Monday Morning Cup of Coffee: All eyes on big bank earnings
2014 started rough and this week will tell if it was an outlier
Monday Morning Cup of Coffee takes a look at news coming across HousingWire's weekend desk, with more coverage to come on bigger issues.
Six regional Federal Reserve presidents speak this week: Richard Fisher, Gerald Plosser, Jeffrey Lacker, Charles Evans, Dennis Lockhart and Ben Bernanke about their respective regions.
It’s going to be interesting to see what they have to say about December’s abysmal jobs numbers. Most watchers think the Fed will shrug off December’s numbers and stick to the tapering off from $85 billion a month in bond and Treasurys purchases with newly printed money but here are some naysayers.
The Beige book and retail sales numbers may tell the tale better and give a better idea how seriously bad December was. Those are coming out Wednesday.
JPMorgan Chase, Bank of America, Citi, Goldman Sachs and Morgan Stanley report earnings this week. According to MarketWatch, "big banks are expected to bust out some of the best bottom-line results of the season." It's good news for the short term, but also means the nation's economic success hinges on the financial sector. Should the financial sector take a turn for the worse, so too would the economy. Additionally, nearly nine out of 10 earning predictions for companies in other sectors are negative, the article states.
Business Insider prediction are even less positive, stating "the biggest banks in the US are expected to report falling revenue for the final quarter of last year as loan activity slows and results are dragged lower by potential fines from regulators." The negative outlook is based on falling loan revenues, the article states before wandering into the unrelated issue of employee bonuses. Stangely, the article cites no credible sources for its findings. And, reading to the end, claims the aritlce appear first in the British publication, the Daily Telegraph, but without providing a direct link.
Other economic indicators to watch for this week include U.S. Consumer Price Index and weekly jobless claims.
Friday should provide a read on housing starts, industrial production, and U.S. consumer sentiment.
Batten down the hatches, it’s going to be choppy waters this week.
Bank of America Merrill Lynch released a benign, but slightly depressing report, on residential mortgage-backed securities, courtesy of analyst Chris Flanagan.
In his update, he writes, "declining labor participating likely signals both low mortgage production and benign technical conditions in the MBS market."
He adds that, "We are underweight the MBS basis, but due to benign technicals, we do not anticipate significant widening."
Flanagan says the CMBX and ABX are rallying due to the fact that the labor report has the effect of telling the market "bad news is good news."
If you think interest-rate only mortgages are going away with the new lending rules in place, think again. They are here to stay, but only for well-off borrowers with jumbo mortgages. As the LA Times reports, lenders still have an interest in giving the wealthy jumbo loans where they only pay interest for a while. Essentially these borrowers put a great deal of money down, but only want interest-only loans for a certain period of time. This allows them to use their cash-rich coffers to fund other investments.
No banks closed for the week ending Jan. 10, according to the Federal Deposit Insurance Corp.'s website.