Morning Report: The Chinese government takes steps to support the economy.

Vital Statistics:

 LastChange
S&P futures3,990-10.25
Oil (WTI)87.90-1.03
10 year government bond yield 3.87%
30 year fixed rate mortgage 6.73%

Stocks are lower this morning on no real news. Bonds and MBS are down.

The upcoming week won’t have much in the way of market-moving data, although the Producer Price Index on Tuesday could have an impact if it comes in wildly out of expectations. We will get a lot of housing data with the NAHB Homebuilder Sentiment Index, Housing starts and existing home sales. We will also have a lot of Fed-speak, and uber-hawk Neel Kashkari will be speaking on Thursday.

Mortgage delinquency rates fell to a seasonally-adjusted rate of 3.45%, according to the MBA. This is the lowest level since the survey’s inception which goes back to the 1970s. Much of the decline was in the 90-day bucket, where they fell 22 basis points to 1.27%.

“For the second quarter in a row, the mortgage delinquency rate fell to its lowest level since MBA’s survey began in 1979,” said Marina Walsh, CMB, MBA Vice President of Industry Analysis. “Foreclosure starts and loans in the process of foreclosure also dropped in the third quarter to levels further below their historical averages. The relatively small number of seriously delinquent homeowners are working with their mortgage servicers to find foreclosure alternatives, including loan workouts that allow for home retention.”

The Chinese government instituted a 16 point plan to shore up the real estate market. The government is hoping for a soft landing, however a country that has entire cities built on spec probably won’t have one. The situation in China affects the US a couple of ways. First, I would bet that some of the weakness in West Coast markets like San Francisco and Seattle is due to Chinese liquidating assets. Remember, in a crisis, you sell what you can, not necessarily what you want. Real estate accounts for about a third of the Chinese economy, which is bubble territory. In the US, real estate accounts for about 16%.

The Chinese crisis will also impact global demand as the main effect of a burst real estate bubble is a collapse in domestic demand. This will reduce demand for all sorts of commodities which will help quell global inflation. This should also cause a flight to quality in China which means they will be buying Treasuries. This means lower interest rates in the US.

Angel Oak Home Loans is exiting the retail lending business and selling its brick and mortar operations to Cross Country Mortgage. It will focus on non-QM going forward. “Angel Oak intends to focus on the Non-QM residential mortgage sector through its wholesale and correspondent channels,” the company’s statement continued. “The transaction has zero impact on the wholesale Non-QM originator Angel Oak Mortgage Solutions, Angel Oak Correspondent Lending, or any other Angel Oak affiliates.”

Author: Brent Nyitray

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

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