The great Moderna news is a reminder that this Covid nightmare will end at some point and stocks are certainly celebrating that. Stating the obvious will be the performance today in Live Nation, the airlines, the casinos, the cruise lines, the restaurants, and MSG to name a few stocks and industries in terms of seeing the markets belief on when these businesses can fully rebound in 2021 and to what extent. Also we’ll watch to see if there is selling in the ‘At Home’ stocks. I’m still amazed though as to the behavior in the 10 yr yield that just sits there like a lump of coal at .64%, only up about 1.5 bps on the day. Is it fully in the grips of this yield curve control belief that the Fed says they are studying? Is it just in total disagreement that a sharp economic recovery is upon us with a vaccine? To this, is it saying that too much economic damage will be done in the next 6 months before the vaccine is available for mass inoculation that it will be even harder to recover from, especially if the government transfer payments slow down? I’ll also ask that if we have an effective vaccine soon, doesn’t the Fed instead have to shift their focus to begin taking away all this accommodation? After all they took rates to zero and almost doubled the size of their balance sheet solely because of this virus.
Purchase applications, which have been powering thru the economic slowdown, took a breather on the week with a 6.1% w/o/w decline but still remain up almost 16% y/o/y. The move to the burbs has certainly been a nice boost as we know. Refi’s bounced by 12% w/o/w and are up 107% y/o/y as mortgage rates took another leg lower, down by 7 bps on the week to a fresh record low of 3.19%.
The BoJ again did nothing as there really isn’t much they can do other than be the lender of last resort directly to business. They already own about half the JGB market, have NIRP and YCC which all have failed in generating faster economic growth but has not prevented Fed members like Lael Brainard to just repeat her desire for the same policies. I’ll say again, telling the world that rates will stay low for a while IS NOT STIMULATIVE, as it just results in businesses and households sitting on their hands because there is no rush to act and thus ends up being RESTRICTIVE policy. Counter intuitive I know.
Core inflation actually rose in June in the UK to a 1.4% y/o/y rate from 1.2%. No change was expected. The headline rate was up just .6% y/o/y. Higher inflation is still our fate I believe when the global economy more fully recovers and considering where global bond yields are, I hope I’m wrong. On the higher than expected core rate and vaccine news, the 10 yr gilt yield is up 2 bps but to a still microscopic .17%.