Morning Report: Oil goes negative

Vital Statistics:

 

Last Change
S&P futures 2751 -50.1
Oil (WTI) 14.23 -7.29
10 year government bond yield 0.55%
30 year fixed rate mortgage 3.38%

 

Stocks are lower as oil continues to weaken. Bonds and MBS are up.

 

The front month oil contract went negative yesterday, which was probably a first. I think at one point it traded at -$40 a barrel. Why? Nowhere to put it. Storage is pretty much full, and any incremental capacity out there is expensive. The May contract still trades, but June is really the active one.

 

Forbearance requests are now up to 6% of all mortgages.  8.26% of Ginnie loans are in forbearance and 4.6% of Fannie / Freddie loans are in forbearance. “With over 22 million Americans filing for unemployment over the past month, homeowners are contacting their mortgage servicers seeking relief, leading to a sharp increase in the share of loans in forbearance across all loan types,” said Mike Fratantoni, MBA’s senior vice president and chief economist. “Mortgage servicers continue to receive a very high level of forbearance requests, but volumes were down somewhat compared to the prior week.”

 

Most economists think the eventual recovery will be U-shaped, in other words and extended downturn before things get back to normal. The other predictions are a V-shaped recovery or a W-shaped one. Obviously it depends on how long the lockdown lasts, and whether people get back to work wearing gloves and masks. Interestingly this has begun to fall down partisan lines, with red-staters wanting to get back to work, and blue-staters hectoring them about it. Note that Texas supposedly opens this week, and Georgia and Tennessee are looking to re-open May 1.

 

Retailers are looking for bailout as well. While many small retailers will be able to access the Main Street Program, many larger ones like Macy’s or Needless Markup cannot. The government’s fear is that it would be propping up companies that have larger problems than just the COVID-19 virus and were probably heading for bankruptcy to begin with.

 

The Senate may be close to a deal for further funding of small business. Apparently one of the issues with the previous deal was that larger companies with existing relationships with the banks got there first, before the the smaller businesses did. This would set aside something like $125 billion for the smaller guys with no relationships. “We insisted that a chunk of the money be separate from the competition with the bigger companies, you know the ones that have two, three, 400 people and a relationship with the banks, and we got $125 billion that will go exclusively to the unbanked,” [Chuck Schumer] said. “To the minorities, to the rural areas and to all of those little mom and pop stores that don’t have a good banking connection and need the help.”

Morning Report: Online Black Friday sales surprisingly strong

Vital Statistics:

 

Last Change
S&P futures 3145 2.25
Oil (WTI) 56.39 1.24
10 year government bond yield 1.84%
30 year fixed rate mortgage 3.88%

 

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

 

A surprise election result in Germany over the weekend has pushed the German Bund yield up 8 basis points to negative 28 bps. Since global sovereign debt generally trades together, this will put some upward pressure on rates in the US.

 

We have quite a bit of economic data this week, with the ISM reports, construction spending and the jobs report. Given that the Fed is on hold, it probably won’t be that dramatic to the markets.

 

The FHFA lifted its conforming limits last week to $510,400 for a single family home. For high cost areas, the limit for a single family residence is now $765,500.

 

Pending Home Sales fell 1.7% in October, according to NAR. Lawrence Yun, NAR’s chief economist, noted the decline in inventory and a small rise in mortgage rates in October from September to, in part, explain this month’s signings drop. “While contract signings have decreased, the overall economic landscape remains favorable,” Yun said. “Mortgage rates continue to be low at below 4% – which will attract buyers – employment levels are strong and many recession claims have dissipated.”

 

Retailers are optimistic about the holiday shopping season after record online spending on Black Friday. The National Retail Federation estimates nearly 69 million Americans will scour the web for deals on everything from iPads and homeware to kids’ toys, and Adobe’s estimate of $9.4 billion would be a 19% increase on the same day a year ago.

 

Personal incomes were flat in October, while personal spending rose 0.3%. The PCE inflation indices were up 1.3%. The personal income number was a surprise, as wages and salaries have been growing, but falling interest income and rental income pulled down the number.