Stocks are lower this morning after the ceasefire with Iran breaks down. Bonds and MBS are down.
The FOMC minutes are due out at 2:00 pm today. It probably won’t be market-moving, but just be aware.
The ceasefire in Iran is over, according to President Trump as the two sides exchanged fire. North Sea Brent jumped 5% and the 10 year bond yield is pushing towards 4.6%. “The U.S. strikes are in response to Iranian attacks on three commercial vessels that were transiting the Strait of Hormuz. Iran’s demonstrated aggression was unwarranted, dangerous, and a clear violation of the ceasefire.”
New York Fed President John Williams said that monetary policy is in a “good place” and he supports new Fed Chairman Kevin Warsh’s view that forward guidance should be dialed back. “Given the uncertainties that we face in terms of inflation and the economic outlook, trying to give explicit forward guidance about where interest rates are going to be was no longer appropriate,” he said. “The uncertainties are too great.”
Mortgage applications fell 2.2% last week as purchases fell 1% and refis declined 4%. The week included an adjustment for the 4th of July holiday. “Mortgage application volume was little changed during the week of the nation’s 250th Independence Day celebration, as the 30-year fixed rate increased slightly to 6.58%,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “After adjusting for the Independence Day holiday, government purchase volume increased modestly, led by a 5% gain in VA purchase applications, while conventional purchase activity declined. Refinance application volume was down 4%, as homeowners saw little enticement to act with rates still elevated.”
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The services economy reached a 4 month high according to the S&P PMI report. New orders drove the increase. That said, it wasn’t enough to increase employment.
“A key underlying factor behind the relatively subdued performance of the services economy was again elevated price pressures. Although easing slightly, aided largely by lower oil prices, costs continued to rise at a steep rate in June, driving up rates levied for services. Customer push-back against these high prices was again widely reported, most notably in consumer-facing businesses. Consumer-facing companies are nevertheless reporting that further price falls should help stimulate sales in the months ahead, providing a ray of hope for both the growth and inflation outlooks.”
