Morning Report: Brexit panic over?

Vital Statistics:

	Last	Change	Percent
S&P Futures	2042.0	13.6	0.67%
Eurostoxx Index	2816.4	57.7	2.09%
Oil (WTI)	48.26	0.4	0.86%
LIBOR	0.627	0.004	0.56%
US Dollar Index (DXY)	95.89	-0.351	-0.36%
10 Year Govt Bond Yield	1.48%	0.01%
Current Coupon Ginnie Mae TBA	106
Current Coupon Fannie Mae TBA	105.4
BankRate 30 Year Fixed Rate Mortgage	3.6

Stocks are higher this morning as global stocks and commodities rally. Bonds and MBS are flat.

It seems like the big Brexit-related sell-off might be over.  Brexit will have a negligible effect on US corporate earnings, and stocks will benefit from a lower, steadier interest rate environment. I would look for the correlation between US stocks and global stocks to break down gradually. I am not sure we will see the same effect in the Treasury markets as the global bond market is simply much more integrated. Speaking of which, global bond yields are holding steady this morning, with the German Bund at -11 basis points and the the PIIGS slightly lower. 

First quarter GDP was revised to +1.1%. while personal consumption came in at 1.5% and the PCE index (the inflation measure preferred by the Fed came in at 0.4%). Housing as a percentage of GDP increased. I have long said the difference between this sub-par economy and a strong one is housing. Politicians have yet to figure this out.

Home prices rose .5% MOM and 5.4%YOY, according to the Case-Shiller home price index. Home prices in 7 MSAs (Denver, Dallas, Portland OR, San Francisco, Seattle, Charlotte, and Boston) have eclipsed their 2006 peaks. 

Personal Incomes rose 0.2% in May, slightly below forecasts, while personal spending increased 0.4%, right in line with expectations. For the month, the PCE core index rose 1.6% YOY, which is still below the Fed's target of 2%. 

Mortgage Applications fell 2.6% last week as purchases fell 3% and refis fell 2.4%. Pending Home Sales fell 3.7% MOM in May and are up 2.4% YOY. 

The Fed is scheduled to release the results of its stress tests for the largest US banks. The results should come out after the close. Billions of dollars in dividends and buybacks are on the line. Separately, GE's systemic designation has been rescinded by US regulators. GE is the first institution to have the designation removed, which requires stringent capital and leverage requirements. GE has sold much of its GE Financial division, and has returned to its roots as an industrial manufacturer. 

Speaking of banking crises, the European big banks have stabilized in the aftermath of Brexit. The canaries in the coal mine are Deutsche Bank and Unicredito. Even Barclay's and RBS have stabilized. The thing to keep in mind is that the banks now have almost double the capital they had in 2008 and Brexit is nothing like the bursting of the US residential real estate bubble. The Bernank agrees.

Freddie Mac wonders if the homeownership rate can fall below 50%. The current level is at 63.5%, which is the lowest in 22 years, and just off the low of 63%, which goes back to 1965, when Census started tracking the statistic. They look at 3 studies, which all predict lower homeownership going forward. The factors inhibiting an increase in homeownership are lower income growth, high rental prices, tight supply and and high student loan debt / tight credit. It is hard to tell what a "normal" homeownership rate as the 2005 spike was the result of a bubble and a lot of social engineering via the housing market, which really started early in the Clinton Administration.