Rate snapshot: Iraq, Ukraine affect markets, Q2 productivity up

by MPA08 Aug 2014


Last night the President authorized air drops of supplies to support fleeing people from the Islamic State,
he also authorized controlled air strikes to assist the refugees, mostly Yazidis, a religious group in northern Iraq. The Yazidis are an ethnically Kurdish group that follows an ancient pre-Islamic religion with links to Zoroastrianism (sure you know what that is). Some 500,000 Yazidis reside in northern Iraq, the Islamic State have targeted the group and other religious minorities, displacing an estimated 200,000 civilians, mostly Yazidis, according to the United Nations. The reaction overnight sent the 10 year note to 2.35%, the German bund to 1.02%. By 8:00 this morning markets have settled down; the US stock indexes pointing to a better open after selling off 100 points overnight the futures markets, the rate markets coming off the lowest levels. No ground military personnel is likely according to the President last night in his announcement. Just out; the US has started air strikes on the Islamic State militants.
Ukraine/Russia: Germans increased their support of increased sanctions; 82% of Germans in a new survey say Russia can’t be trusted. The poll marks a sharp shift in public opinion. A survey by the same pollster published on March 7 showed only 38% of Germans supporting economic sanctions. Ukraine is considering halting the supplies of gas through Ukraine to Europe. Reports that in Russia there are recruiters looking for more Russians to go to Ukraine. In a news report Russia wants to de-escalate the crisis in eastern Ukraine, easing the Iraq concerns in markets. Not really possible to anticipate anything now in all the global fears; it ebbs back and forth daily. The latest reports have Angela Merkel and Putin are talking.
US and global markets are completely focused on what is happening (and what may happen) in Ukraine and the mid-east; on Wednesday we reported the situation(s) in the mid-east are escalating and likely will continue to do so. How? Not an answer even our government can anticipate. Look for the mid-east turmoil to gather momentum now; Syria, Jordan, Lebanon, Iraq, Iran, and Israel beginning to heat up again. Economic outlooks and data will not carry as much importance as usual as long as all these situations continue to boil.
This morning Q2 productivity was expected to have increased 1.4%, as reported +2.5%; Q2 unit labor costs were expected +1.6%, as reported +0.6%. Q1 productivity was revised from -3.2.% to -4.7%; unit labor costs revised from +5.7% to +11.8%. June wholesale inventories were expected to have grown 0.7%, as reported inventories grew just 0.3%, sales were up 0.2%, May sales +0.7%. May inventories revised to +0.3% from +0.5%. A negative for Q2 GDP.
Good news for the mortgage markets; Fair Isaac announced it is changing how credit scores are calculated. It will stop including any record of a consumer failing to pay a bill if it has been paid or settled with a collection agency, and adding less weight to unpaid medical bills that are in collection.
At 9:30 the DJIA opened +26 after being down 100 points last night in the futures trading; NASDAQ +5, S&P +4; 10 year note rate 2.39% -2 bp, the low early this morning 2.35%. 30 year MBS prices +8 bps from yesterdays close.
Rate markets continue to decline (rate); no matter the comments or news these days investors and traders are buying insurance in US treasuries and pulling mortgage rates lower with it. The US stock market is technically bearish, the bond market technically bullish. Trying to anticipate all of the fundamental issues globally and domestically is difficult; go with how markets are acting instead of focusing on the fundamentals and trying to understand all the details. Fundamentals drive markets, but how they influence price action is best measured by technical factors because market action encompasses everything driving markets---some well-known, some not well-known yet it is all imbedded in the price movements.

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