Rate Snapshot: Global economy, Ebola concerns feed into U.S. equity markets

by Michael Zuren17 Oct 2014

The world economy is slowing; finally the reality is feeding into U.S. and global equity markets. Ebola concerns are also increasing; until a couple of days ago we were not too concerned about Ebola’s impact on markets; but that changed a lot yesterday when the WHO said Ebola could increase to 10,000 a week and with the revelation of another health care worker contracted the disease. I have to admit, I didn’t give Ebola its proper due as one factor in the current market turmoil, although the economic global decline still gets the headline. This morning the stock indexes are pointing to another very weak open at 9:30 an at 9:00 the 10 yr at 2.04% down 10 bps, MBS prices up 38 bps.
Weekly jobless claims, normally a data point that gets attention, this morning not much attention to claims falling 23K to 264K, the lowest claims since April 2000. A decline of the magnitude and to that low level would normally rally stocks and hinder the bond and mortgage market—not today. Sept industrial production expected +0.4% was up 1.0%; Sept capacity utilization expected at 79.0% jumped to 79.3%, the best factory use since April 2008. No positive reaction to the better data.
The DJIA opened -160 this morning, NASDAQ -71, S&P -20; the 10 yr at 2.07% down 6 bps, 30 yr MBS price +30 bps frm yesterday’s close. 
Global growth is slowing; is that a surprise; it shouldn’t be because most all recent economic measurements from Europe, China and Japan have been soft. Deflation in Europe is spreading a little to China and Japan; here deflation concerns were heightened yesterday when Sept PPI declined 0.1% to +1.6% yr/yr. Crude oil and most other commodities are declining, adding more to the deflation fears that are presently bothering markets.
The October Philly Fed business index was expected at 20.0 frm 22.5 in Sept; the index hit at 20.7, the employment component was soft at 12.1 frm 21.2 in Sept, new orders were a little better. The October NAHB housing market index was expected unchanged at 59 in Sept, it dropped to 54. The decline; more concern that builders are less bullish now than a month ago.
We locked yesterday afternoon and stayed locked overnight; maybe a little pre-mature given the continued improvement this morning. The more significant story the last couple of days, especially yesterday is what happened to the interest rate markets, it trumps the decline in stock indexes. The trading yesterday in the bond market has all of the signs of capitulation, driving that last interest rate bears out. The 10 actually hit 1.85% before ending at 2.14% yesterday, the range on the 10 yesterday 2.17% to 1.85%, a move of that magnitude strongly suggests most of the rate market bears were squeezed out, thus a capitulation. Expect another session of high volatility in stocks and bonds today.
PRICES @ 10:15 AM
10 yr note: +14/32 (44 bp) 2.09% -5 bp
5 yr note: +3/32 (9 bp) 1.32% -2 bp
2 Yr note: -2/32 (6 bp) 0.34% +2 bp
30 yr bond: +32/32 (100 bp) 2.87% -5 bp
Libor Rates: 1 mo 0.151%; 3 mo 0.229%; 6 mo 0.320%; 1 yr 0.542%
30 yr FNMA 3.5 Nov: @9:30 104.10 +30 bp (-49 bp frm 9:30 yesterday)
15 yr FNMA 3.0: @9:30 104.33 +3 bp (-20 bp frm 9:30 yesterday)
30 yr GNMA 3.5: @9:30 104.96 +23 bp (-47 bp frm 9:30 yesterday)
Dollar/Yen: 105.92 unch yen
Dollar/Euro: $1.2752 -$0.0086
Gold: $1237.00 -$7.80
Crude Oil: $80.62 -$1.16
DJIA: 16,005.69 -136.05
NASDAQ: 4162.77 -52.55
S&P 500: 1845.03 -17.46