Mortgage Rates Improving With Issues in Greece
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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