The Fed Minutes
Posted by Eddy Elfenbein on July 6th, 2016 at 2:59 pm

Here are the minutes from the last Fed meeting. I want to highlight this key passage on financial markets.

Market-based estimates of the probability of a hike in the federal funds rate at the June FOMC meeting were variable during the intermeeting period. The probability of an increase in June fell to near zero in early May in response to incoming economic data, jumped to about 30 percent after the release of the April FOMC minutes and other Federal Reserve communications, and dropped again to near zero after the May employment report. The expected path of the federal funds rate for the medium term implied by market quotes declined somewhat on net. The average probability assigned by respondents to the Desk’s June Survey of Primary Dealers and Survey of Market Participants was near zero for a rate hike in June and around 20 percent for a rate increase in July. The median respondent in each survey indicated that the most likely outcome was only one hike in 2016, down from two in the April surveys.

The nominal Treasury yield curve flattened, on net, over the intermeeting period, mainly reflecting declines in longer-term rates; the flattening left the spread between yields on 2- and 10-year Treasury securities near its lowest level since 2007. Although a significant portion of the declines in yields occurred following the release of the May employment report, yields at longer maturities had begun drifting down earlier in the period, consistent with an apparent deterioration in global risk sentiment. Yields moved lower late in the period amid growing concerns about the upcoming British referendum. Some market participants attributed the decline in Treasury yields in part to heavy demand from foreign investors faced with extraordinarily low yields on foreign sovereign securities. Inflation compensation based on Treasury Inflation-Protected Securities (TIPS) decreased, particularly at longer tenors. Measures of inflation compensation based on inflation swaps also declined, but less than TIPS-based measures, consistent with anecdotal reports suggesting that a portion of the declines in TIPS-based measures might have been driven by elevated demand for longer-term nominal Treasury securities.

Broad stock price indexes moved within narrow ranges but were modestly lower, on net, over the intermeeting period. However, one-month-ahead option-implied volatility on the S&P 500 index–the VIX–rose notably from fairly low levels and ended the period close to its historical median level. Spreads of 10-year triple-B-rated corporate bond yields over those on comparable-maturity Treasury securities were little changed on balance. High-yield spreads widened, mainly for firms outside of the energy sector; spreads on bonds for firms in the energy sector narrowed, likely in response to rising oil prices.

Gold Hits Two-Year High
Posted by Eddy Elfenbein on July 6th, 2016 at 9:58 am

Gold is up to a two-year high this morning. The yellow metal has been as high as $1,377 per ounce. That reflects a belief that real interest rates are going down. With that, Treasury bonds continue rally. The yield on the ten-year got down to 1.34%.

The 2/10 spread is now below 80 basis points. That hasn’t happened since November 2007.

The stock market is down a little but it’s broad. I haven’t checked the numbers but it seems like most members of the S&P 100 are off 0.2% to 0.6%.

Earnings season is set to begin next week. Alcoa will report on Monday. Wells Fargo will be the first Buy List stock to report, and that will come next Friday.

Overlooked Posts
Posted by Eddy Elfenbein on July 6th, 2016 at 9:10 am

Tadas Viskanta, the talented proprietor of Abnormal Returns, asked a few of us bloggers to send them their “criminally overlooked” blog posts. Tadas writes, “Every blogger will tell you that the correlation between what they think is a good blog post and what gains traction is close to zero.”

That’s certainly true. For my contribution, I picked this post from last year. I remember thinking that it might get a lot of attention. Well, I was wrong.

Be sure to check out the other submissions at Tadas’ site.

Morning News: July 6, 2016
Posted by Eddy Elfenbein on July 6th, 2016 at 7:06 am

Hong Kong Unlikely to Return Bookseller Wanted in Mainland China

Brexit Aftershocks Shake U.K. Real Estate, Pound

Financial Markets Show Lingering ‘Brexit’ Worries

Gold Races to 28-Month High, Oil Pressured as Brexit Fears Return

Oil Prices Continue to Tumble on Concerns Over Global Growth Prospects

U.S. Mortgage Refinancings Surge as 30-Year Rate Lowest Since May 2013

Melrose, U.K. Turnaround Specialist, Buys Nasdaq-Listed Nortek for $1.44 Billion

Verizon’s Pursuit of Yahoo Puts the Spotlight on a Rising Star

Walgreens Revenue Falls Short of Estimates

What It Took To Save The Twinkie

Chipotle Web Video Takes Aim at Rivals

Under Armour’s Quest to Dethrone Nike and Jump-Start Baltimore

A South Korean Copy of Snapchat Takes Off in Asia

Cullen Roche: Short-Termism Gets Brexecuted

Roger Nusbaum: Markets Brecover?

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Is the Utilities Sector in a Bubble?
Posted by Eddy Elfenbein on July 5th, 2016 at 7:34 pm

10-Year Treasury Hits All-Time Low
Posted by Eddy Elfenbein on July 5th, 2016 at 3:57 pm

Bond Yields Plunge to New Lows
Posted by Eddy Elfenbein on July 5th, 2016 at 11:41 am

What’s been happening continues to happen. This morning, the yield on the 10-year Treasury dropped to an historic low. The yield got down to 1.37% which is a post-1790 low. On September 30, 1981, the yield peaked at 15.84%.

The indicated forward dividend yield for the S&P 500 is 2.18%. That means you’re being paid 0.81% to take on the risks of owning stocks, which doesn’t include the fact that stocks like to grow their dividends.

The British markets are still reeling from the Brexit vote. The pound slid to $1.30 for the first time in more than 30 years.

Morning News: July 5, 2016
Posted by Eddy Elfenbein on July 5th, 2016 at 7:05 am

Bank of England Eases Rules for Banks to Meet Brexit Challenge

ECB’s Angeloni Sees Trade-off Between Competition, Stability in Banking

Switzerland Orders UBS to Hand Over More Client-Related Data

Return of the Crude Short Sellers

Worries Over China, Brexit Push Treasury Yields to Record Low

Fed Will Tighten Before Rate Hike

Will Social Security Fix Its Mistake That May Be Costing You Tens of Thousands?

Is Baidu Getting Ready To Unleash A Huge New Revenue Stream?

Chevron, Exxon Commit to $36.8 Billion Expansion Project in Tengiz

Ghosn Tasks Top Lieutenant to Hunt for Mitsubishi Motors Savings

Sucking Robot Arm Wins Amazon Picking Challenge

Lufthansa Targets Growth as Strong Start Offsets Slump

Hostess Brands, Maker of Twinkies, to Get a New Owner

Jeff Carter: With All The Pomp And Circumstance

Josh Brown: The Broker Who Saved America

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Morning News: July 4, 2016
Posted by Eddy Elfenbein on July 4th, 2016 at 6:56 am

The Bank of Japan Paints Itself Into a Negative Rate Corner

Farage Resigns as UKIP Leader Adding to Brexit Political Turmoil

Osborne Floats 15% Business Tax to Boost Post-Brexit Economy

Bank of Israel Buying ‘Hundreds of Millions’

Great News But A Looming Shadow For Oil

Gold’s Shimmer Is Sign Of Dark Days Ahead

Will Social Security Fix Its Mistake That May Be Costing You Tens of Thousands?

Coal Baron Promises Huge Layoffs, Then Tells Workers To Vote Trump

Amazon Is Quietly Eliminating List Prices

Brexit Kicks Wal-Mart’s Asda

Midea of China Moves a Step Closer to Takeover of Kuka of Germany

Dick’s Sporting Goods Wins Sports Authority Brand Name in Bankruptcy Auction

VW Says U.S. ‘Dieselgate’ Settlement Not To Be Replicated in Europe

Cullen Roche: Short-Termism Gets Brexecuted

Jeff Miller: Time For The Summer Rally?

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The Original Brexit
Posted by Eddy Elfenbein on July 2nd, 2016 at 10:03 pm

Happy Birthday, America!