Morning Report: Janet Yellen’s remarks spark a rally 7/12/17

Vital Statistics:

Last Change
S&P Futures 2435.3 11.0
Eurostoxx Index 382.2 3.0
Oil (WTI) 45.7 0.7
US dollar index 88.1 -0.1
10 Year Govt Bond Yield 2.31%
Current Coupon Fannie Mae TBA 103.31
Current Coupon Ginnie Mae TBA 104.375
30 Year Fixed Rate Mortgage 4.03

Stocks and bonds are sporting their rally caps on Janet Yellen’s prepared testimony in front of Congress.

The big event of the day will be Janet Yellen’s semiannual testimony in front of the House Financial Services Committee. Expect the focus to be on the tightness of the labor market and why we have yet to see any real wage inflation. Both sides will also try and get her to agree with their viewpoints on banking regulation. Here are her prepared remarks.

The statement that jumped out to me was this: “That expectation is based on our view that the federal funds rate remains somewhat below its neutral level–that is, the level of the federal funds rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel. Because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance.” That is a dovish statement, and bonds took off, especially the long end of the yield curve. This sentiment was echoed by Lael Brainard as well.

The Fed Funds futures reacted to the remarks by assigning a 91% probability of no move in September and assigning a 53% chance of no move in Decsember. These are about 9-10 basis points higher than they were last week.

Minneapolis Fed President Neel Kashkari is skeptical that the economy is close to overheating, and he believes that wage growth will happen once labor is scarce. The fact that wages aren’t really increasing leads him to believe there is still plenty of slack in the labor market, despite some shortages in certain skills.

Donald Trump Jr. met with a Russian lawyer last year who supposedly had dirt on Hillary Clinton. Turns out the info mainly concerned the Ziffs and was tangentially related to the Clinton Foundation. Interpretation of the gravity of this is predictably falling along partisan lines. PIMCO is warning that this could affect markets since it makes bipartisan consensus less likely in DC, but that ship has sailed. Note stocks went out on their highs yesterday, which indicates the stock market assigns zero import to the latest “bombshell.”

Mortgage Applications fell 7.4% last week as purchases fell 3% and refis fell 13%. The index does include an adjustment for the 4th of July holiday, however many people took off on the Monday prior. Interest rates did rise on the back of a European bond sell-off, which hurt production.

RBS reached a settlement with the FHFA for $5.5 billion related to toxic MBS securities from the go-go days.

18 Responses

  1. Interesting read:

    “The U.S. Media’s Murky Coverage of Putin and Trump
    By Joshua Yaffa
    July 6, 2017”

    http://www.newyorker.com/news/news-desk/what-russian-journalists-think-of-how-american-reporters-cover-putin-and-trump

    Like

  2. Douthat’s take

    “A Conspiracy of Dunces
    Ross Douthat
    JULY 11, 2017

    Here is a good rule of thumb for dealing with Donald Trump: Everyone who gives him the benefit of the doubt eventually regrets it.”

    Like

  3. What passes for insight at Vox:

    “Wall Street is finally panicking about the Russia scandal
    Updated by Alexia Fernández Campbell
    Jul 11, 2017, 12:20pm EDT

    At 11 am, Donald Trump Jr. released copies on Twitter of his June 2016 email exchange with Rob Goldstone, a publicist who was trying to set up a meeting with a Russian lawyer who wanted to talk to Trump Jr. about potentially damaging information about Hillary Clinton.

    Within minutes of Trump Jr.’s Twitter release — by 11:08 am — the stock market began to tumble. Half an hour later, the Dow Jones Industrial Average had fallen 154 points.”

    https://www.vox.com/2017/7/11/15953322/stock-market-russia-scandal

    The “panic” was the Dow dropping to 21,344.

    As of this writing it’s at 21,536. Presumably panic averted and a ringing endorsement of Trump.

    Like

    • I always chuckle that a bunch of Millennials who don’t even believe in capitalism think they can explain the market…

      Like

      • It’s another Rorschach-y thing, like the climate. They see whatever they want to see in it.

        How many times did the Dow drop by .07% during Obama, and how often was that seen as a referendum on his policies or whatever was going in his administration?

        They really want the stock market to crash because of something Trump does. That’ll teach the rubes!

        Like

    • So Trump tried to get some intel from Russia that could hurt HRC in campaign, and DJT Jr could get in trouble, and possible Trump, after the Democrats win in 2018, in theory.

      Why I am I selling stock based on that?

      Like

  4. I would love to see this make it. Replace all the current projects for high speed rail.

    “The 70 mph test run that Hyperloop is hailing as a ‘Kitty Hawk moment’
    By Faiz Siddiqui
    July 12 at 3:36 PM”

    https://www.washingtonpost.com/news/dr-gridlock/wp/2017/07/12/the-70-mph-test-run-that-hyperloop-is-hailing-as-a-kitty-hawk-moment/

    Like

    • If you wanted to design a definition of feminism that’s tailor made to push women away from it, you couldn’t do better than one that’s hostile to fashion.

      Like

  5. https://www.missionjuno.swri.edu/junocam/processing

    Links to July 10 Juno probe photos of Jupiter. Red Spot photo is very cool.

    Like

  6. Heap big news!

    Liked by 1 person

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