Morning Report: Bank earnings coming in

Vital Statistics:

 

Last Change
S&P futures 3287 -2.25
Oil (WTI) 58.63 0.54
10 year government bond yield 1.84%
30 year fixed rate mortgage 3.88%

 

Stocks are flattish as we await the China trade deal and earnings season begins in earnest. Bonds and MBS are flat.

 

Inflation remains under control, and more or less where the Fed would like it. The Consumer Price Index rose 0.2% MOM and 2.3% YOY. Ex-food and energy it rose 0.1% MOM and 2.3% YOY.

 

JP Morgan reported better than expected earnings this morning driven by higher bond trading revenue. Origination volume increased to $33 billion, up 3% on a sequential basis, which is impressive given the seasonality of the mortgage business. On a YOY basis, it almost doubled. Full year origination volume increased 32% to $105 billion. Servicing took a bite however as prepayment speeds increased. Overall, home lending revenue was down 5% compared to the 4th quarter a year ago as negative servicing valuations offset increased production income. JPM stock is up about a buck pre-open.

 

Wells reported earnings that missed expectations driven largely by litigation expenses. Mortgage origination volume rose sequentially to $60 billion in the quarter, and servicing was revalued upward from the 3rd quarter. Production income was flat at 1.21%. The stock is down about 3.5% pre-open.

 

Small business optimism dipped a touch in December, according to the NFIB. “Owners are aggressively moving forward with their business plans, proving that when they’re given relief from the government, they put their money where their mouth is, and they invest, hire, and increase wages,“ said NFIB Chief Economist William Dunkelberg. “What really matters to small business owners are issues directly impacting their bottom lines. Currently, their biggest problem is finding qualified labor, surpassing taxes or regulations.” A net 29% of small businesses reported increasing compensation, an a net 24% plan on increasing comp in the next two months. That said, any sort of profit pressures are coming from weak sales, not increased costs.

 

Delinquenices hit a 20 year low in October, according to CoreLogic. 30 day DQs fell from 4.1% to 3.7% YOY. The foreclosure rate fell from 0.5% to 0.4%. Separately, CoreLogic reported home prices grew 3.3% in October. “Home price growth builds homeowner equity and reduces the likelihood of a loan entering foreclosure,” said Frank Nothaft, chief economist with CoreLogic. “The national CoreLogic Home Price Index recorded a 3.3% annual rise in values through October 2019, and price growth was the primary driver of the $5,300 average gain in equity reported in the latest CoreLogic Home Equity Report.”

 

 

Morning Report: Bank earnings looking strong

Vital Statistics:

 

Last Change
S&P futures 2991 -6.25
Oil (WTI) 52.97 0.14
10 year government bond yield 1.74%
30 year fixed rate mortgage 3.97%

 

Stocks are lower this morning as bank earnings come in. Bonds and MBS are down.

 

Retail Sales disappointed, falling 0.3%, which was lower than expected. Ex autos and gas, they were flat, although August numbers were revised upward across the board. The control group was flat, and sales rose 4.1% YOY.

 

Mortgage Applications rose 0.5% last week as purchases fell 4% and refis rose 4%. “The ongoing interest rate volatility is impacting a borrowers’ ability to lock in the lowest rate possible. Despite a slight rise in mortgage rates last week, refinance applications increased 4 percent and were 199 percent higher than a year ago,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Purchase applications slowed for the second week in a row. While near term economic uncertainty is still a factor, other fundamental issues, such as a lack of housing inventory in many markets, is preventing purchase activity from meaningfully rising. However, purchase applications were still much higher than a year ago. This is a reminder that the purchase environment in 2019 continues to be stronger than in 2018.”

 

Bank earnings are generally looking good, and mortgage backed securities trading desks are doing well as rates have fallen and volumes have picked up. The other side of the coin is that the drop in rates have negatively affected the values of mortgage servicing rights. Wells is a good example: despite a $127 million increase in origination revenue, total mortgage banking revenue fell by $292 million as their servicing book took a $419 million mark-to-market loss.

Morning Report: Rebound in refinances this year

Vital Statistics:

 

Last Change
S&P futures 2917.25 5.85
Eurostoxx index 388.92 -0.35
Oil (WTI) 64.39 0.34
10 year government bond yield 2.61%
30 year fixed rate mortgage 4.32%

 

Stocks are higher this morning as bank earnings continue to come in. Bonds and MBS are down on stronger-than-expected data out of China.

 

Mortgage Applications fell 3.5% last week as purchases rose 1% and refis fell 8%. “Mortgage applications decreased over the week, driven by a decline in refinances,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “With mortgage rates up for the second week in a row, it’s no surprise that refinancings slid 8 percent and average loan sizes dropped back closer to normal levels.” The average mortgage rate rose 4 basis points to 4.44%. The refinance index has rebounded smartly over the past several months, but we are nowhere near the levels of the 2015 refi boom, let alone the 2011-2012 boom.

 

refi index

 

Builder optimism inched up as the the NAHB / Wells Fargo Housing Market index rose 1 point to 63. As has been the case throughout the recovery, the West led the pack, with the Midwest and Northeast picking up the rear. “Builders report solid demand for new single-family homes but they are also grappling with affordability concerns stemming from a chronic shortage of construction workers and buildable lots,” said NAHB Chairman Greg Ugalde.

 

Industrial Production slipped 0.1% in March, while manufacturing production was flat. Capacity Utilization dropped .2% to 68.8%. This was generally a disappointing report, however orders for business equipment and capital expenditures bounced back after a deep decline in February. Over the past several years, the first quarter has been weak, and it looks like this year is more of the same.

 

New FHFA Chairman Mark Calabria said he takes the role with a “great sense of urgency” with regard to reforming Fannie Mae and Freddie Mac. He was confirmed as FHFA Chairman last week on a straight party line vote. “The mortgage market was at the center of the last crisis, as it has been for many past financial crises,” Federal Housing Finance Agency Director Mark Calabria said Monday in his first official remarks as head of the agency. “I believe the foundations of our current mortgage finance system remain vulnerable.”