Interest rates on U.S. fixed-rate mortgages rose to their highest levels in more than two years, sending weekly home loan application activity to its weakest since early January according to the MBA and the braoder US housing market reeling.
"Has monetary policy robbed savers to pay borrowers? Has the MPC been Robin Hood in reverse? In a word, no." said BOE governor Mark Carney, which was surprising because in a study earlier this year, the BIS found that monetary policy has done precisely that.
As we warned last night, following today's No vote, the third bailout of the world’s oldest surviving bank, and Italy's third largest, Monte dei Paschi di Siena has been thrown into doubt with concerns a failed bailout could lead to another round of contagion hitting Italy's banking sector, and potentially spreading to the broader Eurozone.
Having exposed the deepening liquidity crisis in China previously, tonight's action across AsiaPac money-markets suggests - despite US equity record highs - all is very much not well below the surface of the global financial system. Short-term China repo rates have exploded to 20-month highs, Hong Kong Dollar money-market rates have jumped to the highest since May 2009, and Yen basis swaps are showing the most extreme demand for dollars since Lehman...
This is the first time, within the last three years, the markets have pushed a 3-standard deviation move from the 50-day moving average. Such a move is not sustainable and a correction to resolve this extreme deviation will occur before a further advance can be mounted.
Overnight the yield on China's sovereign 10Y bond jumped 6.5bps to 2.94% on what Bloomberg dubbed were "liquidity fears." This was the biggest one day spike for the benchmark bond since Jan. 25, according to ChinaBond data.
"We find it impossible to imagine the current QE programme being use to intervene in Italy without prior approval from the Governing Council. Finally, even if the ECB were minded to intervene in Italy, bond yields would likely have to rise dramatically from current levels before it acted." - JPM
In a report confirming that the ECB is preparing for a rerun of a post-Brexit scenario, Reuters writes that the ECB is ready to temporarily step up purchases of Italian government bonds if the result of next Sunday's crucial referendum "rocks markets" and sharply drives up borrowing costs for the euro zone's largest debtor. BTP futures briefly spike higher, gaining ~30 ticks in 2 minutes, to session high of 135.46 following the news.
In recent weeks, China’s central bank has effectively tightened monetary conditions based on the shifting composition of its repo operations. As a result, the local bond market is getting increasingly nervous as selling - first of bonds, and then of equities - is expected to accelerate in response to what appears to be China's (not to) stealth tightening of financial conditions.
European shares dipped and U.S. equity-index futures (-0.3%) pointed to a lower open as traders questioned the stability of the Italian banking sector ahead of next weekend's referendum as well as the longevity of the Trumpflation rally, pressuring the dollar. "It's a bit of a pull back in the dollar," said Societe Generale strategist Alvin Tan. "The fall in oil is pushing back U.S. bond yields and that is leading the consolidation in the dollar.. there is more scepticism about an (OPEC) output cut now."
Among international stocks, Apple, Microsoft and Exxon were the GPIF's top stock investments at the end of September, while Japanese government bonds, U.S. Treasuries and Italian debt were the largest bond holdings.