The bond and mortgage markets were looking good prior to 8:30 when two key reports hit. June housing starts and building permits were both stronger than expectations; starts were thought to have increased 7%, as reported up 9.8% to 1174K units. Permits were thought to be down 6.5%, as reported permits jumped a huge 7.4% to 1343K units. It was all about multi-family though, up 29.4%; single family starts actually declined 0.9%. Multi-family permits increased 15.3%, permits for single family increased 0.9%. Still a concern that people are more willing to stay as renters rather than purchase a home.
June CPI data was right on consensus estimates; overall +0.3%, the core excluding food and energy +0.2%. Yr/yr core +1.8%. CPI does get attention but as have noted previously it isn’t where the Fed looks, the Fed is focused more on the personal consumption index that is reported with GDP data.
The IMF out saying Greece’s debt should be re-structured to help insure Greece’s economy has a better chance of recovery and be able to pay its debt. That isn’t going over well with Germany though. Re-structuring the debt may feed to other cash strapped countries ask for debt restructuring. Is this going to be the next battle to erupt in the EU? The EU and the common currency was an experiment that appears to be going badly for a number of the countries that signed up.
At 9:30 the DJIA opened down 51, NASDAQ +29, S&P unch. The 10 at 9:30 up 1 bp to 2.36%, 30 yr MBS price -5 bps frm yesterday’s close and +14 bps frm 9:30 yesterday. Tech stocks including bio-tech continue to climb refuting Yellen’s thought that a bubble may be forming.
At 10:00 the U. of Michigan consumer sentiment index, expected at 96.0 frm 96.1 at the end of June. The index declined to 93.3; it is a mid-month read, why markets look at the end of the month as the significant reading is questionable. The decline is a decline; that said, as you know we don’t put as much attention to the consumer readings---too emotional, rather look at what consumers are doing rather than what they think.
The Fed continue to believe inflation will begin to increase soon to its goal of 2.0%; yesterday Yellen reiterated that thought in her testimony to the Senate Banking Committee. She and most all Fed officials are ‘certain’ inflation is just around the corner, although 2.0% isn’t much. That goes against what markets are thinking now. Global growth has slowed and prices are more likely to decline than increase as long as growth remains tepid at best. Global commodity prices have been declining over the last two months; China’s economy slowing, Europe’s economies with the exception of Germany are struggling and here although our economy is improving it is a slow growth path. Janet Yellen on Wednesday and Thursday said falling commodity prices and a stronger dollar were temporary. “My colleagues and I continue to expect that, as the effects of these transitory factors dissipate and as the labor market improves further, inflation will move gradually back toward our two percent objective over the medium term,” she said. Looking at the 5 yr note and the 5 yr treasury inflation-protected note, it has declined to 1.577%, the lowest since the end of May. It suggests investors expect U.S. inflation to be running at 1.577% on an annualized basis on average within the next five years. It was 1.667% at the end of June and this year’s peak of 1.863% on April 23.
Still no break from our bearish technical work but equally no selling. The Fed wants to begin increasing rates this year, but remains cautious about the strength of the economy. Yellen commented yesterday she wants to move but isn’t sure the economy, employment and inflation data warrant a move based on current data. She completely believes the economy, employment and inflation will improve as the rest of the year unwinds.
PRICES @ 10:10 AM
10 yr note: +3/32 (9 bp) 2.34% -1 bp
5 yr note: -2/32 (6 bp) 1.66% +1 bp
2 Yr note: -1/32 (3 bp) 0.67% +1 bp
30 yr bond: +24/32 (75 bp) 3.07% -4 bp
Libor Rates: 1 mo 0.188%; 3 mo 0.287%; 6 mo 0.455%; 1 yr 0.773%
30 yr FNMA 3.5 Aug: @9:30 102.88 -5 bp (+14 bp frm 9:30 yesterday)
15 yr FNMA 3.0: @9:30 103.35 -4 bp (+9 bp frm 9:30 yesterday)
30 yr GNMA 3.5: @9:30 103.59 -8 bp (-10 bp frm 9:30 yesterday)
Dollar/Yen: 124.08 -0.09 yen
Dollar/Euro: $1.0861 -$0.0014
Gold: $1135.70 -$8.20
Crude Oil: $50.96 +$0.05
DJIA: 18,061.66 -58.59
NASDAQ: 5195.36 +32.18
S&P 500: 2123.27 -1.02
June CPI data was right on consensus estimates; overall +0.3%, the core excluding food and energy +0.2%. Yr/yr core +1.8%. CPI does get attention but as have noted previously it isn’t where the Fed looks, the Fed is focused more on the personal consumption index that is reported with GDP data.
The IMF out saying Greece’s debt should be re-structured to help insure Greece’s economy has a better chance of recovery and be able to pay its debt. That isn’t going over well with Germany though. Re-structuring the debt may feed to other cash strapped countries ask for debt restructuring. Is this going to be the next battle to erupt in the EU? The EU and the common currency was an experiment that appears to be going badly for a number of the countries that signed up.
At 9:30 the DJIA opened down 51, NASDAQ +29, S&P unch. The 10 at 9:30 up 1 bp to 2.36%, 30 yr MBS price -5 bps frm yesterday’s close and +14 bps frm 9:30 yesterday. Tech stocks including bio-tech continue to climb refuting Yellen’s thought that a bubble may be forming.
At 10:00 the U. of Michigan consumer sentiment index, expected at 96.0 frm 96.1 at the end of June. The index declined to 93.3; it is a mid-month read, why markets look at the end of the month as the significant reading is questionable. The decline is a decline; that said, as you know we don’t put as much attention to the consumer readings---too emotional, rather look at what consumers are doing rather than what they think.
The Fed continue to believe inflation will begin to increase soon to its goal of 2.0%; yesterday Yellen reiterated that thought in her testimony to the Senate Banking Committee. She and most all Fed officials are ‘certain’ inflation is just around the corner, although 2.0% isn’t much. That goes against what markets are thinking now. Global growth has slowed and prices are more likely to decline than increase as long as growth remains tepid at best. Global commodity prices have been declining over the last two months; China’s economy slowing, Europe’s economies with the exception of Germany are struggling and here although our economy is improving it is a slow growth path. Janet Yellen on Wednesday and Thursday said falling commodity prices and a stronger dollar were temporary. “My colleagues and I continue to expect that, as the effects of these transitory factors dissipate and as the labor market improves further, inflation will move gradually back toward our two percent objective over the medium term,” she said. Looking at the 5 yr note and the 5 yr treasury inflation-protected note, it has declined to 1.577%, the lowest since the end of May. It suggests investors expect U.S. inflation to be running at 1.577% on an annualized basis on average within the next five years. It was 1.667% at the end of June and this year’s peak of 1.863% on April 23.
Still no break from our bearish technical work but equally no selling. The Fed wants to begin increasing rates this year, but remains cautious about the strength of the economy. Yellen commented yesterday she wants to move but isn’t sure the economy, employment and inflation data warrant a move based on current data. She completely believes the economy, employment and inflation will improve as the rest of the year unwinds.
PRICES @ 10:10 AM
10 yr note: +3/32 (9 bp) 2.34% -1 bp
5 yr note: -2/32 (6 bp) 1.66% +1 bp
2 Yr note: -1/32 (3 bp) 0.67% +1 bp
30 yr bond: +24/32 (75 bp) 3.07% -4 bp
Libor Rates: 1 mo 0.188%; 3 mo 0.287%; 6 mo 0.455%; 1 yr 0.773%
30 yr FNMA 3.5 Aug: @9:30 102.88 -5 bp (+14 bp frm 9:30 yesterday)
15 yr FNMA 3.0: @9:30 103.35 -4 bp (+9 bp frm 9:30 yesterday)
30 yr GNMA 3.5: @9:30 103.59 -8 bp (-10 bp frm 9:30 yesterday)
Dollar/Yen: 124.08 -0.09 yen
Dollar/Euro: $1.0861 -$0.0014
Gold: $1135.70 -$8.20
Crude Oil: $50.96 +$0.05
DJIA: 18,061.66 -58.59
NASDAQ: 5195.36 +32.18
S&P 500: 2123.27 -1.02
