Morning Report: Strong jobs report knocks stocks

Vital Statistics:

 

Last Change
S&P futures 2982.25 -8.4
Oil (WTI) 57.45 0.2
10 year government bond yield 2.02%
30 year fixed rate mortgage 4.00%

 

Stocks are lower this morning after Friday’s strong jobs report stoked fears the Fed might not cut rates as much as the market expects. Bonds and MBS are up.

 

Jobs report data dump:

 

  • Payrolls up 224,000
  • Unemployment rate 3.7%
  • Labor force participation rate 62.9%
  • Employment-population rate 60.6%
  • Average hourly earnings up 3.1%

 

Overall, a strong report which should in theory argue against easing rates at the upcoming July meeting. That said, the deceleration in the labor market is being taken as a sign that the Fed needs to act, especially since inflation remains stubbornly below the Fed’s 2% target. The July Fed funds futures are pricing in a 100% chance for a cut, with a 92% chance for 25 basis points, and an 8% chance of 50 basis points.

 

We don’t have much in the way of economic data this week, however we do have Jerome Powell’s Humphrey-Hawkins testimony on Wednesday and Thursday. Humphrey-Hawkins testimony is usually more about posturing politicians than it is about useful insights, but with the markets on edge about a potential rate cut, we could see some volatility. Expect a lot of questions about Fed independence.

 

Want to get involved in the property rental business without having to actually buy a house and rent it out? Roofstock could be your answer. It allows individuals to buy into occupied rental properties and allows them to trade out of them after a 6 month lock up period. If you can’t get a bid on Roofstock’s online exchange, they will buy it back at a 7.5% discount.

 

Deutsche Bank is retreating back to Europe, as it cuts 18,000 jobs and exits a lot of overseas businesses. DB has been underperforming for years, and it looks like its decades-old attempt to become a player on Wall Street and in London are over. It would be cool to see them spin off Bankers Trust, Alex Brown and Sons and Morgan Grenfell, but it doesn’t look like that will happen.

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Morning Report: New home sales surprise to the upside

Vital Statistics:

 

Last Change
S&P futures 2937.5 -0.5
Eurostoxx index 391.52 0.39
Oil (WTI) 65.92 -0.36
10 year government bond yield 2.54%
30 year fixed rate mortgage 4.34%

 

Stocks are flat as we await earnings from heavyweights like Facebook, Microsoft and Caterpillar. Bonds and MBS are up.

 

New Home Sales surprised to the upside, coming in at 692,000, indicating that lower mortgage rates are helping sales. The most interesting number in the report was the median price of $302,000, which is down 10% from a year ago. This indicates that builders are concentrating on the lower price points, or at least that is where the sales are concentrated. Still, a 10% drop in median home prices is an eye-popping number.

 

new home sales

 

Mortgage applications fell 7% last week as purchases fell 4% and refis fell 11%. Rates were up 2 basis points for the week, however the week included the Good Friday holiday so there might be some noise in there as well. “The 30-year fixed mortgage rate has risen 10 basis points in three weeks, and is now at its highest level in over a month,” said MBA Chief Economist Mike Fratantoni. “Borrowers remain extremely sensitive to rate changes, which is why there has been a 28 percent drop in refinance applications over this three-week period. Purchase activity also declined, but remains almost 3 percent higher than a year ago. Borrowing costs have recently drifted higher because of ebbing geopolitical concerns, as well as signs of strengthening in the U.S. economy, including the recent data pointing to robust retail sales.”

 

The CFPB is becoming a little more creditor-friendly, by giving firms under investigation information about what they did that was wrong. “Consistent with the updated policy, CIDs [civil investigative demands] will provide more information about the potentially applicable provisions of law that may have been violated,” the Bureau said in a news release. “CIDs will also typically specify the business activities subject to the Bureau’s authority. In investigations where determining the extent of the Bureau’s authority over the relevant activity is one of the significant purposes of the investigation, staff may specifically include that issue in the CID in the interests of further transparency.”

 

Flagstar reported a 30% drop in originations in the first quarter, falling from $7.9 million in the first quarter of 2018 to $5.5 million in the first quarter of 2019. On a QOQ basis, originations were down 13% as well. Gain on sale margins rebounded from the fourth quarter, increasing to 72 basis points from 60, although they are down from 77 in the first quarter of last year.

 

The NY Fed asks the question whether tax reform has inhibited home sales. Spoiler alert: it looks like that is the case.