Very quiet early this morning; the stock indexes about unchanged early but losing some ground at 9:00 am, the MBS and treasury markets unchanged. Global issues: Iraq’s president has replaced his prime minister but he won’t quit, setting up a confrontation as the government struggles to combat a rapidly advancing Sunni insurgency. A convoy of 280 trucks carrying Russian humanitarian aid for war-torn cities in eastern Ukraine has left the Moscow area. Israel said it was prepared to ease its economic blockade on the Gaza Strip as part of a long-term cease-fire with Hamas, but both sides said there had been scant progress toward reaching a deal. (Headlines from the WSJ). A calm has settled over the three situations that has driven stocks lower and interest rates down on fears of unexpected escalations in any or all of the turmoil’s.
Not good news from Germany; Germany's ZEW index of economic expectations fell to 8.6 in August from 27.1 in July, its lowest level since December 2012. The survey of analysts and investors is the latest sign that geopolitical tensions are hurting sentiment in Germany, ahead of data Thursday that are expected to show a contraction in Europe's largest economy. On Thursday the EU GDP data is scheduled, the expectations are for an increase of 0.1% with Germany registering a decline of 0.1%. Europe’s economies are suffering from the sanctions placed on Russia. What happens in Europe doesn’t stay in Europe, it impacts the US and the global economies.
At 9:30 the DJIA opened -40 after being higher earlier this morning, NASDAQ -5, S&P -3. The 10 at 9:30 2.42% unch, 30 yr MBS price +6 bp from yesterday’s close. No changes in the geo-political areas that are dominating trading recently.
At 10:00, a minor economic measurement; the June JOLTS report on the number of jobs available, the estimate was for job openings to have declined to 4.588 mil from 4.635 mil in May. We are not sure where or when this report came about but for me, I push it aside. Job openings increased to 4.67 mil from 4.57 mil in May, some see that as good and valuable news.
Treasury begins the quarterly refunding at 1:00 this afternoon with $27B of 3 yr notes to sell. At the short end of the curve it won’t be an issue for MBS prices or the 10 yr note that will be auctioned tomorrow.
Later this afternoon Treasury will report the July budget showing a deficit of $96B after a nice surplus in May. This fiscal year the US deficit will shrink to -$460B from excesses of over $1 trillion in recent years. One of the reasons the US deficit is plummeting in 2014 has been the cash surprise from Fannie and Freddie. GSEs have become cash cows in recent years, in the last 18 months delivering more than $75B to the US Treasury. All in all, with its previous payments totaling $126.7B, Fannie alone has more than fully repaid the $116B it received from taxpayers. During the crisis the GSEs were put into conservatorship. In 2012, the US Treasury changed the deal terms forcing the bailed-out firms to send all of their profits to Uncle Sam as dividend payments.
Should be another quiet day like yesterday; nothing new in the geo=political sphere and no scheduled economic reports of consequence. All technicals remain bullish in the bond market, but as we have noted previously, with the tight ranges and constant focus on Ukraine, Iraq, and Israel that swing prices back and forth on any headlines, we don’t hold much reliance now on technicals. The US and global markets are driven by emotions now, and to a lesser extent the normal fundamentals. Adding to the uncertainty over the last 10 days, there hasn’t been much in the way of first tier economic reports.
PRICES @ 10:15 AM
10 yr note: unch 2.43% unch
5 yr note: +1/32 (3 bp) 1.61% unch
2 Yr note: unch 0.44% unch
30 yr bond: -2/32 (6 bp) 3.25% +1 bp
Libor Rates: 1 mo 0.155%; 3 mo 0.233%; 6 mo 0.328%; 1 yr 0.554%
30 yr FNMA 3.5 Sept: @9:30 102.31 +6 bp (+3 bp from 9:30 yesterday) 4.0 coupon 105.42 +5 bp (+2 bp from 9:30 yesterday)
15 yr FNMA 3.0 Aug: @9:30 103.53 +7 bp (-1 bp from 9:30 yesterday)
30 yr GNMA 3.5 Aug: @9:30 103.71 -2 bp (-4 bp from 9:30 yesterday) 4.0 coupon 106.41 unch (-2 bp from 9:30 yesterday)
Dollar/Yen: 102.17 -0.02 yen
Dollar/Euro: $1.3358 -$0.0027
Gold: $1315.60 +$5.10
Crude Oil: $97.16 -$0.92
DJIA: 16571.29 +1.31
NASDAQ: 4398.72 -2.61
S&P 500: 1936.54 -0.38