Morning Report - Greece capitulates

Vital Statistics:

	Last	Change	Percent
S&P Futures	2082.4	13.4	0.65%
Eurostoxx Index	3580.9	52.1	1.48%
Oil (WTI)	52.2	-0.5	-1.02%
LIBOR	0.286	0.000	-0.07%
US Dollar Index (DXY)	96.48	0.454	0.47%
10 Year Govt Bond Yield	2.45%	0.05%
Current Coupon Ginnie Mae TBA	103.4	-0.3
Current Coupon Fannie Mae TBA	102.4	-0.3
BankRate 30 Year Fixed Rate Mortgage	4.19

Markets are higher as it looks like the Greek situation looks resolved for the time being and Chinese stocks staged another rally. Bonds and MBS are down.

Endgame continues in Greece, where Prime Minister Alexis Tsipras has agreed to bailout terms, but now must sell the agreement to his own country. The summit agreement avoided a worst-case scenario for Greece, but many of the terms of the bailout have strings attached. Dr. Cowbell is despondent over the whole episode, as the Germans are really pushing Greece hard. Memo to Tsipras: Don't bring up the Nazis when negotiating with the Germans. 

Earnings season kicks off in earnest this week, with the big banks reporting. Note the Mortgage Bankers Association Mortgage Applications index is off about 16% during the quarter, so mortgage origination numbers could be light. 

We have some big economic data this week, with retail sales tomorrow, industrial production on Wed, and housing starts on Friday. Bonds should still be at the mercy of international events however. 

Janet Yellen spoke on Friday and said she expects the Fed to hike rates this year, however she cited weakness in the labor market as a reason for caution. I think the Fed is determined to make at least a symbolic move to get off the zero bound, but will tighten much more gradually than it did in the past. The exit from the post stock market bubble days was pretty dramatic, about 2 percentage points a year, or 25 basis points every meeting. 

You can see from the dot graph from the June meeting that the FOMC is forecasting a slower liftoff, however we are still looking at a 350 basis point (roughly) tightening vs the 425 basis point tightening in 2004, which blew up the residential real estate bubble. Will this tightening campaign blow up the sovereign debt bubble? Or something else?