|US Dollar Index (DXY)||80.226||0.428||0.54%|
|10 Year Govt Bond Yield||2.05%||-0.01%|
Markets are mixed this morning, with the broader indices lower following Europe, and the Nasdaq up on Apple’s earnings. AAPL is up about 8% pre-market. Conoco Philips also reported good earnings this morning. United Rentals reports after the close, which should provide another data point as to the state of the construction industry. Construction / Housing has been the achilles heel of this recovery, and if that sector is turning around, the economy could finally be on its way.
I didn’t watch the SOTU last night (I always just read speeches), but it doesn’t sound like there was anything market-moving in it. Natural Gas is up a little, presumably on the lack of a production target. The US dollar is stronger this morning and bonds are up 1/3 of a point, presumably on Europe, not necessarily the SOTU.
Perhaps the timing of the robo-signing settlement was not a co-incidence. In the speech last night, Obama laid out a plan for refinancing underwater mortgages. The fine print will not be available for some time, and it will require Congressional approval. I have noted in the past that you have to get the originators on board with this plan, and put-back risk is the big hurdle. Put back risk means the government can decide after the fact that a mortgage violated underwriting standards and can force the originator to buy it back. Re-financing underwater homes will by definition violate underwriting standards. The government can tell originators that it will allow underwriting violations for this program, but there is nothing preventing a future administration from changing the rules. An originator makes exactly the same profit on a 80% LTV loan as they do on a 120% LTV loan. So why would originators take the additional political risk when the returns are exactly the same? They won’t.
The FOMC rate decision will be released this afternoon. I don’t think anyone expects a change in policy, but people will be interested in seeing if the the Fed takes note of the early signs of a turnaround.