Rate snapshot: Markets react to Ukraine plane crash; Putin warns against sanctions

by MPA18 Jul 2014

The Ukraine plane crash remains in the headlines,
also the increased fighting in Gaza with Israel launching a ground assault getting attention frm global markets. The belief now is that the Malaysian plane was downed by a rocket; the unanswered question is who did it? Ukraine separatists, according to news reports, have the Black Box; worries the box will get back to Russia where it may be tampered with. Your know the story about as well as we can relate it, uncertainty dominates at the moment. The US financial markets yesterday reacted about what would be expected; initial moves out of stocks took the DJIA down -161, the NASDAQ dropped 63 points, the 10 yr note yield fell 7 bps to 2.46%, its lowest close since late May and the lowest in over a year. The movements yesterday are retreating somewhat; early this morning key US stock indexes were better and the 10 yr note yield traded at 2.48%. Trading in Europe’s stock markets is not as negative as the reaction in the US markets yesterday. The resilience of markets suggests, while increased sanctions against Russia are likely, and increased ground attacks by Israel into Gaza is also likely, neither will have a deep economic impact. Developing situations though.
Increased sanctions against Russia are very likely; if it ever is determined Russia had a direct hand in the downing of the plane (giving a missile to separatists) the US will load on sanctions that some believe will drive Russia back into recession. Until now the US has had difficulty engaging Europe in tougher sanctions on Russia, Germany particularly has been dragging its feet. In Europe today the DAX index (Germany’s key index) is taking a bigger decline than France and the UK markets. Putin said the penalties will only have a “boomerang effect” that will hurt the U.S.’s own interests; the head of state-run lender VTB Group, warned the measures may tip the economy into recession, lead to the “disintegration” of financing and turn Russia into an outcast of global capitalism. Who did it, and where did the perpetrators get the missile, that’s where the situation is presently.
After falling 161 points yesterday, this morning the DJIA opened +43 and the continued higher, the NASDAQ fell 63 points yesterday, at 9:30 +16 and also increased frm the open (see below for 10:00 levels). The 10 is holding well this morning after the decline in rate yesterday, this morning the 10 is at 2.47% up 1 bp; 30 yr MBS price down 6 bops frm yesterday’s close, +40 bps.
We are focusing more attention to the equity markets these days as the stock market is having a direct influence on the level of interest rates. Earning’s season will heat up next week with many companies reporting Q2 earnings. There is a new WSJ survey of 48 economists that is forecasting a much weaker US growth rate in 2014 that had been thought. G2 growth reduced from +3.5% last month to +3.1% now. The July survey now is for 2014 growth to be just 1.6%, a month ago the 2014 growth was forecast at +2.8%; 2013 GDP was +2.6%. If these forecasts actually occur the stock market will have a hard time and interest rates will stay low a lot longer than has been thought.
The U. of Michigan consumer sentiment index was thought to be at 83.0 frm 82.5; as released the index declined to 81.3, the lowest since March.
June leading economic indicators was expected up 0.5%, as reported +0.3%
Technically the bond market remains bullish, but as noted yesterday with the markets presently in reactionary mode over the plane explosion, technicals have a little less influence as markets attempt to handicap the eventual conclusions frm the geo-political events in eastern Europe and in Israel. Although we have had little news from Iraq, Syria and Iran over the war between Sunnis and Shiites, it is still a key geo-political concern.
PRICES @ 10:15 AM
10 yr note:-7/32 (22 bps) 2.47% +2 bp
5 yr note: -5/32 (15 bp) 1.65% +2 bp
2 Yr note: -1/32 (3 bp) 0.47% +1.5 bp
30 yr bond: -13/32 (41 bp) 3.29% +1 bp
Libor Rates:1 mo 0.156%; 3 mo 0.233%; 6 mo 0.327%; 1 yr 0.554%
30 yr FNMA 4.0 Aug: @9:30 105.53 -6 bp (+2 bp frm 9:30 yesterday) 3.5 coupon 102.39 -6 bp (+11 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Aug: @9:30 103.33 -4 bp (+4 bp frm 9:30 yesterday)
30 yr GNMA 4.0 Aug: @9:30 106.30 -14 bp (+8 bp frm 9:30 yesterday)
Dollar/Yen: 101.39 +0.21 yen
Dollar/Euro: $1.3506 -$0.0020
Gold:$1307.60 -$9.30
Crude Oil:$102.77 -$0.42
DJIA:17,019.91 +43.10
NASDAQ: 4387.11 +23.66
S&P 500: 1964.53 +6.41


Should CFPB have more supervision over credit agencies?