Morning Report

Posted on February 24, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1365.3 2.4 0.18%
Eurostoxx Index 2519.3 11.2 0.45%
Oil (WTI) 108.3 0.5 0.44%
LIBOR 0.4906 0.000 0.00%
US Dollar Index (DXY) 78.505 -0.130 -0.17%
10 Year Govt Bond Yield 1.98% -0.02%

Slow news day.  Stock futures are up slightly as bonds and oil continue to rally. No economic data this morning until 10:00 when we get Michigan Consumer Confidence and New Home Sales.

Radar Logic released its December Monthly Housing Report yesterday. The report notes that prices declined 6.8% while transaction count increased 19.6%. While the transaction count was boosted by technical factors relating to the homebuyer tax credit expiration, there is a sense that sellers are becoming more realistic and are willing to hit bids from bargain-hunters. Is this is the beginning of the Great Capitulation? The report notes that the recently-listed RPX futures are indicating the bottom is here and that prices should start rising in summer of 2013.

A tiff between Bank of America and Fannie Mae? The bank will no longer send new originations to Fannie Mae and will either send them to Freddie Mac or retain them on their own balance sheet. Fannie Mae’s lawsuit regarding shoddy origination at Countrywide presumably drove this decision. Does this mean we are finally going to have a national discussion over the American Dream Commitment?

A slew of important economic data will be released next week with Durable Goods, Case-Schiller, Consumer Confidence, GDP, Personal Income, Personal Spending, Construction Spending, ISM and more.

Filed under: Uncategorized | 12 Comments »

Morning Report

Posted on February 23, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1355.9 0.0 0.00%
Eurostoxx Index 2513.0 -6.0 -0.24%
Oil (WTI) 106.31 0.0 0.03%
LIBOR 0.4906 -0.001 -0.20%
US Dollar Index (DXY) 78.971 -0.254 -0.32%
10 Year Govt Bond Yield 2.03% 0.02%

Markets are flat on a better than expected jobs report. Initial Jobless claims were 351k vs 355k expected, and continuing claims dropped to 3,392k vs 3,455k expected. The FHFA House Price Index will be released at 10:00 am and the Kansas City Fed Manufacturing Activity Index will be released at 11:00. Bonds and MBS are flat-to-slightly lower.

Freddie Mac released its February Economic Outlook yesterday. Punch line: Housing is recovering gradually. Interesting statistic from the report regarding affordability:  “At the end of 2011, a family earning the median family income had almost double the income necessary to qualify for a conventional loan covering 80% of a median-priced existing singly-family home.” Mortgage applications rose by 4.1% in January, and 80% of those were for refinancings. We are entering a seasonally strong period for house prices – it will be interesting to see if low rates and low prices finally pull people off the sidelines.

For a glass-half empty view, look here. Mark Hanson makes a very good point – that when a stock doesn’t do what it is supposed to do in response to news or events traders will key on that and position accordingly. A market darling that “beats” earnings expectations but doesn’t go up is a great short candidate. Mark makes the same point with housing – we have record low interest rates and affordability, yet housing isn’t going up. Which means it is going lower.

A few years ago, everyone was talking about the yen carry trade. Japanese companies would borrow yen for basically nothing and invest in higher yielding assets overseas, typically in Europe. Traders would watch the Euro / Yen cross rate like hawks, and every time the euro weakened against the yen, world markets would roll over. After the financial crisis drove everyone into Treasuries, people have been wondering when the dollar carry trade would take over. Well, it looks like that day has come. J.P. Morgan has been picking up European MBS to find some yield. While a $72 billion bet on foreign MBS is a drop in the bucket, if JPM is doing it, so is everyone else.

 

Filed under: Uncategorized | 19 Comments »

Morning Report

Posted on February 22, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1359.4 -0.7 -0.05%
Eurostoxx Index 2526.7 -14.9 -0.59%
Oil (WTI) 106.1 -0.2 -0.14%
LIBOR 0.4916 -0.001 -0.20%
US Dollar Index (DXY) 79.286 0.178 0.23%
10 Year Govt Bond Yield 2.05% -0.01%

Markets are weaker this morning on a weaker than expected economic report out of Europe and a lousy forecast from Dell. Mortgage applications fell 4.5% for the week ending Feb 17. Existing Home Sales will be released at 10:00 am.

Obama has laid out the broad brush strokes for a corporate tax overhaul. He plans on lowering the statutory rate to 28%, while eliminating loopholes. His plan will benefit domestic manufacturers and he will target the energy sector for more revenues.  It looks like he is proposing some sort of AMT for corporations, with a minimum tax for overseas earnings. The plan will be revenue-enhancing.

Of course, the devil is always in the details, and hopefully the administration is smart enough to draw a distinction between overseas production meant to be sold overseas and outsourcing to cut costs. He could end up hurting US competitiveness if he doesn’t think this through.

The FHFA sent a letter outlining its plan for the GSEs aptly titled “The Next Chapter in a story that Needs an Ending.” It is a strategic document, not a step-by-step plan. They intend to build a new infrastructure for the secondary market, gradually reduce the footprint of Fannie and Freddie, while maintaining foreclosure prevention activities and credit availability.

With the S&P 500 rallying, bonds have sold off a bit, driving best-ex mortgage rates back over 4%. FWIW (and I am not a big technical analysis guy) it appears the March Treasury futures are stuck in a 140-145 range, which implies a yield range of 1.85% to 2.05%. We are again at the top end of that range. As I have mentioned before, the S&P 500 is right up against resistance and looks like it wants to break out. The Fed has been stepping into the MBS market when rates hit these levels, so we’ll see if that continues.

Filed under: Federal Reserve, housing | 67 Comments »

Morning Report

Posted on February 21, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1363.6 3.9 0.29%
Eurostoxx Index 2532.8 -17.4 -0.68%
Oil (WTI) 105.04 1.8 1.74%
LIBOR 0.4926 -0.001 -0.10%
US Dollar Index (DXY) 79.145 0.005 0.01%
10 Year Govt Bond Yield 2.03% 0.03%

We have a deal in Greece. Bondholders had to take a slightly bigger haircut – 53% vs 50% already agreed to. The $170 billion will be more than enough for Greece to meet its payment at the end of March. The Eurostoxx index is down slightly on the news – another case of “buy the rumor, sell the fact.”

Are we out of the woods with Greece?  No. Greece intends to hold elections in the next few months, and there is nothing preventing a new government from undoing all of the austerity measures imposed for this deal.

The Chicago Fed released its National Activity Index this morning. It came in at .22, which indicates the economy is growing faster than its historical trend.  An index value of zero means the economy is growing at its historical trend.  Employment and Production were large positive components, while Consumption and Housing were negative components. December was revised higher as well.

The Home Despot reported better than expected earnings this morning, which should be another positive indicator for housing and the economy. Macy’s also reported a strong holiday selling season.

Economic data on tap this week:  Existing Home Sales on Wed, Initial Jobless Claims on Thurs, New Home Sales on Fri.

Filed under: Earnings Announcements, Economic data, Greece | 12 Comments »

Morning Report

Posted on February 17, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1356.5 1.7 0.13%
Eurostoxx Index 2522.1 32.8 1.32%
Oil (WTI) 102.95 0.6 0.63%
LIBOR 0.4931 0.000 0.00%
US Dollar Index (DXY) 79.214 -0.165 -0.21%
10 Year Govt Bond Yield 2.02% 0.04%

World stock markets are rising this morning on optimism of a Greek deal and tame inflation numbers.  The Consumer Price Index showed a 2.9% rise year on year, indicating inflation (at least as measured by the CPI) remains in check. Leading Economic Indicators comes out at 10:00 this morning.  The Street is looking for a .5% increase. Bonds and mortgage backed securities are lower.

For those who follow technicals, the S&P 500 is right at resistance.  Expect large intraday volatility as stops get triggered.

The CFPB wants to regulate debt collectors and credit reporting agencies. This would extend from payday lenders to the large credit reporting agencies like Fair Issac, home of the FICO score.

Slow news day ahead of a 3 day weekend.

 

Filed under: Uncategorized | 5 Comments »

Morning Report

Posted on February 16, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1341.4 -0.8 -0.06%
Eurostoxx Index 2471.7 -22.2 -0.89%
Oil (WTI) 101.61 -0.2 -0.19%
LIBOR 0.4931 -0.002 -0.40%
US Dollar Index (DXY) 79.952 0.225 0.28%
10 Year Govt Bond Yield 1.96% 0.03%

Global equity markets are weaker this morning as European leaders delay a vote on the Greek bailout until 2/20.  The finance leaders were able to squeeze some more concessions from political leaders, but there are still differences over surveillance and control. Separately, Moody’s threatened a downgrade of the global banking sector. Bonds and mortgage backed securities are slightly lower as well.

GM posted a record profit! I am sure tomorrow’s editorial pages will be filled with columns praising the auto bailout and using this earnings announcement as justification. Well, if you repudiate your debt and get rid of all that pesky interest, you had better post record earnings.  GM’s numbers were still below estimates and the stock is down a couple of percent pre-open. As an aside, Chrysler has to issue senior secured debt at 8%.  That is a usurious rate for senior secured debt. See, that is what happens when you re-order the priority of creditors. Investors remember.

Economic data this morning:  Producer Price Index more or less in line with expectations, running at 4.1% annually.  Initial Jobless Claims continue to fall, coming in at 348k vs 365k expected. We are more or less back in the historical “normal” range. Housing starts came in at 699k, above expectations, but still very low. In prior recessions, housing starts bottomed at 750k – 850k.  The last time we were above 1 million units was June of 2008.  1.5 million is normal. The lack of residential construction has been the achilles heel of the recovery so far.

Chart:  Housing Starts:

The minutes of the FOMC meeting were released yesterday. They really don’t add anything to what was said in the press conference after the rate decision.  The minutes don’t really address the question most had regarding the recent good economic data. “Many participants noted some indicators bearing on the economy’s recent performance had shown greater-than-expected improvement, but a number noted less favorable data…” The tone of the minutes was that the economy was improving, albeit slowly, and there is no reason to take our foot off the gas for the moment.  Maybe the Fed believes the Greek negotiations are simply a big kabuki dance and that a default is unavoidable.

RealtyTrac has released its U.S. Foreclosure Market Report for January 2012. Key Quote: “Although overall foreclosure activity was down from a year ago for the 16th straight month in January, we continue to see signs on a local and regional level that the frozen-up foreclosure process is beginning to thaw.” They predict increasing foreclosures in the coming months especially given the settlements in early Feb between the nation’s largest lenders and 49 state attorney generals. Clearing out the shadow inventory of foreclosed homes is a necessary but not sufficient condition for a recovery in house prices.

Filed under: Economic data, Federal Reserve, Foreclosure, Greece | 24 Comments »

Morning Report

Posted on February 15, 2012 by Brent Nyitray

Vital Statistics

Last Change Percent
S&P Futures 1352.7 5.0 0.37%
Eurostoxx Index 2504.6 16.3 0.65%
Oil (WTI) 101.52 0.8 0.77%
LIBOR 0.4951 -0.003 -0.50%
US Dollar Index (DXY) 79.543 0.159 0.20%
10 Year Govt Bond Yield 1.93% -0.01%

Markets are higher this morning on statements from the Bank of China regarding support for the European bailout and its willingness to help. Concerns about an eventual Greek deal are offsetting some of these gains. Bonds and mortgage backed securities are flat.

Mortgage Loan Delinquencies are increasing again, according to TransUnion. 64% of MSAs reported increases, which was flat compared to Q3, but much higher than Q2.  There are seasonal factors at work here, and the continuing decline in real estate prices are certainly playing a part, but that is not an encouraging data point economically. As if the foreclosure pipeline wasn’t big enough already.

Not that the markets really care, but it looks like we have a payroll tax deal.

The Empire State Manufacturing Index came in at stronger than expected. This is a touchy-feely indicator of general business conditions put out by the New York Fed.  This index is notoriously volatile, so big moves should be taken with a grain of salt, but it shows that the expansion is gaining momentum in New York State.  Separately, industrial production was flat and capacity utilization unexpectedly fell.

The National Association of Home Builders will release their market index at 10:00 am. Residential construction has been the missing piece of the recovery, but has been showing signs of life lately.  Earnings reports from the homebuilders have been constructive.

The FOMC minutes will be released this afternoon. I am very curious to see why the Fed is behaving as if the economy is rolling over, while the data suggest otherwise.

Last, Ezra Klein at the Washington Post has a story on how the World Cup affects trading.  I can attest to this personally, having been a block trader at Bear Stearns in London for a number of years.  When England was playing a match, the phones would stop ringing and everyone had their backs to their screens, watching the match.  You could actually see major stocks like British Petroleum and Vodafone stop trading.  As an American, it was strange to watch.

****EDIT

The National Association of Homebuilders released their market index at 10:00 am.  The index came in better than expected and it looks like conditions are improving at an accelerating rate.

Chart:  NAHB Market Index:

Filed under: Economic data, Federal Reserve, Homebuilding, stock market | 55 Comments »

Morning Report

Posted on February 14, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1344.3 -4.8 -0.36%
Eurostoxx Index 2486.5 -5.1 -0.20%
Oil (WTI) 101.08 0.2 0.17%
LIBOR 0.4976 -0.005 -0.99%
US Dollar Index (DXY) 79.279 0.144 0.18%
10 Year Govt Bond Yield 1.94% -0.03%

Markets are a touch weaker after a disappointing retail sales number. Advance retail sales for January were up .4% vs. expectations of .8%.  S&P futures sold off slightly on the number while bonds and mortgage backed securities rallied. For those who follow charts, the S&P is right up against resistance at the 1350 level.  If we break through, the next stop is 1600 or so.

European markets are flat in spite of Moody’s downgrades of Spain, Portugal, and Italy yesterday. The ratings agencies have been behind the curve for the whole crisis. European finance ministers are set to meet in Brussels tomorrow to approve a second Greek bailout.

Andrew Ross Sorkin has a good article on the Volcker Rule and the Costs of Good Intentions. At issue is where one draws the line between bona fide market making and proprietary trading. Bona Fide market making serves a purpose in that it keeps trading costs down and adds liquidity to the market. (FWIW, Paul Volcker doesn’t necessarily think this is a good thing). The crux of the issue is whether investment banks will be allowed to maintain an inventory of product. If they aren’t permitted to maintain any inventory of any size, then all trades will be agency trades.  In other words, if the bank can’t find the other side of your trade, you’re out of luck.

The CFPB has laid out a broad outline of some of the changes it expects to make for mortgage servicers. The initial steps will involve changes to billing statements – new rules to make it clearer when resets will occur, better contact information, and a statement from HUD.  An example of the new template is here.  The rules will also address forced-place insurance, where servicers can put a homeowner in a new, more expensive insurance plan if they fall behind in their payments.

Does anyone find it ironic that the rule which sets new tax rates on dividends is named after a guy who’s company doesn’t pay them?

Filed under: Big Banks, Economic data, Morning Report, TBTF | Tagged: | 29 Comments »

Morning Report

Posted on February 13, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1349.1 8.5 0.63%
Eurostoxx Index 2495.7 14.9 0.60%
Oil (WTI) 100.32 1.6 1.67%
LIBOR 0.5026 -0.003 -0.67%
US Dollar Index (DXY) 78.775 -0.229 -0.29%
10 Year Govt Bond Yield 1.99% 0.01%

World markets are rallying on the positive Greek austerity vote over the weekend.  European finance ministers will meet on Wednesday to approve the second bailout plan.  Does this mean the crisis in Greece is over?  Not really.  Bondholders have to accept the proposed haircuts and if there are holdouts (and the holdout trade is a staple of distressed hedge funds), there will still be risk of default.

Heard on the Street has a good piece on corporate profit margins and what that means for the economy.  Productivity has been falling, and that perversely can portend good things.  After the financial collapse, companies dramatically cut their workforces and held off on capital spending unless it was absolutely necessary.  As demand returned, companies squeezed as much output as they could from existing resources.  They held off hiring and making investment in productivity-increasing capital. Stocks have reacted positively to growth in profit margins as revenues increased while costs stayed stagnant.  This was reflected in the productivity numbers (which measure amount of output per input).  Lately, productivity increases have been smaller and smaller, meaning that effect has largely been played out.  This means if companies want to meet increased demand, they have to hire – their existing workforces are maxed out.  Which bodes well for unemployment and wages.  What does that mean for corporate profits and stocks?  It means that the top line (revenues) will have to drive profit growth.  Tepid economic growth will mean stagnant profits.

The SEC has launched an “informal inquiry” into the private equity industry. What a shock. It must be nice to have government agencies with subpoena power to conduct oppo research. (Couldn’t the NYT find a more menacing picture of Henry Kravis?)

No economic data today.  I am very interested to see the minutes of the FOMC meeting on Wednesday.

Filed under: Economic data, Economy | Tagged: , | 59 Comments »

Morning Report

Posted on February 10, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1335.3 -13.0 -0.96%
Eurostoxx Index 2475.6 -46.8 -1.85%
Oil (WTI) 98.15 -1.7 -1.69%
LIBOR 0.506 -0.004 -0.78%
US Dollar Index (DXY) 79.112 0.495 0.63%
10 Year Govt Bond Yield 1.97% -0.07%

Stock markets are weaker across the board as Greek austerity talks hit a snag. A party leader in Greece is now saying he won’t support austerity measures agreed upon.  The Germans are holding Greece’s feet to the fire with a “no disbursement without implementation” stand.  Greek sovereign debt is more or less flat.  Portuguese debt still trades like a 1999-vintage .com with another big rally today.  Their 10 year bond yield has blown out from 12.5% to over 18% and then back to 12.7% in about 4 weeks on no news.  So much for “safe, boring, risk-free,” sovereign debt trading.  S&P futures are down 13 points.  The S&P 500 has gone from 1200 to 1350 on more or less a straight 45-degree line, so I wouldn’t fall out of my chair with shock if we had a retracement.

In economic data, the trade deficit increased again.  Imports and exports increased, but imports increased by $3 billion while exports increased by $1.2 billion, to net out at a $48.8 billion trade deficit.  $26.9 was with China. The full year 2011 numbers are included in the release as well. Takeaway – the consumer is returning. Pre-crisis, the trad deficit was in a 55 – 65 billion range.  In summer of 2009, it dropped to 25 billion.  So a smaller trade deficit isn’t necessarily a good thing.

Next week we have Retail Sales, Capacity Utilization, Industrial Production, PPI&CPI, FOMC minutes, and leading indicators.  Earnings season is more or less over until the retailers with January fiscals start reporting.  Still, a couple of big names will report – Deere, GM, and CF Industries.

Have a good weekend!

Filed under: Uncategorized | 38 Comments »

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