Recap 6-27-13

NB: There will be no update tomorrow.


I noted last Friday that we were likely to see a top, at least in the near term, for yields this week. So far, that seems to have been correct, although of course we won’t for sure until after the fact. The next test will probably come next week – we will see if bond and stock prices can make both higher weekly highs and lows. The ECOFIN meeting was a positive for EU rates, as it should give the ECB more comfort that political adjustments are moving along, and market participants less concern that the ECB may let yields stay higher as a way to apply pressure on the politicians. Another positive: there were reports of dealer OWICs today. (i.e. dealers were looking for bonds to buy, either for themselves or for clients) Those haven’t been seen in some time.

Separately, great chart from Citi:


  • German Unemployment declined -12k vs +8k exp and +21k prev. This took the Unemployment Rate down to 6.8% vs 6.9% exp and prev
  • US Jobless Claims declined to 346k vs 345k exp and 354k prev
  • US Pending Home Sales jumped 6.7% MoM in May vs 1.0% exp.
  • Dudley:
  1. the labor market still cannot be regarded as healthy.
  2. I believe a strong case can be made that the pace of growth will pick up notably in 2014
  3. my best guess is that core goods prices will begin to firm in the months ahead as global demand begins to strengthen and inventories get into better alignment with sales
  4. even under this scenario, a rise in short-term rates is very likely to be a long way off.
  5. Some commentators have interpreted the recent shift in the market-implied path of short-term interest rates as indicating that market participants now expect the first increases in the federal funds rate target to come much earlier than previously thought. Setting aside whether this is the correct interpretation of recent price moves, let me emphasize that such an expectation would be quite out of sync with both FOMC statements and the expectations of most FOMC participants.

EU Finance ministers (ECOFIN) agreed on a position on the draft directive on bank recovery and resolution (BRRD) last night, ahead of the EU Summit starting this afternoon. Negotiations with the European Parliament (the ‘trilogue’) will now start and the aim is adoption before year-end.

  1. National resolution authorities will be in charge of implementing resolution plans which comply with some common rules, in particular bail-in measures imposing losses and a pecking order of the different stakeholders with an order of seniority.
  2. A compromise has been reached on the controversial question of uninsured depositors: "eligible deposits from natural persons and micro SMEs, as well as liabilities to the European Investment Bank, are granted a preference status over ordinary unsecured non-preferred creditors and depositors from large corporations."
  3. In case of a bank crisis, a minimum level of losses of 8% of of total liabilities will be imposed on shareholders and creditors, and "under special circumstances", 20% of risk weighted assets. The contribution of the resolution fund would be limited to a maximum of 5% of total liabilities.

Bank of Spain has instructed banks not to pay out more than 30% of 2013 profits in dividends to shareholders – Bloomberg

Coal – Glencore Xstrata said it has cut back coal production at two of its Australian mines due to falling prices, higher costs, and strength in the AUD. The latest cuts will shave off about 3 million tons of coal production at Glencore’s Newlands and Oaky Creek mines (Bloomberg)

KB Homes Conference Call:

  1. Higher Rates Giving Buyers ‘Sense of Urgency’
  2. 1st-time buyers 60% of sales in 2Q
  3. 2Q avg. selling price $290,400, up 25%

Upcoming Data:

  • Fri: Italy Business Confidence, Williams Speaks
  • Mon: Australia Mfg PMI, China PMI, EU PMI, EU CPI Estimate, Unemployment, US ISM Mfg
  • Tue: RBA, Australia Service PMI, China Non-Mfg PMI, Australia Trade Balance, Retail Sales, China HSBC Service PMI