”, and the only thing for which “objective evidence” is needed, is what he was thinking when he did what he did. Again, that this fact is even remotely deniable is completely baffling to me. If this is not an example of criminalizing thoughts, then I have no idea what could possibly qualify as such.

          The flip side to your examples exists widely. There are racist [in thought] employers who hire regardless of race.

          So? Just becase thoughts are not criminalized in all contexts doesn’t mean they are not criminalized in any context.

          Look, I think we can agree that, in the absence of law enforcement that is capable of reading minds, it is literally impossible to criminalize the literal act of thinking specific thoughts. That being the case, when we speak of thought crimes, what we are talking about is criminalizing the expression of certain thoughts, not simply the literal act of thinking those thoughts. Anti-discrimination laws are exactly that. They criminalize not actions, but rather they criminalize the thoughts of which certain actions, such as failing to hire someone, are deemed to be expressions.

          Again, if this does not qualify as an example of a thought crime, I have no idea what might qualify.

          Like

        • I understand you Scott, but I think the true thought crimes are the so-called hate crimes. In those cases, a jury is asked to enhance penalties because of the felon’s motivation, which I actually think is BS and a perversion of the system.

          Scott, every crime requires both an act and a guilty mind. We infer the guilty mind from the act, but a showing of mental incapacity or mistake of fact can force a not guilty verdict. There are some per se crimes, like traffic offenses, for which the defenses are narrowed and a guilty mind is not an actual element.

          In civil law, torts and contract breaches and property infringements usually only require negligence, foreseeability, actual cause, and damages. Proof of intent raises the stakes, as from breach of contract to fraud, and the damages issue is expanded. A trespass on private property is treated as intentional from the gitgo, but there can be ameliorating facts.

          We do not think of crimes that require intent as thought crimes but I understand how you could reason that they are. Most lawyers think that the category of “hate” crimes is an attempt to punish thoughts on top of punishing crimes, because of the way the matter is submitted.

          Like

        • Mark:

          I think the true thought crimes are the so-called hate crimes.

          I very much agree that “hate crimes” are thought crimes, but “hate crime” laws are just anti-discrimination laws in the context of actions that are already illegal for other reasons. Anti-discrimination laws take a perfectly legal activity and criminalizes it if the actor is motivated by particular, objectionable thoughts. So-called hate crime laws take an illegal activity and criminalizes it even more if the actor is motivated by particular, objectionable thoughts.

          In each case, the defining feature of the law is that the actor is motivated by particular, objectionable thoughts.

          We do not think of crimes that require intent as thought crimes but I understand how you could reason that they are.

          It isn’t intent that is relevant to anti-discrimination laws. When an employer fires someone in a “protected” class, the EEOC doesn’t look into the “intent” of the employer, because his intent is known and not in dispute. He fired the person quite consciously and deliberately, and doesn’t deny it. What is relevant for anti-discrimination laws is not intent, but rather motivation.

          It may be true that motivation is an indicator of intent. For example, if a man who kills his wife is discovered to have spent 6 months planning on how to kill her after having taken out a large insurance policy on her, his intent might be said to be different than a man who kills his wife in a moment of rage after coming home to find his wife in bed with the next door neighbor. But in neither case is the motivation itself the relevant factor. It is merely an indicator of what is the relevant factor, intent.

          Anti-discrimination laws are quite different in that they target motivation itself. Intent is irrelevant because it isn’t in question. We all know what the actor intended to do, and the actor doesn’t deny it. What we don’t know, and what is relevant for the law to be applicable, is the reason why he did it.

          Like

        • I think I cannot persuade you.

          On voir dire, in many kinds of cases, a lawyer is likely to frame a question to the panel something like this, although with more anecdotes:

          “We all have various biases and prejudices. Can’t help that. Lord knows I have some. But the law requires that you take the evidence from the witness stand and weigh it without bias. And prejudice means that you are prejudging someone before you hear the facts. So if you were, say, a witness of German extraction, you would want a juror who is still reliving WW2 to be able to see that you were just a person telling the truth as you saw it. If you cannot promise here to set aside whatever bias you may have as you listen to the various witnesses for the next week or so
          it is OK to let us know, it isn’t shameful.[pause] If you can promise to listen without prejudice please raise your hands.”

          Enough jurors try real hard to listen without bias when they have been called upon to do so that it makes a difference.

          Point being that we can have whatever prejudices we may if we can keep from acting upon them under certain circumstances.

          Like

        • Mark:

          I think I cannot persuade you.

          I was thinking the same thing! But I can’t help myself from trying.

          Do you really not see the parallels between “hate crime” laws and anti-discrimination laws? I think the fact that they both are targeting the same thing with one focused on behavior that is illegal anyway and the other focused on behavior that is not otherwise illegal is a pretty compelling argument for my contention.

          Point being that we can have whatever prejudices we may if we can keep from acting upon them under certain circumstances.

          Sure. But like I said earlier, in the absence of mind readers, it is impossible to place restrictions in any context on the literal thinking process. It is always and only the expressions of certain thoughts that are restricted. And that is fine in many contexts. It is perfectly reasonable to require jurors to be properly motivated. It is just not reasonable (in my view) to make “proper” motivation in private actions a legal requirement.

          Like

        • It is perfectly reasonable to require jurors to be properly motivated. It is just not reasonable (in my view) to make “proper” motivation in private actions a legal requirement.

          Now we have reached the basis of our disagreement and it is perfectly understandable. I am willing to take employment decisions, at some arbitrary level, and public accommodations, at some arbitrary level, as not merely private actions, because they actually do affect commerce. You are not willing to accept that.

          We can agree to disagree.

          Like

        • Mark:

          You are not willing to accept that.

          Correct. Commerce is just one form of private action, and I see no justification for excepting it from the principles and standards that are applicable to all other forms of private action.

          Like

  2. Giuliani says Trump won’t sit for Mueller interview unless all FBI source documents can be reviewed

    No “subject” of a criminal investigation should ever sit for an interview with a prosecutor. And no prosecutor will share documents except in formal discovery after charges. So this was all for show.

    Like

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