Stocks are higher this morning on no real news. Bonds and MBS are flat.
Industrial production fell 0.5% MOM in March according to the Federal Reserve. Manufacturing production declined 0.1%. Capacity utilization declined to 75.7%. The declines were driven by falling consumer goods production.
Independent mortgage banks saw an increase in profit in 2025 according to the MBA. “The average net production profit for IMBs in 2025 reached its highest level in four years at 21 basis points,” said Marina Walsh, CMB, MBA’s Vice President of Industry Analysis. “While profits have improved slightly in recent years, they are still less than half the historical average going back to 2008. There was also wide variability between top and bottom performers due to differences in product mix, volume levels, geography and cost efficiencies, among other factors.”
Profits rose to an average of $785 per loan compared to $443 a year ago. “Overall annual production volume was up in 2025, while loan balances rose to new study-highs. Despite the increase in volume, per-loan production costs were slightly higher than in 2024. Historically, when volume picks up, fixed costs are spread over more loans, resulting in a reduction in per-loan costs. However, that was not the case in 2025 as rising wage growth, increases in third-party charges, and reduced application pull-through negatively impacted origination costs. Containing origination costs and increasing efficiencies will remain a differentiator between profitable and unprofitable companies in 2026.”
NY Fed President John Williams worries the war will have a negative effect on inflation. “Assuming energy supply disruptions ease reasonably soon, energy prices should come down, and these effects should partially reverse later this year,” Williams said. “However, the conflict could also result in a large supply shock with pronounced effects that simultaneously raises inflation — through a surge in intermediate costs and commodity prices — and dampens economic activity. This has begun to play out already.”
Stocks are flattish this morning as earnings continue to come in. Bonds and MBS are flat. Despite all the sturm and drang in the median over the situation in Iran, the US stock market hit a record high yesterday.
Homebuilder sentiment declined in April amidst economic uncertainty according to the NAHB. The index fell to the lowest level since September 2025. Blame higher energy prices.
“Builder sentiment has fallen back in spring as buyers face ongoing elevated interest rates and growing economic uncertainty,” said NAHB Chairman Bill Owens, a home builder and remodeler from Worthington, Ohio. “The year started with hopes for housing momentum growth, but risks with respect to the Iran war, energy costs, and declines for consumer confidence have slowed the market.”
“With oil prices higher in the U.S., 62% of builders reported suppliers have increased building material costs due to higher fuel prices, including gas and diesel,” said NAHB Chief Economist Robert Dietz. “Energy costs make up approximately 4% of residential construction material input and service costs. With near-term economic risks elevated, 70% of builders reported challenges pricing homes given uncertainty about material costs.”
About 36% of builders cut prices, down slightly from the previous month. The average price cut is 5%. Note that import duties on Canadian lumber will fall this summer, so that should help improve things.
Overall economic activity increased at a “slight to modest” pace over the past six weeks according to the Fed’s Beige Book. The war in the Middle East is adding uncertainty to business conditions. This is affecting hiring decisions and investment in capital improvements.
“Manufacturing activity rose slightly to moderately in most Districts. Banking sector activity was generally steady with loan demand stable to up moderately. On balance, consumer spending increased slightly despite harsh winter weather in some regions and higher fuel prices. Many Districts continued to report signs of consumer financial strain, increased price sensitivity, and rising demand at food banks and other social service organizations, while spending among higher-income consumers was resilient. Housing market activity softened across several Districts as heightened uncertainty and rising mortgage rates dampened buyer demand. Commercial real estate markets improved, with strength in industrial properties, especially data center projects”
Cleveland Fed President Beth Hammack said that the Fed might be on hold for a while” “My baseline is that we’re going to remain on hold for a good while, but I do think that there’s two-sided risks to rates,” Hammack said during the “Squawk Box” discussion. “I think there’s risks that we might need to be more accommodative or more restrictive, depending on how the data comes out. But that’s why it’s a good time for us to stay patient and wait and see how the data flows through.”
Stocks are higher this morning as the US announces the blockade of Iranian ports is in full effect and that 20 ships transited the Strait of Hormuz yesterday. It looks like the sea lanes are opening and that should put some pressure on elevated commodity prices.
A second round of peace talks are potentially in the works for this week or next before the current cease-fire expires.
Inflation at the wholesale level came in lower than expected, albeit it was a sizeable jump. The producer price index rose 0.5% MOM, which was flat compared to February’s downward-revised number. Annually the headline number increased 4.0%, a big increase from February’s 3.4% increase. Most of that increase was due to energy prices driven by the Iranian situation.
The core rate that excludes food and energy rose 0.1% MOM and 3.8% YOY. This was a deceleration from February. Inflation is still too high for the Fed’s liking and the Fed Funds futures are pricing in a miniscule chance for a rate hike at this month’s FOMC meeting. The December futures still see about a 1/3 chance for one 25 basis point cut this year.
Chicago Fed President Austan Goolsbee said that rate cuts might have to wait until next year: “I thought there could be even multiple rate cuts in 2026; the longer this goes where we never got to see the decrease in inflation (and) if the inflation stays up, realistically, I think that starts pushing it out of ’26,” Goolsbee told AP at the Semafor World Economy conference. “It’s our job to get inflation back to 2%”
Treasury Secretary Scott Bessent said that he supports rate cuts now but understand if the Fed has to put them on hold: “I am highly confident that the core inflation … which is quite under control and actually dropping in many categories, will continue to go down,” he told reporters at the Semafor World Economy Conference in Washington, D.C. “I believe rates should be cut,” he added, “but that if they want to wait for some clarity, I understand that.”
Mortgage applications increased 2% last week as purchases were unchanged and refis rose 5%.
Higher energy prices are increasing construction costs, according to the NAHB. Yesterday’s PPI showed energy prices rising at the fastest pace in six years, while building materials prices also increased. That said, construction inflation is more or less at pre-pandemic levels:
Stocks are higher this morning as earnings season kicks off. Bonds and MBS are flat.
The Spring Selling Season got off to a rough start as existing home sales fell 3.6% in March. This was a 1% decline compared to last year. “March home sales remained sluggish and below last year’s pace,” said NAR Chief Economist Dr. Lawrence Yun. “Lower consumer confidence and softer job growth continue to hold back buyers.”
The median home price hit a record for the month of March, rising to $408,800. That said, wages are rising faster and mortgage rates are holding steady which means that affordability is improving. Days on market fell from 47 to 41. Again, it is a tale of two markets, with the hot markets from the COVID years experiencing a slowdown while the Northeast and Midwest seeing increased demand.
“Inventory remains a major constraint on the market,” Yun said. “The inventory-to-sales ratio, or supply-to-demand ratio, is below historical norms. An additional 300,000 to 500,000 homes for sale would help bring the market closer to normal conditions and allow consumers to make purchase decisions without feeling rushed.”
“Because inventory remains limited, the median home price rose to a new record high for the month of March,” Yun added. “That price growth has helped the typical homeowner accumulate $128,100 in housing wealth over the past six years.”
Small Business Optimism fell 3 points in March, according to the NFIB. Rising uncertainty drove the decline. Employment and compensation fell as did sales. Prices rose.
“The government reported 178,000 new jobs in March, but February and January were collectively down by almost as many jobs, and will likely be revised lower as have prior months. Federal government employment continued to fall but private job creation was a real positive, with 26,000 jobs in construction and 22,000 in transportation. Small business owners have plenty of job openings but are not optimistic about filling them with qualified workers, and some continue to struggle with finding applicants.
Inflation will become even more of a problem as oil prices respond to developments in the Iran conflict. Only a few ships are getting through Hormuz each day compared to well over 100 pre-war, slowing not only the supply of oil, but many other important products as well. The Federal Reserve is likely to stay steady now, but a rate hike becomes more likely if the current elevated inflation environment persists. The share of small business owners raising average selling prices has stabilized at rates that prevailed at the end of the last administration (CPI up 20% over 4 years). Lower oil prices will benefit all concerned, but that may take a while even after the Strait is reopen.”
JP Morgan reported a 17% increase in earnings per share on a YOY basis as we begin the first quarter earnings season. Revenues rose 10% while provisions for credit losses declined 24%. For all the fears about software exposure, it is interesting to see such a decline in loss provisions.
“The U.S. economy remained resilient in the quarter, with consumers still earning and spending and businesses still healthy. Several tailwinds are supporting this resiliency, including increased fiscal stimulus, the benefits of deregulation, AI-driven capital investment and the Fed’s asset purchases. At the same time, there is an increasingly complex set of risks— such as geopolitical tensions and wars, energy price volatility, trade uncertainty, large global fiscal deficits and elevated asset prices. While we cannot predict how these risks and uncertainties will ultimately play out, they are significant and they reinforce why we prepare the Firm for a wide range of environments.”
Mortgage origination volume rose 46% on a YOY basis to $13.7 billion. The servicing book was flat at $9.1 billion.
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Stocks are lower this morning after Trump threatened to blockade the Strait of Hormuz. Bonds and MBS are down.
Peace talks broke down over the weekend, with Iran balking at ending its nuclear program and re-opening the Strait of Hormuz without tolls. The Trump Administration announced a blockade of the Strait of Hormuz, which will block any shipping coming from / to Iran. This will supposedly give the US time to mine sweep a channel that would let shipping in general go through the Strait. All of the hardware in the Gulf makes me think the next target is Kharg Island. Oil will scream if an invasion happens.
Any de-escalation rally in stocks and bonds is off the table for now.
The week ahead will be dominated by earnings season which kicks off on Wednesday with all the big banks reporting. Economically, we will get the Producer Price Index, small business confidence, existing home sales and homebuilder sentiment. We will also have plenty of Fed speakers.
Consumer sentiment fell in April, according to the University of Michigan Consumer Sentiment Survey. Sentiment is down 11% and down about 9% compared to a year ago. The unexpected war in Iran, along with elevated gasoline prices drove the decrease.
Year-ahead inflation expectations increased from 3.8% to 4.8% and long-term inflation expectations rose from 3.2% to 3.4%.
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The war in Iran isn’t helping the economy, with the Atlanta Fed GDP Now model predicting only 1.3% growth in Q1. The jobs report and the trade balance were the catalyst to knock the numbers down.
Stocks are flattish as the cease-fire appears to hold. Bonds and MBS are up small.
Consumer inflation rose 0.9% in March, according to BLS. Rising gasoline prices drove the increase. The headline number rose 0.9% MOM and 3.3% YOY. The annual number was a touch below expectations. The core rate rose 0.2% MOM and 2.6% YOY, which was below expectations.
The February PCE Price Index rose 0.4% MOM and 2.8% annually. The core PCE rate rose 0.4% MOM and 3.0% YOY.
If you look at the housing price indices, home price appreciation is flattening and rolling over. So it shouldn’t come as a surprise that price cuts are increasing, especially in oversupplied states like Texas and Florida. Redfin reports that 34% of homes had a price cut in February, a record for that month. The average cut was about $41k or 7.3%.
Mortgage credit availability improved in March, according to the MBA. “Credit availability increased modestly in March to its highest level since August 2022, with growth across all loan types. Despite the increase, overall credit supply is still closer to the lower end of its historical range,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Although March was volatile for mortgage rates and they moved higher over the month, there was growth in streamline refinance programs for lower credit score borrowers. Additionally, the jumbo index increased for the third consecutive month, driven by greater availability of non-QM loan programs.”
It seems like every correspondent lender out there is buying non-QM paper these days.
Stocks are lower as markets assess whether the ceasefire in the Persian Gulf will hold. Bonds and MBS are down.
The FOMC minutes were released yesterday. The situation in Iran was still fresh, so the expected effects were still pretty uncertain. The gist of the meeting is that they consider inflation to be the bigger threat and the labor market to be in good shape. The overall consensus was that monetary policy was close enough to neutral that they could wait and see how the economy develops.
On inflation:
Participants generally observed that overall inflation remained above the Committee’s 2 percent longer-run goal. Some participants remarked that further progress in reducing inflation had been absent in recent months. Participants anticipated that, under appropriate monetary policy, inflation would gradually move down toward the Committee’s 2 percent objective after the effect of increased tariffs and higher oil prices had faded. Participants also expected that higher oil prices would increase inflation in the near term and delay the anticipated decline in inflation toward the Committee’s 2 percent objective. Several participants remarked that the ongoing deceleration in housing services prices was likely to continue to exert downward pressure on overall inflation. Several participants also expected higher productivity growth, associated with technological or deregulatory developments, to put downward pressure on inflation. Participants noted that a prolonged conflict in the Middle East would likely lead to more persistent increases in energy prices and that these higher input costs would be more likely to pass through to core inflation.
On the labor market:
With regard to the labor market, participants observed that the unemployment rate had been little changed in recent months, while job gains had remained low. Most participants judged that the recent data readings, such as those for job openings, layoffs, hiring, and nominal wage growth, continued to suggest that the labor market was broadly in balance, with the low rate of job growth roughly in line with slower labor force growth. With respect to the outlook for the labor market, the majority of participants expected the unemployment rate to remain little changed and for net job creation and labor force growth to remain low, while a couple of participants expected labor market conditions to soften. The vast majority of participants judged that risks to the employment side of the mandate were skewed to the downside.
On monetary policy:
Against this backdrop, almost all participants supported maintaining the current target range for the federal funds rate at this meeting. With the policy rate having been lowered 75 basis points in the second half of last year, these participants generally viewed the policy rate as within a range of plausible estimates of its neutral level. They judged that leaving the policy rate unchanged kept the Committee well positioned to determine the extent and timing of additional adjustments to the policy rate based on the incoming data, the evolving outlook, and the balance of risks. Most participants commented that it was too early to know how developments in the Middle East would affect the U.S. economy and judged it prudent to continue to monitor the situation and assess the implications for the appropriate stance of monetary policy.
There are two important considerations to the inflation story. First, SCOTUS declared the Trump Tariffs unconstitutional, and the temporary extension expires in June. That inflationary support will wane. The second concerns transit through the Strait of Hormuz. The closure is pushing up prices in fertilizer, petrochemicals, plastics, etc. The longer this goes on, the more that higher energy prices will flow through to other goods and services.
Fourth quarter GDP was revised downward to 0.5% from 0.7%. Downward revisions in consumption and investment drove the decrease. The PCE Price Index was unchanged at 2.9% on the headline and 2.7% on the core rate.
Stocks are higher after Trump agreed to suspend attacks on Iran for two weeks in exchange for Tehran to open the Strait of Hormuz immediately. Trump cited progress on a 10 point proposal for ending hostilities. Oil is down 17%, bond yields are down about 10 basis points from yesterday’s close and stocks are soaring.
House prices fell 0.1% on a quarterly basis and were up 1.8% annually according to the Clear Capital Home Data Index. The Northeast is still the top performer both on a quarterly basis and annually.
In the commentary, I talk about how the situation in Iran will affect real estate prices going forward. Even if the situation is over (or close to it), the economic shocks will reverberate for a while.
Mortgage applications fell 0.8% last week as purchases rose 1% and refis fell 3%. “Higher mortgage rates and continued economic uncertainty weighed down on mortgage applications again last week. While mortgage rates saw a slight reprieve, with the 30-year fixed rate decreasing to 6.51%, many potential refinance borrowers have been frozen out by the sharp increase over the past month. The pace of refinance applications was at its lowest level since December 2025,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Overall purchase activity has also been adversely impacted by current conditions – purchase applications were 7% lower on a year-over-year basis, the first annual decline since January 2025. However, certain loan types and geographic segments are faring better than others because of lower rates on ARM and FHA loans as well as growing housing inventory in some local markets. Applications for FHA purchase applications were up 5 percent over the week, supported by the FHA mortgage rate being about 30 basis points lower than the conventional mortgage rate.”
Chicago Fed President Austan Goolsbee spoke in Detroit yesterday, and expressed concern about rising inflation. “We’ve got to get our heads around an oil shock, which is gonna drive up prices in a stagflationary way potentially, before the other one has gone away,”
“And if we’re headed to 4%, that’s not a stable,” Goolsbee said. “The longer you go and the higher you are above the 2% target, the more it just gets ingrained into cost-plus contracts where people come down and they say, ‘Well, if inflation is gonna be 5%, I need a wage increase of 6%.’ And then the business says, ‘If we gotta pay wage increases of 6%, we gotta raise prices 7%.’ And that’s a very uncomfortable situation for the central bank or for anyone.”
This is what happened in the 1970s, which was the classic wage-price spiral.
Stocks are lower as we await the deadline for Iran to open the Strait of Hormuz. Bonds and MBS are down.
Iran has rejected a proposal to delay strikes for 45 days in exchange for re-opening the Strait. The deadline is set for 8:00 pm EST and Trump is threatening Iran’s infrastructure: “The entire country can be taken out in one night, and that night might be tomorrow night,” he said during a news conference on Monday.
The two sides are talking though. Trump rejected an Iranian counter-proposal with “They’ve made a proposal, and it’s a significant proposal…it’s not good enough, but it’s a significant step,”
The situation in Iran is ironically affecting oil prices more in the US than overseas. Typically US domestic oil (West Texas Intermediate) trades at a discount to North Sea Brent, the global benchmark. Since a lot of oil is trapped in the Gulf, demand for WTI is high enough to have it trade at a $5 premium to Brent.
The jump in oil prices is expected to cause a huge jump in the inflation numbers set for Friday. The forecast for the annualized March CPI is to increase from 2.4% in Feb to 3.4% in March. The core rate is expected to rise from 2.5% to 2.7%.
The services economy continued to expand, according to the ISM Services Index. The index declined from 56.1 to 54, which is still a strong reading. New orders increased while business activity declined. Employment declined, while prices increased.
“March’s Services PMI® features the third month in a row with an increase in the 12-month PMI® average, up 0.6 percentage point from 51.7 percent in December 2025 to 52.3 percent. However, six of the 10 subindexes decreased month-over-month. The Prices Index increased, as expected, amid higher oil and fuel costs, and the Supplier Deliveries Index indicated slower performance compared to February, also unsurprisingly with shipping issues and flight disruptions due to the Middle East conflict and winter weather. Continuing strength in business activity, new orders and backlog of orders are positive economic signals, so the Employment Index dropping to its lowest level since December 2023 (43.5 percent) was a surprise.
“There are other signs of economic strength. Exports and imports activity have expanded for two months in a row for the first time since September and October 2024. The predominant commentary this month was about impacts and adjustments due to the conflict with Iran and the expected flow through of higher oil prices at some point. Companies across many industries reported seeing higher gas and diesel pricing, and inventories of multiple goods increased to withstand supply chain disruptions or short-term oil price impacts. Such construction products as lumber, copper and steel were noted as up in price. Although tariff impacts were still noted by panelists, Iran-related impacts dominated the comments in March.”
A tailwind for business overall is the end of tariffs. Trump extended them after SCOTUS declared them unconstitutional, but that extension only lasts 150 days, which means things revert back to normal in late June. Respondents reported that we are already seeing adjustments to this.
The decline in employment is surprising given than BLS reported an increase in payrolls during March and most of the gain was in the services sector.
The Spring Selling season is off to a good start despite the increase in rates according to the ICE Mortgage Monitor. “Mortgage rates bottomed near 5.95% early this year, pushing affordability to its best levels in four years and helping drive two of the firmest monthly home price gains we’ve seen in over a year,” said Andy Walden, head of mortgage and housing market research at ICE. “Since then, 30‑year rates have risen roughly 40 basis points, pulling about four percent of buying power back out of the market and reshaping conditions from those early‑year peaks. Even so, 99 out of 100 major markets still saw improved affordability from a year ago, and inventory continues to rebuild. That combination is helping this spring market feel better supplied and more balanced than in recent years, even as rate volatility reasserts itself.”
The increase in rates has taken back some of the improvements in affordability and reduced refinance incentives. That said, home price appreciation is stalling out, incomes are still rising, and we should see rates return to normal once the Iran situation is sorted out. Inventory is increasing, albeit still below pre-pandemic levels.
Stocks are higher after investors return from a long weekend. Bonds and MBS are down.
The week ahead is relatively data-light, although we will get the consumer price index on Friday. Given the strong jobs report, a hot CPI reading will get the markets worrying about possible rate hikes this year.
Over the weekend, the two airmen shot down over Iran were rescued, and Trump gave a Tuesday ultimatum for Iran to open the Strait of Hormuz. Oil prices remain elevated and the 10 year bond yield is pushing 4.4%.
Jamie Dimon’s letter to shareholders was released over the weekend. The letter did spend a lot of time discussing how the wars will affect the economy, although he talked a bit about how much the relationship between banks and non-bank financial institutions have changed over the past 20 years.
The private credit market is getting a lot of attention these days, and this is ground zero for the discussion. The letter had a chart showing the change from 2010 (left column) and 2025 (right column)
One thing that jumps out is the nonbank share of mortgage originations. It was 9% in 2010. I guess that makes sense since Countrywide was dead and the new institutions that would dominate going forward were early on. The growth in loans held by nonbanks roughly mirrors the loans held by banks, but the private credit market is now $1.8 trillion, which is bigger than the high-yield bond market and the bank leveraged loan market.
On credit, he said:
I do believe that when we have a credit cycle, which will happen one day, losses on all leveraged lending in general will be higher than expected, relative to the environment. This is because credit standards have been modestly weakening pretty much across the board; i.e., more aggressive and positive assumptions about future performance (called add-backs), weaker covenants, more use of PIK (payment-in-kind; not paying interest in cash but accruing it), more aggressive private ratings (particularly in insurance companies) and more arbitrage (not always a great sign). Also, by and large, private credit does not tend to have great transparency or rigorous valuation “marks” of their loans — this increases the chance that people will sell if they think the environment will get worse — even if actual realized losses barely change. Additionally, actual losses right now are already a little higher than they should be, relative to the environment. Finally, if rates or credit spreads ever go up, the companies that borrowed will have to borrow at even higher rates, putting them under even greater stress. However this plays out, it should be expected that at some point insurance regulators will insist on more rigorous ratings or markdowns, which will likely lead to demands for more capital.
It has always been true that not everyone providing credit is necessarily good at it. There are many players who are late to this game, and it should be expected that some credit providers will do a far worse job than others. We have not had a credit recession in a long time, and it seems that some people assume it will never happen.
I think these comments could be applied to non-QM. We have a lot of new entrants in the DSCR space, and credit spreads have been quite frankly a lot tighter than they should be given the risks involved (specifically no government guarantee). Credit spreads overall remain tight.
The services economy declined in March, according to the S&P PMI. The index came in at 49.8 (any reading under 50 means a decline) which was the lowest level since January 2023. The war and price levels in general are depressing consumer confidence.
“The service sector has slipped into contraction for the first time since January 2023, dragging the overall economy down to a near-stalled 0.5% annualized rate of growth in March. Worst hit is consumer-facing service sectors where, barring the pandemic lockdowns, the downturn reported in March was among the steepest recorded since data were first available in 2009. However, financial services and tech, both of which performed strongly last year, have shown some signs of weaker performance amid financial market volatility and concerns over higher interest rates, which have deterred investment.
“Key to the deteriorating growth trend is a pull-back in spending amid worsening affordability, with costs and selling prices surging higher in March amid spiking energy prices. The survey data are broadly consistent with consumer price inflation accelerating close to 4% as firms increasingly seek to push through higher costs onto customers in the coming months.
