Janet Yellen is beginning her testimony to the House Financial Services Committee. In her prepared text she said the Fed was on a path to increase interest rates this year. “If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal-funds rate target, thereby beginning to normalize the stance of monetary policy.” Expect her to face tough comments and questions regarding the Fe’s independence; House re[publicans have been pushing for more Congressional scrutiny of the Fed---a bad idea as far as we are concerned. “Efforts to increase transparency, no matter how well intentioned, must avoid unintended consequences that could undermine the Federal Reserve’s ability to make policy in the long-run best interest of American families and businesses,” she is saying. On China; “China continues to grapple with the challenges posed by high debt, weak property markets, and volatile financial conditions.” Yesterday June retail sales were much less than expected, but she is emphasizing strong U.S. car sales in May and June as evidence that “many households have both the wherewithal and the confidence to purchase big ticket items.”
In Europe, waiting for the Greek parliament to vote on the creditor package. The vote isn’t likely until well into the evening tonight.
June industrial production expected up 0.2% increased 0.3%; production this year has had just two months out of six that saw an increase. June factory use was also better than thought, at 78.4% frm 78.3% in May. Earlier this morning the July NY Empire State manufacturing index was expected up to increase to 3.5 frm -1.98 in June, it increased to 3.86.
PPI suggests inflation may be finally picking up adding to the idea of a Fed rate increase this year. The other data this morning also supporting that idea. Mortgage applications however, after a strong app reading last week declined, the composite index down 1.9%, purchase apps down 8.0%, refinance index did improve +4.0%. Put together, the purchase index has slipped 1.4% in the two weeks which is a negative signal for home purchases. According to MBA interest rates were unchanged on the week.
At 9:30 the DJIA opened -18, NASDAQ +4, S&P -2. 10 yr at 9:30 -3/32 (9 bp) 2.41% +1 bp; 30 yr MBS price -5 bp frm yesterday’s close and -8 bps frm 9:30 yesterday.
Beside Yellen’s Q&A that will begin in less than an hour, this afternoon the Fed will release its Beige Book at 2:00 pm.
Markets still focused on the EU and the Greek vote this evening, keeping the markets in narrow ranges this morning. Our technical work remains bearish but with underlying high levels of uncertainty that keeps volatility at high levels, as we noted last week, our technicals become less reliable than normal. A lot of opinions about the Fed, Greece and China but no strong convictions regardless of the perspectives and comments.
PRICES @ 10:00 AM
10 yr note: +1/32 (3 bp) 2.40% unch
5 yr note: -2/323 (6 bp) 1.67% +1 bp
2 Yr note: -2/32 (6 bp) 0.67% +2 bp
30 yr bond: +7/32 (22 bp) 3.19% -1 bp
Libor Rates: 1 mo 0.187%; 3 mo 0.288%; 6 mo 0.463%; 1 yr 0.778%
30 yr FNMA 3.5 Aug: @9:30 102.63 -5 bp (-8 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Aug: @9:30 103.23 -29 bp (-10 bp frm 9:30 yesterday)
30 yr GNMA 3.5 July: @9:30 103.63 -2 bp (+3 bp frm 9:30 yesterday)
Dollar/Yen: 123.87 +0.47 yen
Dollar/Euro: $1.0956 -$0.0053
Gold: $1146.80 -$6.70
Crude Oil: $52.27 -$0.77
DJIA: 18,044.76 -8.82
NASDAQ: 5119.06 +14.16
S&P 500: 2109.27 +0.32