Wednesday, July 6, 2016

Bonddad Tuesday Linkfest

5-Day Sector Performance Is Very Bearish

Brexit Accelerates Pounds 100-Year Drop (BB)

Sterling first slumped after coming off the gold standard in 1931 in which it had been overvalued, just as it was in 1944 when it joined the Bretton Woods system of managed exchange rates. Another 30 percent devaluation was swallowed in 1949 and then Wilson sanctioned another drop in 1967 amid Britain’s balance of payments crunch.

While the IMF was called in to help avoid a sterling crisis in the 1970s, it fell again in the early 1980s. The U.K. joined the Exchange Rate Mechanism, a precursor to the euro, in 1990 but was forced out just two years later because it couldn’t sustain a link to the deutsche mark.

Now there is speculation that life outside the EU will cost the pound its place in the top tier of reserve currencies. It currently accounts for 5 percent of foreign exchange reserves, according to the IMF.

US Homeowners are Brexit Winners (Adviser Perspectives and BB)

From AP: The promise of continued low rates in Brexit’s wake could be good news for U.S. homeowners, both current and potential. For the week ended June 24, the mortgage rate on a 30-year home loan fell to 3.75 percent, its lowest level since May 2013, according to the Mortgage Bankers Association. Some analysts are even forecasting mortgage rates—which tend to track 10-year Treasury yields—to sink to record lows in the coming weeks. This move is expected to spur a wave of new loan applications and refinancing as borrowers rush to lock in historically low rates.

From the FT: The flight to haven assets by global investors since the Leave vote has already helped push US mortgage rates down to new lows for the year, according to data published by Freddie Mac. At 3.48 per cent, the 30-year fixed-rate mortgage is only 17 basis points shy of an all-time low.

It is a silver lining for US banks whose share prices have fallen since the Brexit vote, given the prospect of higher fees from mortgage refinancings.

Michael Fratantoni, chief economist at the Mortgage Bankers Association, said: “With those lower mortgage rates, we do expect a higher amount of refinance activity and a little bit more purchase activity.”

5-Year Chart of 15 and 30 Year Mortgage Rates

Weekly Chart of the XHB ETF

30 Day Chart of the SPYs

The headline PMI posted 48.1 in June, up from 47.7 in May, signalling a slightly slower rate of deterioration in operation conditions at Japanese manufacturers However, the latest reading contributed to the lowest quarterly average since Q4 2012.

5-year Chart of the Yen Dollar

5-Year Chart of the Yen Sterling

Weekly Chart of the Japanese Tracking ETF