Morning Report: Strong builder earnings

Vital Statistics:

S&P futures3789-63.3
Oil (WTI)52.96-0.14
10 year government bond yield 1.04%
30 year fixed rate mortgage 2.83%

Stocks are lower this morning on overseas weakness. Bonds and MBS are flat.

The FOMC decision will be released at 2:00 pm today. I don’t think there will be anything market-moving in the language, but just be aware.

Mortgage applications fell 4.1% last week as purchases fell 5% and refis fell 4%. “In a sign that borrowers are increasingly more sensitive to higher rates, large declines in government purchase applications and refinance applications pulled overall activity lower,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “The refinance index has now declined for two straight weeks, but is still 83 percent higher than last year. Purchase applications also decreased last week, but the impressive trend of year-over-year growth since the second half of 2020 has continued in early 2021. Activity was up 16 percent from a year ago, and the average purchase loan amount hit another record high of $395,200.”

The 10 year bond sold off after the results of the Georgia Senate runoff. I suspect it might have been overdone, and given Schumer’s talk of a stimulus not happening until March (Congress has bigger fish to fry, apparently), bond yields will probably work their way lower.

Durable Goods orders rose 0.2% in December, well below expectations. However, if you strip out transportation, it rose 0.7%. Core capital goods (a proxy for business capital expenditures) rose 0.6%

The FHA extended its foreclosure moratorium until March 31.

Homebuilder D.R. Horton reported fourth quarter earnings which rose 84% on a year-over-year basis. Sales were up 56% in units and 62% in dollar value to $6.4 billion. COVID-19 has increased demand for single family residences, and the work-from-home option has increased the viability of distant exurbs. The US economy should be buoyed by housing construction, although the big question is whether it will be enough to offset the devastation of small business from government-imposed COVID lockdowns.


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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