Morning Report – Bad housing starts number 7/17/14

Posted on July 17, 2014 by Brent Nyitray

Markets are lower this morning after a lousy housing starts numbers. Bonds and MBS are rallying, with the 10 year below 2.5%.

Housing starts came in at 893k, the lowest level in 10 months. Building Permits came in at 963k, a disappointing number as well. Housing continues to punch below its weight, and is the biggest reason why the economy is not experiencing the robust recovery it should be. That said, it looks like all of the decline was in the South – the rest of the geographic areas were flat / up. This is a hard number to reconcile with the NAHB confidence number of 53. It shows that builders are happy to increase the top line through raising prices, not pushing through volume.

In other economic news, initial jobless claims fell to 302k, the Bloomberg Consumer Comfort index fell to 37.5 and the economic expectations index fell to 46. Philly Fed rose to 23.9 from 17.8.

Microsoft is shedding 18,000 jobs. Most of the cuts will be in the Nokia handset area.

Another major merger in the news: Reynolds America is buying Lorillard. Both stocks got whacked on the deal.

The DOJ and Bank of America remain at loggerheads over a settlement over mortgage backed securities. These securities mainly came from Merrill Lynch, who was bought by Bank of America during the crisis. The government pushed these mergers, and is now pleasing the populist peanut gallery by coming after the companies for doing what was requested in the first place.

Treasury Secretary Jack Lew is accusing CEOs and Boards who pursue their fiduciary duty of maximizing shareholder value of lacking “economic patriotism.” Yes, it has come to this. And of course Congress has a plan to limit this. The number that stuck out: $20 billion – the amount of money closing the loophole would raise over 10 years. In budgetary terms, $2 billion a year is rounding error. If the potential revenue is that small, maybe people should think about cutting corporate tax rates so that we are closer to the rest of the world. Certainly not possible before the election, but maybe after.

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Morning Report – JP Morgan exiting FHA? 7/16/14

Posted on July 16, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1976.4 8.4 0.43%
Eurostoxx Index 3197.4 43.7 1.38%
Oil (WTI) 100.8 0.8 0.79%
LIBOR 0.234 0.001 0.21%
US Dollar Index (DXY) 80.56 0.173 0.22%
10 Year Govt Bond Yield 2.56% 0.01%
Current Coupon Ginnie Mae TBA 106.3 -0.1
Current Coupon Fannie Mae TBA 105.3 0.0
BankRate 30 Year Fixed Rate Mortgage 4.25

Stocks are higher this morning on good numbers out of Apple and Intel, along with news that Fox approached Time Warner for a deal. Bonds and MBS are down.

Mortgage Applications fell 3.6% last week. Purchases were down 7.6% and refis were down .1%. Interestingly, the 30 year fixed rate mortgage increased by a basis point while the 10 year bond yield fell 11 basis points. Not sure what to make of that.

Some disappointing industrial data this morning – Manufacturing production increased .1% versus expectations of a .3% increase and May was revised downward. Capacity Utilization was flat at 79.1%, while the Street was expecting an increase to 79.3%.

Inflation remains relatively tame, although the headline PPI number came in a little hot. On a year-over-year basis inflation at the wholesale level remains under the Fed target. Janet Yellen gave relatively dovish testimony yesterday at Humphrey-Hawkins, which continues today. We will also get the Beige Book this afternoon.

JP Morgan is considering getting out of the FHA business. CEO Jamie Dimon said on the second quarter earnings conference call that the bank lost “a tremendous sum of money on FHA… So the real question is, should we be in the FHA business at all? We are still struggling with that.” Consider this a brush-back pitch to the government, who has been suing the banks left and right (which is one way to impose a financial surtax).

In merger mania, Rupert Murdoch is willing to pay more than $85 a share for Time Warner. Time Warner has rejected the approach. This is probably a function of the Comcast / Time Warner deal, where content providers need more negotiating leverage to deal with new cable giants. I have no idea if this deal will pass regulatory muster, although the story says that Fox is willing to sell CNN to appease antitrust regulators. Never mind the antitrust regulators – an Obama FCC would never allow Rupert Murdoch to own another news outlet. TWX is trading at $82.00 pre-open.

Speaking of mergers, the Administration wants to curb tax inversion deals through new legislation. Interestingly, the proposal would raise $17 billion over the next decade. For the record, in budgetary terms, $1.7 billion a year is peanuts. I guess the Administration must imagine that this is just a way for the government to say it did something, but it knows that there is a corporate work-around. Anyway, there is room for bipartisan agreement on corporate tax reform, but Republicans want to swap lower rates for closing loopholes and Democrats want to close loopholes only.

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Morning Report – Humphrey Hawkins 7/15/14

Posted on July 15, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1972.8 1.8 0.09%
Eurostoxx Index 3180.1 -5.8 -0.18%
Oil (WTI) 99.69 -1.2 -1.21%
LIBOR 0.233 0.001 0.21%
US Dollar Index (DXY) 80.21 0.018 0.02%
10 Year Govt Bond Yield 2.55% 0.01%
Current Coupon Ginnie Mae TBA 106.3 -0.1
Current Coupon Fannie Mae TBA 105.4 0.0
BankRate 30 Year Fixed Rate Mortgage 4.24

Markets are higher this morning on decent earnings reports out of JP Morgan, Goldman, and Johnny John. Bonds and MBS are up small.

Retail Sales increased .2% month-over-month in June. Ex autos and gas, they increased .4% versus a .5% estimate. The numbers were generally below the Street’s lofty expectations. May’s numbers were revised upward across the board. There is tremendous pent-up demand and we are finally seeing it get released.

JP Morgan announced that mortgage originations were $16.8 billion, down 66% from the prior year and 1% from the prior quarter. They expect Q3 to be flat to below Q2. Jamie Dimon, who has been diagnosed with throat cancer, said that he will be involved in the business during his treatment and that JPM is in “great shape” regarding succession. He also lobbed in a warning against “moralizing” against tax inversion trades, a comment sure to infuriate the left. For a glimpse of how the left hates these things, check out this column.

Janet Yellen is scheduled to testify in front of the Senate Banking Committee at 10:00 am. Bonds rallied small on the dovish language in the prepared remarks. As I said yesterday, Humphrey-Hawkins is more for the benefit of politicians to posture about their pet concerns, not for the benefit of investors to gain insight into the Fed’s thinking. Punch line: QE ends in October, there is still a lot of slack in the labor market, inflation remains low, and just because the Fed is talking about “normalization” doesn’t mean a rate hike is imminent.

The latest Black Knight Financial Services (formerly Lender Processing Services) Mortgage Monitor is out. Total DQs were flat at 5.62% in May, while foreclosure starts ticked up a hair to 86k. This is the fifth consecutive month with foreclosure starts below 100k. Purchase originations through April are on par with 2013, so the increase in rates isn’t affecting the purchase market. Refis, however are way down. Credit scores are falling as originators are reaching out of the credit curve.

purch and refi

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Morning Report – The tax inversion trade continues… 7/14/14

Posted on July 14, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1970.7 8.3 0.42%
Eurostoxx Index 3174.4 17.3 0.55%
Oil (WTI) 100.7 -0.1 -0.09%
LIBOR 0.233 -0.001 -0.43%
US Dollar Index (DXY) 80.16 -0.023 -0.03%
10 Year Govt Bond Yield 2.54% 0.02%
Current Coupon Ginnie Mae TBA 106.6 0.2
Current Coupon Fannie Mae TBA 105.6 -0.1
BankRate 30 Year Fixed Rate Mortgage 4.24

Markets are higher this morning after Citigroup announced earnings and a settlement with the Feds. Bonds and MBS are down small.

This week will have a deluge of earnings report, with most of the major banks reporting. We will also hear from heavyweights GE and Google. Economically, the big events will be housing starts / building permits and industrial production.

Score one for Jana. After taking a 9.8% stake in URS Corp and pushing for a management shake-up ended up seeing the company sold to Aecom for $4 billion.

The tax inversion trade in the pharma sector continues, with US drug giant AbbVie closing in on a deal to buy Irish-based Shire Pharmaceutical for about $54 billion. Shire seems ready at last to recommend the offer to shareholders pending resolution of “other terms” of the offer. At some point the government is going to try and put a stop to this, but the chances of it happening the right way (through lowering corporate tax rates and closing loopholes) are slim to none. Remember, we have the highest corporate taxes in the world. Yes, as a percent of GDP corporations pay less than in other countries, but that is a function of our high taxes. High taxes here incentivize corporations to play all sorts of transfer pricing games in order to maximize costs in the US and maximize revenues overseas. The solution is not to raise corporate taxes further, as it will only incentivize more of this behavior. Not to mention it effectively subsidizes foreign governments, as the overseas subs of these companies are declaring artificially high levels of profit. The answer is to lower taxes to be in line with our competitors. If you are the most expensive gas station in town, and you want to increase revenues, you don’t hike prices more – you lower prices and capture more market share.

Janet Yellen will be in front of Congress on Tuesday and Wednesday. If there is going to be anything market moving, it will probably be in the prepared remarks. The Humphrey-Hawkins testimony is largely a dog-and-pony show where politicians are more interested in making their political points than getting an answer out of the Fed Chairman. Expect the left to complain about income inequality and to push Yellen to claim it is a drag on the economy. Expect the right to complain about government spending and to push Yellen to claim the high level of debt is a drag on the economy. The elephant in the room will be how the Fed extricates itself from QE and ZIRP with a balance sheet the size of Jupiter.

The CFPB is warning mortgage brokers that they cannot escape compensation caps by switching to a mini-correspondent model.

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No more beep beep boop

Posted on July 11, 2014 by Brent Nyitray

Finally was able to get past this screen. New post interface. Oh well, back on Monday

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Morning Report – Strong ADP number 7/2/14

Posted on July 2, 2014 by Brent Nyitray

Vital Statistics:

 

Last Change Percent
S&P Futures 1967.0 1.2 0.06%
Eurostoxx Index 3259.1 0.4 0.01%
Oil (WTI) 104.8 -0.6 -0.55%
LIBOR 0.235 0.003 1.21%
US Dollar Index (DXY) 79.97 0.156 0.20%
10 Year Govt Bond Yield 2.60% 0.03%
Current Coupon Ginnie Mae TBA 106.3 -0.1
Current Coupon Fannie Mae TBA 105.6 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.17

 

Stocks are higher (and bonds are lower) after an unusually strong ADP report.
The ADP Employment Report estimated the economy added 281,000 jobs in June, versus expectations of 205,000. The official jobs report comes out tomorrow, and the consensus forecast is 215,000. The ADP number supports the forecast coming out of Markit last week of about 280,000 jobs as well. Construction added 36,000 jobs. More on the increase in hiring.. Maybe, finally, “recovery summer” will not be the running joke it has been since 2009.

Mortgage Applications fell .2% last week, according to the MBA. Purchases were down .7%, while refis were up .1%.  Disappointing print given that the 10 year dropped 9 bps last week and the Bankrate 30 year fixed rate mortgage fell from 4.22% to 4.14%.
Home prices rose 1.4% in April, according to CoreLogic. Prices are 13.5% below their April 2006 peak. This increase in prices has been a double-edged sword – it has pulled many people out of negative equity, but it has decreased affordability, especially with the first time homebuyer. CoreLogic expects price appreciation to cool over the next year.

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Morning Report – Strong Auto Sales 7/1/14

Posted on July 1, 2014 by Brent Nyitray

Vital Statistics:

 

Last Change Percent
S&P Futures 1957.2 4.8 0.25%
Eurostoxx Index 3245.5 17.2 0.53%
Oil (WTI) 105.8 0.4 0.39%
LIBOR 0.232 0.001 0.48%
US Dollar Index (DXY) 79.81 0.030 0.04%
10 Year Govt Bond Yield 2.55% 0.02%
Current Coupon Ginnie Mae TBA 106.6 -0.2
Current Coupon Fannie Mae TBA 105.8 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.15

Stocks are modestly higher this morning on good Chinese manufacturing data. Bonds and MBS are down small.

The ISM Manufacturing Index came in at 55.3, a small drop from last month and slightly below consensus. Construction spending rose .1% in May, disappointing, but the April number was revised upward in a big way, from .2% to .8%.

Auto sales are coming in this morning and at first glance, they look pretty good. Chrysler sales are up 9% and even troubled GM’s sales were up 1%. I think the average age of a car in the US is pushing 12 years, which is a record. This implies we are going to see a wave of auto buying as these cars become too expensive to keep fixing.

Financial repression has consequences. The Fed is rightfully worried about creating another credit bubble. One place to watch is commercial mortgages, where firms are refinancing old bubble-era debt at current rates. Spreads have narrowed 10 basis points this year to 77 basis points for the higher quality stuff, and LTVs have climbed to within 10% of their third quarter 2007 peak. Vacancy rates are still elevated, and are above the peak of the early 00’s recession.

The Supreme Court split the baby on a couple big decisions yesterday, ruling that companies don’t have to cover abortifacients if they object to them for religious reasons, and ruled that non-union members don’t have to pay dues for unions that negotiate on their behalf. Both decisions were narrowly written, but that won’t stop the avalanche of “slippery slope” columns that are being written this morning.

 

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Morning Report – Pending home sales 6/30/14

Posted on June 30, 2014 by Brent Nyitray

Vital Statistics:

 

Last Change Percent
S&P Futures 1951.4 -0.6 -0.03%
Eurostoxx Index 3231.3 3.4 0.11%
Oil (WTI) 105.4 -0.3 -0.28%
LIBOR 0.231 -0.004 -1.66%
US Dollar Index (DXY) 79.99 -0.054 -0.07%
10 Year Govt Bond Yield 2.52% -0.02%
Current Coupon Ginnie Mae TBA 106.8 0.1
Current Coupon Fannie Mae TBA 106.1 0.1
BankRate 30 Year Fixed Rate Mortgage 4.14

 

Stocks are flat this morning on no real news. Bonds and MBS are flat.
Pending Home Sales increased 6.1% month-over-month in May, according to the NAR. All four regions experienced gains with the Northeast and the West experiencing the biggest gains. First time homebuyers accounted for 27% of new sales. Again, most of the action has been at the higher price points, while sales for homes under 250k are actually down 10%. Meanwhile, apartment rents are expected to increase 8% over the next few years.
The ISM Milwaukee index fell to 60.57 from 63.49 the previous month. The Chicago Purchasing Manager’s Index also fell.
This week promises to be full of economic data, but it is a short week. Friday the market will be closed and I believe FINRA is recommending an early close for the bond market on Thursday. So expect a flurry of activity on Thursday after the jobs report and then a dull market as most of the Street will be on the L.I.E. by noon.
RealtyTrac has sliced and diced the data on distressed discounts. As expected, vacant properties take a big hit – in the 25% range, but bank-owned properties overall sold at a 3 percent premium on average. That said bank-owned vacant properties still had a deep discount.
Freddie Mac has its mid year economic update and forecasts. They expect GDP to grow at 3% over the next couple of quarters. Home prices are expected to rise 5% this year and sales are expected to be just shy of 5.5 million units.
Most people have noticed the rally in US Treasuries, but have not been focusing on the rally in emerging market debt. The BIS is worried about a potential bubble brewing in sovereign debt markets worldwide. The BIS distinguishes between financial cycles (which last 15-20 years and are characterized by debt and asset prices) and business cycles, which last 1 – 8 years. According to BIS, we have just bottomed from our financial cycle, and are finally on the upswing.

Note to ATiM-ers.  I will be in the belly of the beast (DC) early next week, if anyone wants to get together for drinks / dinner…

Filed under: Morning Report | 27 Comments »

Morning Report – Homebuilder earnings 6/27/14

Posted on June 27, 2014 by Brent Nyitray

Vital Statistics:

 

Last Change Percent
S&P Futures 1944.2 -4.5 -0.23%
Eurostoxx Index 3230.7 -2.5 -0.08%
Oil (WTI) 106.1 0.2 0.23%
LIBOR 0.235 0.001 0.21%
US Dollar Index (DXY) 80.14 -0.081 -0.10%
10 Year Govt Bond Yield 2.52% -0.01%
Current Coupon Ginnie Mae TBA 106.6 0.0
Current Coupon Fannie Mae TBA 106.1 0.1
BankRate 30 Year Fixed Rate Mortgage 4.16

 

Stocks are lower this morning on no real news. Bonds and MBS are up.
KB Home reported second quarter earnings this morning. Revenues increased 8% on a 10% increase in average selling prices and a 2.5% decline in deliveries. Margins continued to expand. It will be interesting to see how long the builders can keep increasing the top line through price increases and volume decreases. The stock is up an eighth this morning.
Lennar also reported yesterday. Revenues increased 28% on a 12% increase in deliveries and a 14% increase in ASPs. Like KB, margins are increasing. Lennar is ready to launch a starter home product once first time homebuyers are able to get mortgages. (Gee, Lennar, don’t you have a mortgage origination arm?). The spring selling season was weaker than expected, but the homebuilding market is heating up. May was a great month, apparently.
The Kansas City Fed Manufacturing Index came out yesterday. It eased somewhat, but is still reasonably strong. Some companies mentioned that it is hard to find skilled workers, however once company said the problem was finding “workers who are reliable and possess a strong work ethic.” Overall, the comments seemed relatively bullish, with another company saying that “Compensation levels have been increased within all grades to compete with other employers. Production employees received 4-5.5% average wage increases this past year compared to 3% for all other areas of the company.” The missing piece to the inflation picture has been wage growth. If we are starting to see it, bond investors should start eyeing the exit.
Jack Lew spoke yesterday, and announced that the HAMP program would be extended through 2016. Also, the Administration will tap Treasury funds to push for more low-income rental housing. He also called on Congress to allow Ginnie Mae to securitize loans made under the FHA risk-sharing program. Treasury is also seeking public comments on what it can do to foster a more robust private-sector mortgage securitization market.

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Morning Report – Sovereign Debt Bubble? 6/26/14

Posted on June 26, 2014 by Brent Nyitray

Vital Statistics:

 

Last Change Percent
S&P Futures 1949.0 -0.4 -0.02%
Eurostoxx Index 3253.1 0.7 0.02%
Oil (WTI) 106.2 -0.3 -0.27%
LIBOR 0.234 0.000 0.11%
US Dollar Index (DXY) 80.23 0.007 0.01%
10 Year Govt Bond Yield 2.54% -0.02%
Current Coupon Ginnie Mae TBA 106.5 0.0
Current Coupon Fannie Mae TBA 105.9 0.1
BankRate 30 Year Fixed Rate Mortgage 4.16

 

Stocks are flat this morning after a disappointing personal spending report. Bonds and MBS are up
Personal Incomes rose .4% in May, in line with expectations, but spending came in at .2%, lower than the .4% estimate. Services spending dropped, while spending on durables increased. The PCE core rate (the Fed’s preferred measure of inflation) came in at 1.5%, lower than the Fed’s target rate
Initial Jobless Claims came in at 312k, more or less in line with expectations.
Note that the Markit PMI data came out yesterday and both the composite and the services numbers were at post-recession highs. Markit is forecasting a payrolls number next week of 250k, which is way above the ADP forecast of 208k and the Street forecast of 209k.
The war on the financial system continues. NY AG Eric Schneiderman just announced he is suing Barclay’s. Remember, the road to the NY Governor’s Mansion is paved with Wall Street lawsuits. Separately, Obama nominated the woman who railroaded Arthur Anderson into a guilty plea (only to have it overturned by the Supreme Court) to head the Criminal Division at DOJ. She has a fundamentally dim view of business in general and Wall Street in particular – considers us the wise guys of Wall Street, deserving brutal prosecutorial tactics. And the left wonders why credit is so tight…
Is the worldwide unprecedented easing by central banks causing a bubble in sovereign debt? Wilbur Ross and Steven Roach think so. Remember the PIIGS (Portugal, Ireland, Italy, Greece, Spain) problem children of the EU? Their 10 year bonds are yielding: Portugal: 2.84%, Greece 5.85%, Portugal, 3.5%, Spain 2.64%, Ireland, 2.34%. Irish 10 year sovereigns are trading at a lower yield than US treasuries. Two years ago, they were yielding 14%. Memories are short..
On the plus side, mortgage rates continue to fall, which is helping drive business. Chart: Bankrate 30 year fixed rate mortgage:

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