Morning Report: No changes to GDP

Vital Statistics:

Stocks are higher this morning on news that the US and China will resume trade talks over the weekend. Bonds and MBS are flat.

The third revision to first quarter GDP was unchanged, coming in at 3.1%. Inflation was revised upward ever so slightly, from a core PCE rate of 1% to 1.2%. At this stage of the game, the markets are going to focus on weak economic data, not inflation data. Note the Atlanta Fed is forecasting that second quarter GDP will come in at 1.9%.

Initial Jobless Claims remain low, rising slightly to 227,000.

Donald Trump continues to criticize Fed Chairman Jerome Powell, even going as far as to tweet that ECB President Mario Draghi is better. While it is unlikely Trump would try and fire Powell (or demote him), the legal principle of Fed independence will probably make that difficult.

The VA will now guarantee loans that exceed the conforming loan limit. Veterans will be able to borrow above the $484,350 limit without any down payment. This impetus for this decision was to raise money for veterans who have health issues after being exposed to Agent Orange. The initial idea was to raise the VA loan fee by 15 basis points, however lawmakers decided to raise the funds by increasing the cap.

A new report by Barclay’s and Annaly Mortgage lays out a post-conservatorship world for the US residential real estate finance market. Lawmakers generally agree on the goals of housing reform: protect the US taxpayer, attract private capital, and create a more competitive landscape. Getting there is going to be more difficult as Democrats and Republicans have different priorities. The report looks at things the Administration could do unilaterally via executive order. The first would involve FHFA ordering the GSEs out of non-core markets, such as second homes, jumbo and investor loans. The second would involve the creation of a revolving credit risk transfer facility. A third would involve removing the “GSE patch” which allows Fannie and Fred to originate QM loans at DTI levels private lenders cannot. Finally, there is work that needs to be done at the SEC / SIFMA level that concerns private label securitizations. Ultimately the issue of what to be done with GSEs will have to be solved legislatively. Either they become converted to Federal Government utilities or they become privatized. The privatization route envisions breaking up the duopoly into much smaller guarantors.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical View all posts by Brent Nyitray