Markets are higher on M&A and strength in overseas markets overnight. Bonds and MBS are down.
This week promises to be slow as we are in the dog days of summer, the week after the jobs report inevitably has a dearth of data, and earnings season is winding down. I don’t see much in the way of potential market-moving data, except for unit labor costs / productivity tomorrow. I think we would have to see a big surprise for that to move bonds around. Think we continue with the risk-on / risk-off dynamic where stock prices drive bond market movements.
The Fed’s new index – the Labor Market Conditions Index – rose 1.1% in July, and June was revised upward. This index is a meta-index of 24 different indicators.
Consumer attitudes towards housing cooled somewhat in July, according to Fannie Mae’s National Housing Survey. This seems to be driven by deterioration in people’s financial situations and their attitudes towards the economy in general. Fannie Mae notes that the survey questions were being asked when we had both the Greek situation and the Chinese stock market meltdown going on, so perhaps that is coloring the data. Given the strong support of Bernie Sanders on the left and Donald Trump on the right, it looks like people are hopping mad about their financial condition and this isn’t a spurious reading based on Greece and China.
Distressed sales (short sales and REO) accounted for 10% of sales in May, the lowest since October 2007.
Commodities continue to drop as West Texas oil dips below $44 a barrel. Oil cannot get out of its own way, and if the Iran deal gets passed, another million barrels a day will hit the market. We have been watching Venezuela come apart at the seams as the state relies on high oil prices to provide revenue for social services. Another looming disaster is Norway, which not only is hurting from falling oil prices, but it also has a real estate bubble of its own. Another one reeling – just say the headine: Russian GDP contracted by 4.5% last quarter.
As we creep up on the September FOMC meeting, sovereign wealth funds are dumping Treasuries. Japan dumped almost $10 billion in June, the most in two years. Not sure if this sort of selling is going to impact US rates in any meaningful way – where are sovereign wealth funds going to put their cash? German Bunds, which yield 68 basis point? Portuguese bonds yielding 20 basis points more than Treasuries? Given the relative attractiveness of US Treasuries and the US dollar, I don’t see much in the way of foreign selling. As Bill Gross used to say: The US is the cleanest dirty shirt in the bunch.
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