Morning Report: Meh jobs report

Vital Statistics:

 

Last Change
S&P futures 3280 4.25
Oil (WTI) 59.52 0.04
10 year government bond yield 1.85%
30 year fixed rate mortgage 3.88%

 

Stocks are higher as it looks like hostilities are cooling between the US and Iran. Bonds and MBS are down.

 

Jobs report data dump:

  • Nonfarm payrolls + 145,000
  • Unemployment rate 3.5%
  • Labor force participation rate 63.2%
  • Average hourly earnings up 0.1% / 2.9%

Overall a meh report. Nothing special. Manufacturing payrolls fell by 12,000 which sort of meshes with the weak ISM report. Wage growth remains positive but below the sort of levels we were seeing a few months ago.

 

Initial Jobless Claims fell to 214,000 last week. No other economic data today, but we do have a lot of Fed-speak.

 

Want to give a compliance officer a heart attack? Go after a negative review on Yelp by trashing the borrower’s credit profile. Mount Diablo Lending was fined $120,000 for doing just that – “Your credit report shows 4 late payments from the Capital One account, 1 late from Comenity Bank which is Pier 1, another late from Credit First Bank, 3 late payments from an account named SanMateo. Not to mention the mortgage lates. All of these late payments are having an enormous negative impact on your credit score.” Note: credit profiles are confidential information, and your company should have procedures to protect it. Getting into a tiff with a declined borrower on Yelp is not a good way of going about that.

 

Remember when Quicken and United Wholesale got into a pricing war about this time last year? Well, it looks like Quicken just signed a 4 year contract with the NFL to be its exclusive mortgage sponsor. “Over the years we’ve been a brand and a company that likes to do big epic things,” Casey Hurbis, chief marketing officer for Quicken, said in an interview.

 

Corporate CEOs and consumers have differing views on the economy. CEOs think a recession in 2020 is the biggest risk, while almost all CFOs see the economy slowing next year. If you look at the chart below, CEO confidence is about where it was going into 2009, which quite simply makes no sense.

 

CEO confidence

 

 

Morning Report: 10 year pushing towards 3%

Vital Statistics:

Last Change
S&P futures 2675 3.9
Eurostoxx index 381.41 0
Oil (WTI) 67.33 -1.07
10 Year Government Bond Yield 2.97%
30 Year fixed rate mortgage 4.51%

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

US Treasury Secretary Steve Mnuchin signaled that the US is ready to discuss a truce in the trade war with China. He characterized his mood as “cautiously optimistic” and said he won’t make a commitment on timing. Beijing welcomed the announcement. Separately, Mnuchin also discussed easing sanctions on Rusal which sent aluminum prices back down.

Existing home sales rose on a month-over-month basis in March, but are down on an annual basis according to NAR. Lawrence Yun, NAR chief economist, says closings in March eked forward despite challenging market conditions in most of the country. “Robust gains last month in the Northeast and Midwest – a reversal from the weather-impacted declines seen in February – helped overall sales activity rise to its strongest pace since last November at 5.72 million,” said Yun. “The unwelcoming news is that while the healthy economy is generating sustained interest in buying a home this spring, sales are lagging year ago levels because supply is woefully low and home prices keep climbing above what some would-be buyers can afford.”

The median home price was $250,400, up 5.8% YOY. Inventory is down over 7% YOY to 1.67 million units, which represents a 3.6 month supply at current sales levels. A historically balanced market would be 6.5 month’s worth. Properties stayed on market for an average of 30 days, which is down almost a week YOY. The first time homebuyer accounted for 30% of sales, and all-cash sales were 20% of transactions.

Commodity price inflation has pushed the 10 year yield to 3%. Many technical analysts consider that to be confirmation that the 3 decade bull run in bonds is over. The one caveat is that the sell-off is being driven by rising commodity prices which tends to be temporary, especially if it doesn’t translate into wage growth. You can see the pop in yields post-election below. Hard to believe we were sub 1.8% in late October 2016.

This week will have some important data to the bond market, with GDP and the employment cost index on Friday. We will also get a slew of housing data with existing home sales, new home sales, and Case-Shiller.

The Street estimate for Q1 GDP is 2%. Generally speaking, the estimates from the banks are lower than the estimates from the regional Federal Reserve banks.

Economic activity moderated in March, according to the Chicago Fed National Activity Index. Production and employment indicators fell. February’s reading was unusually strong, however. The CFNAI is a meta-index of 85 different economic indices, and can be volatile. It isn’t a market-mover.

A paper suggests that the ratings agencies largely got it right with the bubble-era RMBS. The AAA tranches (even subprime) were largely money good, and the study pours cold water on the popular narrative that inflated ratings on RMBS caused the financial crisis.

The big banks are rushing to launch websites and apps for mortgages as volume contracts. Bank of America, Wells Fargo, and JP Morgan have either launched or plan to launch mortgage banking tech products in response to Rocket Mortgage from Quicken. The company claims that 98% of its customers in the first quarter (some $20 billion in origination) accessed Rocket at some point in the application process. That is an astounding number, though I wonder if that includes push notifications that the borrower didn’t necessarily respond to or interact with.

Speaking of tech, HUD is looking into allegations of housing discrimination by Facebook. Facebook uses big data to allow advertisers to slice and dice the demographics any way they want to target their specific market. What if advertisers decide to target some demographics and not others? That is considered non-problematic for things like consumer products, but housing could be a different story.