Morning Report: The quits rate signals wage growth.

Vital Statistics:

	Last	Change
S&P futures	4,233	9.8
Oil (WTI)	70.34	0.33
10 year government bond yield		1.49%
30 year fixed rate mortgage		3.14%

Stocks are flattish this morning as oil rises above $70 per barrel. Bonds and MBS are up again.

The 10 year bond yield has started falling again, and this seems to be a global trade. The German Bund is back to negative 25 basis points, and just about every other sovereign bond yield is dropping. Some of this is a reversal of early-taper bets. Mortgage rates have been lagging the move as usual. Note the World Bank is forecasting that global growth will hit 5.6% this year, which would be the fastest growth since 1940. This would be incongruous with current bond yields, but with global central banks intervening so much in the market it might be useless as an economic signal.

Mortgage Applications fell 3.1% last week as purchases increased 0.3% and refis fell 13%. “Most of the decline in mortgage rates came late last week, with the 30-year fixed-rate mortgage declining to 3.15 percent. This likely impacted refinance applications,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “With fewer homeowners able to take advantage of lower rates, the refinance share dipped to the lowest level since April. Purchase applications were up slightly last week, and the large annual decline was the result of Memorial Day 2021 being compared to a non-holiday week, as well as the big upswing in applications seen last May once pandemic-induced lockdowns started to lift.”

Job openings hit a record high of 9.3 million at the end of April, according to the JOLTS job openings report. The biggest increase in openings came in food services. The quits rate hit 2.7%, and 4 million employees, both series records. Increases in the quits rate generally precedes increases in wages, and if the relationship holds, we should expect to see wage inflation into the second half of the year.

The increase in wages will undoubtedly contribute to further home price appreciation. I would expect to see this filter down into more esoteric mortgage products, as home price appreciation makes taking credit risk more appealing.