Monday, July 6, 2015 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
Mortgage rates moved lower with more conviction to begin the week as global markets reacted to weekend events in Europe. Greece said No. The next meeting is tomorrow, an emergency meeting....it is always an emergency in Europe. Greece now has to come up with another proposal. Greece's economy has stopped, with bank closures extended through Wednesday to stem deposit withdrawals. Either Greece gets another handout or it will have to leave. EU leaders talk like they want to avoid that but it appears they have come to the end of patience. Talks about Greece considering issuing IOUs to gain funds, like another parallel currency.
We are focusing more now on China's recent stock market collapse and the biggest daily decline in crude oil this year. China is going to drag the global markets down, the second biggest global economy, and is more responsible for the improvement in the US rate markets than the Greek. China's stock market now at its 200 day moving average, same as our DJIA. (BTW here comes the retail investor, usually an indicator a top is forming). Crude down almost 5% today as China, the largest user of oil, is slowing rapidly. Prices are likely to continue to decline lessening any fears the Fed may have about inflation. Usually this time of year gasoline prices increase over the holiday, pries actually declined last weekend.
The June ISM services sector index was in line with forecasts this morning. Tomorrow the May JOLTS job openings and May consumer credit.
The 10yr finally broke its resistance at 2.30%, at 2.28% for most of the afternoon, but barely holding late this afternoon. Getting close but so far no cigar. Tomorrow, from a technical perspective could be interesting. Greece is still getting press but China is where the focus should be now. The economy is declining quickly, if it does not stabilize soon we worry that it will spread to the US. Overall these are times of uncertainty from May perspectives. Crude dropped $4.40 today and is headed to $50.00, last Thursday's employment report had nothing to fear about inflation. The decline in oil and no increase in average hourly earnings mixed with global uncertainty will, as we have noted previously, will keep the Fed from increasing rates this year.
In summary, the Greek no vote this weekend has sent stocks around the world lower and bonds higher. It is the classic flight to safety trade as a lot of uncertainty has entered the markets. The US economy though keeps chugging along and Fed is still on target to raise rates later this year. Floating still remains quite risky, but I like floating here as the risk might not be as bad now - but one has to be very careful as this may soon pass.
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