Keeping up with Britain

Funny stuff happened at PM’s Conservative Party speech.

https://www.economist.com/news/britain/21730011-even-fiasco-it-was-clear-conservative-party-members-were-beginning-plan

First, Theresa May’s speech to the Conservative Party conference in Manchester was interrupted by a prankster who was somehow allowed to hand her a P45, a form given to British workers when they get the sack.

…and much more, in the linked article.

Boris Johnson:

https://www.economist.com/news/britain/21730007-one-great-puzzles-politics-how-foreign-secretary-keeps-his-job-boris-johnson

Brit BernieBros?

https://www.economist.com/news/britain/21729766-whipping-conference-delegates-app-insurgent-outriders-are-increasingly

Morning Report: Brexit 6/24/16

Stocks are getting sold this morning after the UK voted to leave the EU. Bonds and MBS are up.

Last night the UK voted to leave the EU, which was a surprise to the markets. European stocks are getting crushed this morning, and the biggest ones taking a hit are the banks. Barclay’s is down 17%, Santander is down 18%, for example, so there is the distinct possibility of some sort of banking crisis over there. Note we are not seeing a huge move in US banks, so it looks like any crisis over there isn’t going to spill over to the US banking sector.

Big picture: The Fed is doing nothing – in fact there will be calls for the next move to be a rate cut. This could cause a mild recession over here, which means lower rates.  In fact, durable goods orders were terrible this morning, down 2.2%. One of the big investment banks was calling for a 1.4% 10 year bond yield if the UK left. The 2 year bond yield dropped 14 basis points to 64 bps, That will be the one to watch to get a read on what the market thinks the Fed will do.

In terms of mortgage rates, the TBAs (which determine mortgage rates) will lag the move downward in yields. For example, the Fannie Mae TBAs are up this morning, but nowhere near the move in bonds. So, while the 10 year bond yield will get everybody excited, don’t expect a huge move downward in mortgage rates, at least initially. Once the 10 year finds its level, TBAs will find their level, probably over the next few weeks or so. If the European banking system goes into full crisis mode, the impact on mortgage rates will probably be a pull-back in jumbo pricing, which is the most vulnerable since it relies on a private securitization market. FN and GN pricing should not be affected. So basically, we will see some drama in the stock and bond markets, and not so much in the mortgage markets.

UK Election Next Week: “Economist” endorses Cameron 5/1/15

About Labour, this: Mr Miliband is fond of comparing his progressivism to that of Teddy Roosevelt, America’s trustbusting president. But the comparison is false. Rather than using the state to boost competition, Mr Miliband wants a heavier state hand in markets—which betrays an ill-founded faith in the ingenuity and wisdom of government. Even a brief, limited intervention can cast a lasting pall over investment and enterprise—witness the 75% income-tax rate of France’s president, François Hollande. The danger is all the greater because a Labour government looks fated to depend on the SNP, which leans strongly to the left.   http://tinyurl.com/nwqjron

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