High levels of volatility continue this morning; the 10 yr note crashing lower to 1.63% down 8 bps from yesterday’s 3 point decline to 1.71%. Yesterday the stock market bounced up 311 points and +107 points in the DJIA and NASDAQ respectively. In pre-open trading this morning the DJIA down 281.
The trade issues are escalating; global markets finally realizing there isn’t going to be any quick fix between the US and China that will accentuate global economic declines. Overnight, New Zealand, India, and Thailand lowered interest rates. More and increasing concerns that the world economies are increasingly softening. German rates dropped to a record as industrial production registered the biggest annual decline in almost a decade. Currency markets were volatile after policymakers cut rates in New Zealand, India, and Thailand. The pessimism about weakening global economic outlooks has exploded in the last couple of weeks. In the US, most analysts had resisted any concern the economy would fall into recession. Most of the pundits interviewed have been upbeat in their forecasts; that is changing at light speed this morning. The rate cuts announced this morning sent the 10 yr down from 1.68% at 4:00 am to 1.62% by 8:30 am ET.
The Federal Reserve has to step up with more cuts sooner than most had expected. Like it or not, the Fed is falling behind the negative global outlook. President Trump still hammering the Fed to lower rates quickly. Global markets presently may be expecting the worse, but incoming data is confirming the reality of a slowing economic climate. Australia’s June Home Loans decreased 0.9% m/m (expected 0.6%; last 0.0%). Italy’s Deputy Prime Minister, Matteo Salvini, cautioned that Italy’s deficit-to-GDP ratio will not be below 2.0% in 2020. Germany’s June Industrial Production decreased 1.5% m/m (expected -0.5%; last 0.1%).
Weekly MBA mortgage applications +5.3%, purchases -2.0%, re-finances +12.0%.
At 9:30 the DJIA opened -328, NASDAQ -93, S&P -33 bps. 10 yr at 9:30 1.62% -9 bps. MBS prices +20 bps from yesterday’s close but unchanged from 9:30 yesterday, (MBS prices declined 15 bps from 4:00 pm to 5:00 pm).
This afternoon Treasury will sell $27B of new 10 yr notes, the demand will be key.
We warned volatility would be high this week and likely into next week. Stocks in a major selling binge; the US and global rates dropping more than we thought they would but panic has escalated. Look at where global sovereign rates are this morning. The Fed has to be worried; certainly markets are very concerned.
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Source: TBWS
