Traders at the London International Financial Futures and Options gesture to their colleagues during trading December 6, 1996.
Stocks declined with the S&P 500 closing modestly lower from its all-time high. But Treasuries had a huge day as reflected by tumbling yields.
First, the scoreboard:
- Dow: 16,658.22 (-42.3, -0.25%)
- S&P 500: 1,912.56 (-2.1, -0.1%)
- Nasdaq: 4,231.89 (-12, -0.3%)
Top stories of the day:
- The yield on U.S. 10-year Treasury notes continued to tumble, falling to 2.44%, its lowest level of 2014. Regarding the move in Treasury yields, Rich Barry said, "the current happenings in the U.S. Treasury market, which [are] a total head-scratcher. Shockingly, the 10-year U.S. Treasury Note is exploding to the upside; dropping the yield to a new 10-month low of 2.448%. Flight to quality?! Fear trade?! We did some digging on this one in an attempt to find a catalyst. One potential 'fear factor' candidate we dug up was an article that compared the current state of the housing market in China to the Titanic. (You never want to be compared to the Titanic.) Here is a quick blurb: "Pan Shiyi, CEO of Beijing's biggest property developer SOHO China, said that China's property market is going to hit an iceberg just like the Titanic, Yicai.com reported on Sunday."
- The economic calendar was light, with the Mortgage Bankers Association reporting U.S. mortgage applications fell 1.2% for the week ending May 23. Brean Capital said in a note to investors, "Both refinancing and purchase activity was down last week ahead of the holiday weekend. Primary rates have not fully captured the rally in secondary rates as the primary-to-secondary spread is now approaching 100bp. Look for this spread to widen further in an extended rally as the 4.0% coupon begins to move into the refinancing window. This is because capacity constraints may soon come into play as originators have greatly reduced headcount over the past three quarters. We still believe that mortgage rates need to fall below 4.00% to have a meaningful impact on refinancing activity."
- In the eurozone, German unemployment unexpectedly jumped to its highest level in five years. Economists at Pantheon Macro said, "The German labour market is still on a solid footing. The headline unemployment rate was unchanged but employment rose at its fast rate—1% year-over-year—since August 2012. This is what we would expect at this part of the business cycle where lagging indicators such as employment and inflation often start to rise, but the ongoing resilience of job growth is an added positive. The strength in the German labour market will probably fuel wage fears later this year, but for now the main message is one of steady job creation which is what the euro area needs."
- In company news, Valeant Pharmaceuticals, in tandem with hedge fund manager Bill Ackman, increased the cash component of its bid for Botox-maker Allergan by $10 per share.
- S&P assigned an "unsolicited" 'B-' rating on Tesla Motors bonds, which puts the electric carmaker's debt at "junk" status.
- Toll Brothers reported better than expected earnings this morning, and shares of the homebuilder gained 2%. The company's CEO, Doug Yearly, also had bullish commentary regarding the U.S. housing market. "We note that last cycle's recovery, in the early 1990's, began with a period of rapid acceleration, followed by leveling, before further upward momentum," Yearly said. "We believe that we are in a similar leveling period in the early stages of the housing recovery with significant pent-up demand building."
- Tomorrow will be busier on the economic data front, with initial jobless claims , the second estimate for Q1 GD, and pending home sales all expected from the U.S.
- Goldman Sachs issued its huge report about the 2014 World Cup and economics, which among other things put host country Brazil as the overwhelming favorite to win the cup.
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