Updated: 06-27-2016

The Market at 03:33PM ET
10-Year: +30/32…1.46…
EUR/USD: 1.1015…
USD/JPY: 101.98…

Moving the Market

  • May International Trade in Goods: Actual -$60.6 bln, Briefing.com consensus -$59.2 bln, Prior -$57.5 bln
  • Greenspan speaks with Tom Keene on Bloomberg TV: Greenspan says that Scotland will leave the U.K. (Martin Wolf of the FT said over the weekend that there is no way that Scotland qualifies for EU membership on its own)
  • U.K. Prime Minister Cameron rejects a "do-over" voter
  • Merkel, Hollande, Renzi hold press conference
    • Merkel: We need to help fight youth unemployment, will propose "new impulse" for EU
    • Hollande: Deeply regret U.K.'s vote to exit EU 

03:33PM ET

Treasuries Surge Back on Brexit-Based Risk Aversion

  • U.S. Treasuries rallied to test their Friday highs today as Friday's Brexit-induced risk aversion trade rolled onward. While there was little U.S. economic data released, investors had plenty of news to digest as banking stocks in the U.K. and Italy got clobbered. In the first case, the Brexit vote may well move Europe's financial center from London to the Continent or Dublin, and in the second case, Italian lenders' non-performing loan problems will not be made better by the Brexit turmoil. Italy's government is said to be considering a bailout plan for its banking system but would need a waiver from the EU to avoid a new regulation which requires investors to take heavy losses before the state can provide support. The final revision of U.S. GDP growth for the first quarter will be released tomorrow and the second estimate of 0.8% is expected to be revised up to a 1.0% annualized rate. The U.S. Dollar Index is up 1.06% to 96.46 in one of its best two-day rallies ever and the S&P 500 is down 2.05% to 1,995.8
  • Yield Check:
    • 2-yr: -3 bps to 0.61%
    • 5-yr: -7 bps to 1.00%
    • 10-yr: -10 bps to 1.46%
    • 30-yr:  -13 bps to 2.28%
  • News:
    • May International Trade in Goods: -$60.6 bln vs Briefing.com consensus of -$59.2 bln; April was -$57.5 bln
    • The Dallas Fed's manufacturing business index rose to -18.3 in June from -20.8 in May. Analysts had forecast a bigger improvement
    • Markit's U.S. services PMI remained at 51.3 in June, missing forecasts for improvement
  • Commodities:
    • WTI crude: -2.25% to $46.57/bbl.
    • Gold: +0.79% to $1,332.8/troy oz.
    • Copper: +0.57% to $2.1225/lb.
  • Currencies:
    • EUR/USD: -0.91% to 1.1015
    • USD/JPY: -0.21% to 101.98
  • Data out Tuesday:
    • Q1 GDP and GDP Deflator - Third Estimate (08:30 ET)
    • April Case-Shiller 20-city Index (09:00 ET)
    • June Consumer Confidence (10:00 ET)

10-Yr: +30/32… EUR/USD: 1.1015… USD/JPY: 101.98…

02:58PM ET

Pound Plunges Again, Dollar Rips Higher

  • The U.S. Dollar Index is up 1.06% to 96.46 today for one of its biggest two-day gains ever. The greenback advanced mostly against the pound sterling but also appreciated against the Australian and New Zealand dollars. The only currency to gain against the buck was the Japanese yen. Cable sold off as investors continued to move capital out of the U.K. and banks in that country got killed again, hitting trading curbs in some cases. Barclays has lost about a third of its value in two days. The status of London as the financial capital of Europe is going to be in serious jeopardy if U.K. leaders honor Thursday's referendum result, as they look set to do
  • EUR/USD: -0.99% to 1.1008
    • A broad measure of the eurozone's money supply, M3, rose 4.9% in the year to May, beating both expectations and April's 4.6% growth
  • GBP/USD: -3.68% to 1.3183 (30-year low)
    • The pound sterling hit a 30-year low against the U.S. dollar as hopes for a renegotiated relationship with the European Union fizzled. Shares of U.K. banks have been hammered over the past two sessions and Standard & Poor's downgraded the U.K.'s credit rating to AA/negative from AAA/negative
  • USD/CHF: +0.64% to 0.9784
  • USD/JPY: -0.23% to 101.96
  • USD/CAD: +0.70% to 1.3093
  • USD/CNY: +0.45% to 6.6516 (five-year high) 
    • The People's Bank of China set the reference rate for the yuan at 6.6375 per dollar today, its weakest level since 2010
  • USD/BRL: +0.77% to 3.3987
    • Bank lending in Brazil grew by 0.1% in May after declining by 0.6% in April
    • FGV's consumer confidence index rose more than expected to 71.3 in June from 67.9 in May
  • AUD/USD: -1.86% to 0.7337
  • NZD/USD: -20.1% to 0.6991
    • New Zealand's trade surplus unexpectedly jumped to NZD358 mln in May from NZD292 mln in April

10-Yr: +29/32… EUR/USD: 1.1008… USD/JPY: 101.96…

02:10PM ET

Treasuries Hold Gains, Stocks Fall Back Towards Lows

  • Treasuries are still trading sharply higher today although the 2 and 5-year notes have seen some weakness over the past hour. The 2-year/10-year yield spread has narrowed by 6 bps to +87 bps and the U.S. Dollar Index is up 1.13% to 96.53. Gold is up 0.40% to $1,327.7/troy oz. The market for U.S. debt is now forecasting a higher probability of a rate cut than a rate hike in coming months. If risks to asset prices and global demand were not enough, the U.S. dollar is sharply higher and this will act as a brake on U.S. growth. Furthermore, there is only one rate cut in the Fed's arsenal before it has to resort to further asset purchases or negative rates
  • Standard & Poor's downgraded the U.K. to AA/negative from AAA/negative
  • WTI crude is down 3.63% to $45.91/bbl., which may end up putting more pressure on high yield debt. The Financial Times reported today that Friday was the largest widening in junk bond spreads since the U.S. lost its triple-A rating from Standard & Poor's in the summer of 2011. The move on Friday was +47 basis points to +639 bps
  • The S&P 500's bull market that began in March of 2009 first rallied from 673 to 1376 before suffering a 22% correction to 1074 in August 2011. The index then rallied  to 2137 and corrected by a maximum of 15% to a February low of 1,807. If you don't count the first correction as a bear market (the traditional hurdle is down 20% from high), then this bull market is seven years old and is in danger of turning bearish
  • Yield Check:
    • 2-yr: -5 bps to 0.59%
    • 5-yr: -8 bps to 0.99%
    • 10-yr: -10 bps to 1.45%
    • 30-yr: -14 bps to 2.27%

10-Yr: +30/32… EUR/USD: 1.1010… USD/JPY: 101.94…

01:05PM ET

30-Year Treasury at Highs

  • U.S. Treasuries are holding higher this morning as the yield curve flattens and equities hover above their morning lows. Front-month WTI crude has extended its loss to 3.25% at $46.09/bbl. and the S&P 500 is down 1.76% to 2,001.4. The U.S. Dollar Index is up 0.88% to 96.28 and gold is up 0.18% to $1,324.8/troy oz.
  • The French, German, and Italian leaders just held a press conference at which they talked about reducing youth unemployment via a "new impulse" for Europe but remained generally vague.  They said that no informal negotiations would be held with the U.K. before the triggering of article 50. Risky assets continue to be shunned and 
  • Yield Check:
    • 2-yr: -6 bps to 0.57%
    • 5-yr: -8 bps to 0.99%
    • 10-yr: -10 bps to 1.46%
    • 30-yr: -30 bps to 0.14%

10-Yr: +30/32… EUR/USD: 1.1034… USD/JPY: 101.82…

12:14PM ET

Yield Curve Flattens Sharply

  • U.S. Treasuries are still sporting large gains today and the yield curve is flattening as hopes for a rapid resolution to the Brexit crisis are fading. There was a very large rally in risky assets on Friday morning but that rally faded by late-afternoon and the selling in risk continued to start this week. Treasuries are still close to highs but gains will only be sustained if the U.S. economy experiences second-round effects to the real economy from this bout of financial volatility (we're not calling this a panic as the S&P is down just 6.4% from its all-time high compared with 10.0% for the ebola sell-off in late 2014). Personal income and spending data for May will be released on Wednesday, but will not show any possible effects from deteriorating confidence to household spending. It may not be until we see purchasing managers' index data for July that economic data can really confirm or deny a hit to the real economy from the Brexit vote
  • The Dallas Fed's manufacturing business index rose to -18.3 in June from -20.8 in May. Analysts had forecast a bigger improvement
  • Markit's U.S. services PMI remained at 51.3 in June, missing forecasts for improvement
  • It is probably appropriate at this juncture to list some of the public policy actions that could cause pauses or reversals in the sharp bout of risk aversion that has hit financial markets since Thursday night. This is not an exhaustive list and it is not to say that the measures are likely to succeed, but we have entered a period where market moves are typically driven by rumors about policy responses. Think TARP discussions or fiscal cliff talks in 2008 and 2011, respectively:
    • Another EU referendum. Prime Minister David Cameron has said that this is not going to happen, so it appears unlikely
    • Negotiations between the U.K. and EU without triggering article 50. German Chancellor Angela Merkel has ruled this out, so it also appears to be an unlikely event
    • Italian government rescue of Italian banks, which is currently prohibited without wiping out 8% of liabilities by new EU regulations. A waiver on this rule by the EU might help stabilize stocks in Italian lenders which have been battered since the Brexit vote. Odds for this are not clear
    • Various easing measures by central banks around the world. Fed funds futures now show the probability of a fed funds target range between 0.00 and 0.25% by February 2017 at 19%
    • Intervention in USD/JPY by the Bank of Japan
  • Yield Check:
    • 2-yr: -5 bps to 0.58%
    • 5-yr: -8 bps to 0.99%
    • 10-yr: -10 bps to 1.46%
    • 30-yr: -13 bps to 2.29%

10-Yr: +29/32… EUR/USD: 1.1028… USD/JPY: 101.71…

11:20AM ET

Pound Slips to Weakest Level Since 1985- The Dollar Index continues to see safe haven bids as the fall out from Brexit continues. The DXY is trading at 96.37, just shy of its Thursday night high of 96.70. It is a busy week on the economic data front with Case Schiller, Consumer Confidence (Tue), Personal Income & Spending, PCE Prices, Pending Home Sales (Wed), Chicago PMI (Thu) and ISM and Construction Spending (Fri) all due out. The fallout from the Brexit vote continues to be the biggest driver in the currency markets.

  • The euro remains under pressure as it slides to 1.0980. The Brexit increased concerns that other countries may look to pursue national populist governments. Over the weekend Spain saw its Unidos Podemos party lose some ground from the December elections as Rajoy's conservative government once again won the most votes and thus seats. The conservatives still have a difficult task of forming a coalition government but the markets should be soothed that the vote in U.K. has not increased support in other countries at the moment.
  • The pound continues to slip to its lowest levels since 1985. There has been some chatter this morning over a possible reversal in the E.U. referendum but that appears to be based more on hope than anything else. A bottom in sterling has yet to be found and the selling looks set to continue for the foreseeable future. Markets are watching closely to see if the Bank of England plans on stepping in and providing further support given the current political crisis.
  • The yen continues to test the 100 level for resistance. Over the weekend Japanese officials noted that they were prepared to step into markets as the yen was far too strong. PM Abe and FM Aso held an emergency meeting over the weekend in which they stated they were prepared to act. This has helped provide additional resistance around the 100 psyche level.

10-Yr: +28/32… EUR/USD: 1.0985… USD/JPY: 101.60…

10:59AM ET

Treasuries Find Only Reluctant Sellers

  • While the FTSE 100 is down about 16% in dollar terms since last Thursday's Brexit decision, Italian bank stocks are getting clobbered as well. The government there is mulling over state support to the beleaguered sector, but new rules from Brussels seriously complicate that effort. The Bank Recovery and Resolution Directive was meant to avoid a repeat of the 2008 state bailouts of EU lenders and a newly controversial component -- a rule that says 8% of a bank's liabilities must be eliminated before any taxpayer support can be provided -- took effect on January 1. The 8% rule caused problems for Italy and its prime minister, Matteo Renzi, in February, and he will meet with German Chancellor Merkel and French President Hollande today to discuss a suspension of those rules. Italian banks have sold debt products to a large number of retail investors and bailing in those investors for losses to facilitate a state bailout would cause more political woes for Renzi. Italy's Five-Star movement performed quite well in Italy's regional elections on June 19 and Merkel and Hollande may try to strengthen Renzi's hand
  • Treasuries are higher in a curve-flattening trade while WTI crude falls 2.60% to $46.40/bbl. The S&P 500 is down 2.24% to 1,991.8 and the U.S. Dollar Index is up 1.29% to 96.68
  • Yield Check:
    • 2-yr: -5 bps to 0.58%
    • 5-yr: -8 bps to 0.99%
    • 10-yr: -10 bps to 1.46%
    • 30-yr: -12 bps to 2.29%
  • S&P 500 (Daily): The S&P 500 is down to a three-month low this morning and has made no net progress since August 2014 (not counting dividends). The uptrend for the bull market was broken at 2,014

10-Yr: +28/32… EUR/USD: 1.0979… USD/JPY: 101.69…

10:18AM ET

Treasuries Hold Sharply Higher

  • Treasuries are still within their overnight ranges this morning and the yield curve is steepening with 2's/10's narrowing by 4 bps to +89 bps. The S&P 500 trades down 1.69% to 2,002.9 after the open on Wall Street and WTI crude is down 1.78% to $46.79/bbl. The U.S. Dollar Index is uup 0.96% to 96.36 and gold is up 0.61% to $1,330.5/troy oz.
  • The 5-year Treasury yield touched a three-year low this morning of 0.98%. Fed fund futures are now indicating a 17% chance of a rate cut by the end of the February 2017 FOMC meeting as opposed to 15% chance for a rate hike
  • Yield Check:
    • 2-yr: -4 bps to 0.59%
    • 5-yr: -7 bps to 1.00%
    • 10-yr: -9 bps to 1.47%
    • 30-yr: -12 bps to 2.99%
  • 30-Year Yield (Daily): The 30-year Treasury yield touched an all-time low of 2.226% on 1/30/2015. The low on Friday was 2.27%

10-Yr: +26/32… EUR/USD: 1.1011… USD/JPY: 101.60…

09:09AM ET

Treasury Yields near Multi-Year Lows

  • Treasury prices are up sharply today but are off of their best levels as financial markets try to stabilize following the U.K.'s decision to leave the European Union last Thursday. S&P 500 futures have bounced from their overnight low and now indicate an open for the index at 2,019.3 (Friday's close was 2,037.4). The S&P 500 saw a bounce of roughly 65 points on Friday that was almost entirely wiped out during the afternoon and last night. WTI crude is down 1.99% to $46.69/bbl. as traders fear a shock to global demand if the financial turmoil persists. The U.S. Dollar Index is up 1.01% to 96.41 and gold is up 0.68% to $1,331.4/troy oz. A sharp rally in the U.S. dollar is an unwelcome development for the U.S.'s real economy and corporate earnings 
  • Yield Check:
    • 2-yr: -5 bps to 0.59%
    • 5-yr: -6 bps to 1.01%
    • 10-yr: -7 bps to 1.48%
    • 30-yr: -11 bps to 2.30%
  • Shares in European banks have been decimated over the last two trading days, which could have knock-on effects to the real economy if the losses are sustained. As much as investors will closely watch markets' reactions to the Brexit vote (and they are almost universally negative at this point), they will also watch how other European Union electorates and particularly eurozone electorates respond to the vote. This chart below of an Ipsos Mori poll (via Barclays and Business Insider) asked voters in EU countries about their support for the EU. The poll was conducted between March 25 and April 8.

10-Yr: +21/32… EUR/USD: 1.1006… USD/JPY: 101.60…

08:39AM ET

Brexit Causes Panic in Banking Shares, Spanish Voters Favor Conservatives

  • European sovereign yields are almost universally lower this morning as markets return to risk-aversion mode. European banking stocks are down by about a fifth since the U.K.'s referendum on Thursday in which voters decided to leave the European Union. Banks in the U.K. are getting decimated as London has been the financial capital of Europe for decades, a role that is now seriously questioned because new barriers to trade in services will likely be erected as the U.K. walls itself off from the EU. Italian Prime Minister Matteo Renzi meets with German Chancellor Angela Merkel and French President Francois Hollande today. He is expected to ask for a suspension of state aid rules that have so far prevented the Italian government from recapitalizing its banking system. Italian banking shares are back at 2012 levels this morning following the successful Brexit referendum in the U.K. There are said to be EUR360 bln of non-performing loans on the balance sheets of Italian lenders
  • The Spanish general election over the weekend provided a surprise victory for the Popular Party (PP). The PP is set to gain 137 of the 350 seats in Congress. PP has failed, however, to draw support from either the Socialist (PSOE) party or Ciudadanos, the centrist party. Ciudadanos has said that PP lacks the moral authority to govern after recent corruption scandals. The Spanish 10-year ODE yield is down 19 basis points to 1.45% this morning, handily outperforming Italy's 10-year BTP and reflecting market relief that voters did not opt for more liberal or anti-austerity parties. In the post-Brexit world, investors will closely watch political sentiment among eurozone electorates to determine if voters are scared into closer union by the U.K.'s example or if they are encouraged by the U.K.'s example to unshackle themselves from super-national political organizations. In that sense, a small financial panic from the Brexit vote -- if it pushes the eurozone into further integration that is more stable than the status quo -- may end up being positive for the eurozone. The short-term vote of the markets, however, cannot be ignored
  • A broad measure of the eurozone's money supply, M3, rose 4.9% in the year to May, beating both expectations and April's 4.6% growth
  • Pimco is now calling for the Bank of England to cut its policy rate to 0.00% from 0.50%
  • Yield Check:
    • France, 10-yr OAT: -8 bps to 0.31% 
    • Germany, 10-yr Bund: -6 bps to -0.11%
    • Greece, 10-yr note: +11 bps to 8.58%
    • Italy, 10-yr BTP: -5 bps to 1.44%
    • Portugal, 10-yr PGB: -2 bps to 3.31%
    • Spain, 10-yr ODE: -19 bps to 1.45%
    • U.K., 10-yr Gilt: -15 bps to 0.94%

10-Yr: +24/32… EUR/USD: 1.0986… USD/JPY: 101.61…

07:43AM ET

Treasuries Jump as Brexit Volatility Continues

  • U.S. Treasuries are trading up sharply this morning as European bank stocks tumble and the U.K. 10-year yield touches a fresh all-time low of 0.93%. The U.K.'s decision to leave the European Union in a nationwide referendum on Thursday has stoked financial market volatility, to say the least. Markets are now focusing on what the new post-Brexit relationship will be between the U.K. and the European Union. Prime Minister David Cameron has said that he will step down in the fall after staying on for a few months to provide stability. Treasury yields from the five to 30-year maturities fell to multi-year lows on Friday and the U.S. Dollar Index has hit a three-month high (up 0.97% to 96.37 this morning) and the Japanese yen touched its highest level since late-2013 (USD/JPY fell to 98.79, but stands at 101.68 this morning). The S&P 500 is indicated to open at 2,0116., down 1.27%, WTI is down 0.92% to $47.20/bbl., and gold is up 0.85% to $1,333.6/troy oz.
  • Yield Check:
    • 2-yr: -7 bps to 0.57%
    • 5-yr: -8 bps to 1.00%
    • 10-yr: -9 bps to 1.47%
    • 30-yr: -11 bps to 2.30%
  • News:
    • Italian Prime Minister Matteo Renzi meets with German Chancellor Angela Merkel and French President Francois Hollande today. He is expected to ask for a suspension of state aid rules that have so far prevented the Italian government from recapitalizing its banking system. Italian banking shares are back at 2012 levels this morning following the successful Brexit referendum in the U.K.
    • The People's Bank of China set the reference rate for the yuan at 6.6375 per dollar today, its weakest level since 2010
    • A broad measure of the eurozone's money supply, M3, rose 4.9% in the year to May, beating both expectations and April's 4.6% growth
    • New Zealand's trade surplus unexpectedly jumped to NZD358 mln in May from NZD292 mln in April 
  • Data out Today:
    • May International Trade in Goods (08:30 ET)

10-Yr: +26/32… EUR/USD: 1.1006… USD/JPY: 101.67…

03:34PM ET

Treasuries Soar on 'Leave' Result to U.K. Referendum

  • U.S. Treasury yields (which move inversely to prices) fell to record lows at the 10 and 30-year maturities overnight (1.27% and 2.19%, respectively) following the news that the U.K. had voted to leave the European Union. Yields moved higher during the day session but held sharp drops for the session and equities failed to hold a massive rally after the open on Wall Street. The S&P 500 now sits down 3.82% to 2,032.6. Durable goods orders for May, which caught very little attention in the shadow of the Brexit vote and the ensuing market volatility, missed expectations and the decline in business investment led to downward revisions to Q2 U.S. GDP growth forecasts (the Atlanta Fed's GDPNow model now forecasts a 2.6% annualized rate). Michigan Sentiment was revised down for June although inflation expectations were revised up from the preliminary reading. Spain will hold a general election over the weekend to try to form a new government after December's election failed to yield a sustainable result. The projected outcome is that the Socialists will allow the People's Party (PP) to form a minority government. The U.S. Dollar Index is up 2.01% to 95.41
  • Yield Check:
    • 2-yr: -14 bps to 0.64%
    • 5-yr: -18 bps to 1.08%
    • 10-yr: -17 bps to 1.57%
    • 30-yr: -13 bps to 2.42%
  • News:
    • Durable goods orders fell by 2.2% in May, well short of the Briefing.com consensus of -0.6%. April's change was revised down to 3.3% from the initial reading of 3.4%
      • Durable goods orders excluding transportation fell 0.3% in May, missing the Briefing.com consensus of 0.1%. The prior reading was revised up to 0.5% from 0.4%
      • Orders declined in almost every category
      • Business investment continued to flag, evidenced by a 0.7% decline in new orders for nondefense capital goods excluding aircraft, which followed a 0.4% decline in April
    • The University of Michigan's Consumer Sentiment index was finalized at 93.5 for June, down from the prior estimate of 94.3. The Briefing.com consensus was for a final revision of 94.0. The index was at 94.7 in May
      • Expectations fell to 82.4 from 84.9
      • Current Conditions rose to 110.8 from 109.9
      • 12-month inflation expectations were revised up to 2.6% from 2.4%and 5-year inflation expectations were revised up to 2.6% from 2.3%
  • Commodities:
    • WTI crude: -4.99% to $47.61/bbl.
    • Gold: +4.62% to $1,321.5/troy oz.
    • Copper: -2.43% to $2.11/lb.
  • Currencies:
    • EUR/USD: -1.77% to 1.1119
    • USD/JPY: -2.42% to 102.28
  • Week Ahead:
    • Monday: May International Trade in Goods (08:30 ET)
    • Tuesday: Q1 GDP and GDP Deflator - Third Estimate (08:30 ET); April Case-Shiller 20-city Index (09:00 ET); June Consumer Confidence (10:00 ET)
    • Wednesday: MBA Mortgage Index for the week ending 6/25 (07:00 ET); May Personal Income and Spending (08:30 ET); May Core PCE Price Index (08:30 ET); Fed Chair Yellen (09:30 ET); May Pending Home Sales (10:00 ET); Crude Inventories for the week ending 6/25 (10:30 ET)
    • Thursday: Initial Jobless Claims for the week ending 6/25 and Continuing Jobless Claims for the week ending 6/18 (08:30 ET); June Chicago PMI (09:45 ET); Natural Gas Inventories for the week ending 6/25 (10:30 ET); St. Louis Fed President Bullard (FOMC voter) (14:00 ET)
    • Friday: June ISM Index (10:00 ET); May Construction Spending (10:00 ET); Cleveland Fed President Mester (FOMC voter) (11:00 ET); June Auto and Truck Sales (14:00 ET)

10-Yr: +1 18/32… EUR/USD: 1.1119… USD/JPY: 102.28…

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