In addition to the jobs report last week the Job Openings and Labor Turnover Survey provides some additional labor market details. The issue is it’s always a month behind its more famous labor report sibling. In any event, the July report due later this morning is expected to show job openings totaling 6.00 million versus 5.89 million in June. While that expected uptick is appreciated, compare the job opening numbers to the 13.5 million unemployed from the August jobs report and you have more than two unemployed persons for every job opening. That’s another reason to expect the Fed to remain in full accommodative mode for the foreseeable future. Finally, in this week's podcast, we sat down with CenterState’s own Ed Kofman, Director of Loan Hedging. He joined us on the podcast to discuss the outlook for loan demand and why community banks should consider loan hedging products to protect their best credits and relationships. The itunes link can be found here and the Spotify link here.
We mentioned in yesterday’s Market Update that if the stock selling continued this week it would set up favorable conditions for Treasury prices to rise and yields to fall. With the Fed in its quiet period before next week’s FOMC meeting don’t expect officials there to ride to the rescue with soothing words and/or actions. Now to be sure the selling hasn’t reached severe levels but there are still three trading days to go in the week and the Nasdaq 100 fell 4.8% yesterday and is down 11% in three days. Not trifling amounts. And because values are still generally considered above fair value, (the Nasdaq 100 is still up 29% YTD), there is the fear that selling could cascade into a broader correction and perhaps require something from the Fed to counter the increasing volatility and tightening financial conditions. The graph below shows the Nasdaq 100 for this year but the broader Nasdaq looks very similar.
Dollar Steadies along with 10yr Treasury Yields as Safe-Haven Trade Returns
One of the residual results of the equity selling in recent days is the safe-haven trade is starting to rev-up again. The graph below illustrates the US trade-weighted dollar index and the 10-Year Treasury yield. The drop in the dollar since the March panic-spike has oft been mentioned as a potential harbinger of future inflation. While the move has been significant you can see in the bottom left the beginnings of a reversal, and certainly if the stock selling intensifies further that safe-haven trade into dollar assets will continue. And one of those assets bought with dollars is the US 10-year Treasury. Again, turn your attention to the bottom right for the most recent trading patterns and you can see where the 10-year started to get some lift as the dollar took a decided leg lower in July. Most recently, the sudden risk-off trade has stabilized the dollar and Treasuries, being a favored safe-haven asset, have responded accordingly with higher prices and lower yields. And while the recent equity selling has been attention-getting, valuations are such that a much deeper correction could easily be envisioned and that could set the stage for a range break to lower yields. Stay tuned, as they say.
Agency Indications — FNMA / FHLMC Callable Rates
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