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Starting the day the 10-yr note was at 2.11%, unchanged from Friday; stock indexes before the 9:30 am ET opened slightly better. Today begins the prolonged earnings season that will go on for weeks. Banks take the lead with Citibank reporting today and the other big banks tomorrow. Several stock analysts are calling for weaker earnings than in Q1, but analysts normally take a conservative view when forecasting. China's economic growth slowed to 6.2% in the second quarter, its weakest pace in at least 27 years, as demand at home and abroad faltered in the face of mounting US trade pressure. Today's growth data marked a loss of momentum for the economy from the first quarter's 6.4%. Experts are saying China will continue to lower bank reserve requirements to support its economy as growth declines. Trade issues are hurting China. We will see as US earnings and guidance are reported how bad trade is hurting the US.
Citibank beat earnings expectations on cost-cutting, while trading revenue was weaker than forecasts, declining 5.0%. Expenses were chopped by $100 mil. Its stock increased by 0.8% at 8:15 am on the report. JPMorgan Chase & Co., Wells Fargo & Co., and Goldman Sachs Group Inc. are set to report results tomorrow, with Bank of America Corp. and Morgan Stanley following later in the week.
The only data today; the July Empire State manufacturing index increased to 4.3 (very weak), but the estimates were +0.8 and followed -8.6 in June. Employment in the Empire State's sample is already reducing staffing levels to minus 9.6 from June's already contractionary minus 3.5. Inventories are also contracting and sharply, in the negative column for a second straight month at minus 10.9. Despite the turbulence, price readings have remained mostly stable with inputs showing steady pressure and with improvement for selling prices easing only slightly. Not a big deal for markets, however. Thursday we will see the wider regional index. The Philadelphia Fed business outlook provides a clearer picture. Its index is expected at 4.5 from 0.3 in June. Can't get too excited though. The index is weak no matter how it is framed.
At 9:30 am ETthe DJIA opened unchanged, the NASDQ added +20, and the S&P was up by +2. The 10-yr stood at 2.10%, down -1 bp. MBS prices were up +5 bps from Friday's close and +11 bps from 9:30 Friday.
Tomorrow we will see June retail sales, a key data point; most news recently has been more positive for consumers. We will also see the NAHB July housing market index and June import and export prices. All of the data are important.
The increase in rates last week was put on the backs of fractional higher inflation reads in CPI and PPI data. While those were credited for the minor increase, the broader more important reason for the increase lies with that old adage in markets "buy the rumor, sell the fact." The Fed will lower rates as was expected when the FOMC meets on the 31st. That is a fact. Inflation notched higher, which is also is a fact, and the rumors were all confirmed. Rates based on the initial reactions to CPI and PPI clearly imply rate markets were over-extended given the selling last week (the increases in CPI and PPI), but Friday and so far this morning, after taking out support at 2.10% for the 10 on Thursday and no follow-through Friday and today suggests the selling last week was more technical than fundamental. Interest rates will continue to hold low levels; what we expect now is a period of consolidation before another possible run lower. Rates are so low historically now, and the potential for anticipating additional declines becomes a high hurdle.
This Week’s Calendar:
Today,
8:30 am July Empire State manufacturing index (expected at 0.8%; as released +4.3)
Tuesday,
8:30 am June retail sales (+0.1%, less autos +0.3%, control group +0.4%)
- June export and import prices (exports -0.1%, imports -0.5%; yr/yr exports -0.6%, yr/yr imports -1.5%)
9:15 am June industrial production and capacity utilization (production +0.1%, manufacturing +0.2%; cap utilization 78.2%)
10:00 am May business inventories (+0.4%)
- July NAHB housing market index (65 from 64 in June)
1:00 pm Federal Reserve Chairman Jerome Powell to deliver speech on "Aspects of Monetary Policy in the Post-Crisis Era" at the "French G7 Presidency 2019 - Bretton Woods: 75 Years Later, Thinking About the Next 75" event in Paris, France, to be live-streamed.
Wednesday,
7:00 am weekly MBA mortgage apps
8:30 am June housing starts and permits (starts at 1260K -0.7%; permits at 1300K +0.5%)
2:00 pm Fed Beige Book
Thursday,
8:30 am July Philadelphia Fed business outlook index (4.5 from 0.3 in June)
- Weekly jobless claims (214K +5K)
10:00 am June leading economic indicators (+0.1%)
Friday,
10:00 am July mid-month U. of Michigan consumer sentiment index (98.6 from 98.2 final June)
PRICES @ 10:00 AM
10 yr. note: 2.10% -1 bp
5 yr. note: 1.85% -1 bp
2 Yr. note: 1.84% -1 bp
30 yr. bond: 2.62% -2 bp
Libor Rates: 1 mo. 2.332%; 3 mo. 2.322%; 6 mo. 2.229%; 1
yr. 2.231% (7/12/19)
30 yr. FNMA 3.5: @9:30 102.13 +5 bp (+11 bp from 9:30 Friday)
15 yr. FNMA 3.0: @9:30 101.82 +4 bp (+8 bp from 9:30 Friday)
30 yr. GNMA 3.5: @9:30 103.11 +2 bp (+6 bp from 9:30 Friday)
Dollar/Yuan: $6.8758 -$0.0050
Dollar/Yen: 107.86 -0.04 yen
Dollar/Euro: $1.1267 -$0.0004
Dollar Index: 96.87 +0.06
Gold: $1415.50 +$3.30
Crude Oil: $60.43 +$0.22
DJIA: 27,330.74 -1.29
NASDAQ: 8242.05 -2.10
S&P 500: 3012.45 -1.32
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