Morning Report: Brazil downgraded to junk

Vital Statistics:

	Last	Change	Percent
S&P Futures	1936.2	-6.5	-0.33%
Eurostoxx Index	3216.4	-53.6	-1.64%
Oil (WTI)	44.41	0.3	0.59%
LIBOR	0.332	-0.001	-0.30%
US Dollar Index (DXY)	95.94	-0.072	-0.07%
10 Year Govt Bond Yield	2.20%	0.00%
Current Coupon Ginnie Mae TBA	104.1	-0.1
Current Coupon Fannie Mae TBA	103.9	-0.1
BankRate 30 Year Fixed Rate Mortgage	3.85

Stocks are lower this morning as emerging markets fall. Bonds and MBS are flat. Overnight, China intervened in the f/x markets to support the yuan. China's surprise devaluation in August was the catalyst for this whole sell-off. 

Remember, when you read the words "Chinese supporting the yuan" think one thing: Treasury sales and increasing interest rate. The Chinese support the yuan by selling dollars, and the way they sell dollars is by selling Treasuries. 

Brazil was downgraded to junk by S&P yesterday. This is part of the reason why emerging markets are heavy this morning. This move was expected eventually, however the speed in which it happened was surprising. Does this put a bid under Treasuries? Nope. 

Import prices fell 1.8% in August and are down 11.4% year over year. A strong dollar is depressing commodity prices and making imports more cost competitive. 

Initial Jobless Claims came in at 275k, a drop from 281k the week before. People who have jobs are generally keeping them. 

The Bloomberg Consumer Comfort Index was flat at 41.4 last week. 2/3 have a negative view of the economy. while 55% have a positive view of their own personal financial situation. 

Wholesale inventories fell 0.1% in July, while wholesale sales fell 0.3%. The inventory to sales ratio, which can be considered a leading indicator for a recession is at 1.3x, an elevated reading. This would signal a recession is a possibility. 

The current continuing resolution to keep the government open expires at the end of the month. Government shutdown talk will undoubtedly escalate as the two sides posture over funding Planned Parenthood. 

To its proponents, Keynsianism cannot fail, it can only be failed. Dr. Cowbell is worried that Abenomics will fail in Japan. Of course Japan has followed the Keynsian playbook to the letter for 25 years and has had no growth and a debt to gdp ratio of 2.2x to show for it. Whenever you hear people saying: we need to spend big on infrastructure to put people to work and get the economy going again, remember they are basically putting the old New Deal / Japanese wine in a new bottle.