The Market Today
Waiting for Tomorrow’s Headlines
by Craig Dismuke, Dudley Carter
Today’s Calendar – Waiting for Thursday’s Headlines: Mortgage applications for the week ending June 2 rose 7.1% on a 10.0% increase in purchase apps and a 3.4% increase in refi apps. On a 4w/4w moving average, purchase apps have ticked higher recently and point to an improvement in home sales. Refi apps remain very low. The markets, however, will remain focused on tomorrow’s headlines rather than the secondary economic reports today. The ECB meeting results, the U.K. parliamentary election, and former FBI Director Comey’s testimony before the Senate Intelligence Committee are much more likely to create volatility for the markets.
Overnight Activity – Euro Tumbles on Reports of Weaker Inflation Outlook at the ECB: There appears to be a bit of stability in global equities Wednesday but sovereign yields have traded in different directions with a smattering of higher and lower yields on the world bond yield screens. Most national exchanges in Europe traded up helping to lift the pan-European Stoxx Europe 600 nearly 0.5% by midday. Germany’s DAX lagged equities in Italy and France after data showed a bigger-than-expected decline in factory orders in April. A weaker Euro was consistent with the softer German data although the more likely culprit for the common currency’s tumble was a report that the ECB may lower its inflation forecast in its updated projections released at tomorrow’s meeting. An unnamed euro-area official was sourced as saying the ECB now expects headline inflation to average just 1.5% through 2019, down from 1.7%, 1.6%, and 1.7% for 2017, 2018, and 2019, respectively. The report took some steam out of the story the ECB may be ready to quickly become less accommodative. Oil prices continued to sputter and U.S. equity futures are essentially unchanged. Treasury yields edged higher after yesterday’s rally took longer yields to multi-month lows.
Yesterday’s Trading Activity – Treasury Bull Flattening Continues as Stocks, Dollar Weaken: Early morning trends held to Tuesday’s close with stocks falling 0.3% and the Treasury curve flattening on lower yields. The energy sector was the bright spot within the S&P as crude prices gained. However, an industry report showing U.S. crude inventories likely contracted for a ninth consecutive week also reported a significant build in stocks of gasoline. Oil prices trimmed their daily gains after the report was released. Consumer discretionary companies led the S&P’s decline as retailers dropped more than 1%. Treasury yields fell but finished off of intraday extremes. The 10-year yield grabbed a 2.12% handle just before 6:30 a.m. CT, representing the lowest mark since the Thursday after the U.S. presidential election (November 10). By the close, the 10-year yield had settled at 2.145% which was the lowest close since the Wednesday following the election. The 2-year yield fell 0.8 bps to 1.29%. The spread between the 2s and 10s continues to shrink, a trend that began in earnest in mid-March. The spread settled at 0.847%, the lowest since October 3. The Dollar dropped also fell to its weakest level since October 5.
JOLTs Report Shows Job Openings Surge to New Record High: The April JOLTs report, released on a one month lag of the monthly nonfarm payroll report, showed the number of job openings rose to its highest level in the data’s 17-year history. The number of openings rose 259k, the biggest monthly increase since last July, to 6.044MM openings. Openings in the leisure and hospitality industry rose the most (+112k) but the construction industry (+42k) and the financial services industry (+46k) also saw notable increases. The number of manufacturing openings (-45k) declined for the first time in six months. The net effect was the openings rate rising to 4.0%, matching its highest level of the series. Elsewhere in the report, hires slowed (the hires rate matched its lowest level since March 2014) and total separations fell as both quits and layoffs declined. The combination of record openings, slower hires, and low layoffs is yet another sign of continued tightening in the labor market.