Morning Report: Bond Yields continue to fall

Vital Statistics:

	Last	Change	Percent
S&P Futures	2085.1	-11.2	-0.53%
Eurostoxx Index	2818.0	-44.2	-1.54%
Oil (WTI)	47.64	-1.4	-2.76%
LIBOR	0.653	-0.001	-0.11%
US Dollar Index (DXY)	95.67	0.016	0.02%
10 Year Govt Bond Yield	1.39%	-0.05%
Current Coupon Ginnie Mae TBA	106.3
Current Coupon Fannie Mae TBA	105.7
BankRate 30 Year Fixed Rate Mortgage	3.4

Markets are lower this morning as bond yields push lower globally. Bonds and MBS are up, with the 10 year trading below 1.4%. The German Bund now yields negative 16 basis points. 

We have a short week, but a lot of data. The biggest events will be the FOMC minutes on Wednesday and the jobs report on Friday. Given the Brexit backdrop, I see the FOMC minutes as a nonevent, and the jobs report shouldn't be market moving unless wage inflation accelerates. 

This morning, the ISM New York Index rose from 37.2 to 45.4. Still, a reading below 50 is indicative of a slowing economy.

Economic Optimism slipped in July to 45.5 from 48.2 a month ago. 

Factory Orders fell 1% in May after increasing 1.8% in April. Durable Goods orders fell 2.3% while capital goods orders, which is a proxy for business capital expenditures, fell 0.3%. 

Last week stocks rallied as it looks like Brexit didn't trigger a financial crisis. Bonds continued their march higher and yield curves flattened, which is a recessionary pattern. Generally speaking, when the stock market and the bond market disagree, the bond market is usually right. That said, Italy is injecting more capital into its weak banking system, but that issue predates Brexit. 

Speaking of Italy, they may be the next one out of the EU, as they have issues with their banks and cannot come to the aid of banks without giving investors a haircut according to EU rules. Since about half of Italian bank debt is held by ordinary Italians, no politician wants to suggest that investors lose money on a bailout. Plus their debt to GDP ratio is 1.3x, which gives them little maneuvering room.  

Brexit and the rise of Donald Trump are symptoms of a bigger problem: a lack of trust in government and institutions like the media. Some say we need to learn to trust the government. Other say we need to push Facebook to use its algorithms in order to show opposing viewpoints more often. Bottom line, we are more polarized than ever before, and no matter who wins in November, gridlock will be the name of the game. Both parties are focused on one thing: a potential 3 or 4 Supreme Court nominees, which would ideologically skew the Court for a generation. 

Home prices rose 5.9% in May, according to Corelogic. 

Loan performance increased in the first quarter, according to the OCC. Performing loans are up 0.7% YOY, while foreclosures have declined to 0.4% to 0.9%.