Facebook Weighs on Major Indices, ECB Remains Dovish

 

Facebook Sinks NASDAQ

Facebook reported disappointing revenue and user numbers for the second quarter after the close of business yesterday, leading to a selloff in the company’s shares and the biggest single-session loss in market cap ever.  As a result, the NASDAQ tumbled today (-1.01%) while the broader S&P 500 held to a smaller loss of 0.30%.  The DJIA managed to remain in the black (+0.44%), led by gains in the energy and industrial sectors.  US Treasury yields were higher by 1-2 bps across the curve, with the 10-year note yield closing near 2.98%.  WTI crude futures settled higher, up 0.4% on the day to a price of $69.60/barrel.  This follows a temporary suspension of shipments through the Bab el-Mandeb strait after two Saudi oil tankers came under attack from the Houthi militia in Yemen.

 

 

FNMA Issues SOFR Linked Floating Rate Notes

In a first for the agency debenture market (cash bond), FNMA today issued 3 tranches of floating rate notes linked to the Secured Overnight Funding Rate (SOFR).  SOFR is a benchmark rate that market participants believe is best suited to replace LIBOR over time.  The 3 tranches included $2.5 billion of a 6 month note, $2 billion of a 1 year note and $1.5 billion of a 1.5 year note.  Barclays, Nomura and TD were joint-lead managers on the transactions.

 

No Surprises from the ECB

The communication from the European Central Bank at the conclusion of its monetary policy meeting earlier today fell largely in-line with the expectations of financial markets.  The ECB confirmed its continuance with bond purchases of 15-30 billion euros per month through the end of the year when the program will officially end.  With regard to benchmark borrowing rates, “The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2 percent over the medium term,” the policy statement provided.  The main refinancing rate in the eurozone currently resides at -0.4%, and the anticipated delay to the hiking schedule foreshadows a further widening spread between benchmark rates in the US and Europe, which ECB president Mario Draghi attributed to “different positions in the business cycle.”  The US dollar gained 0.75% against euro following today’s decision.

 

 

Jobless Claims Tick Up, Slightly

The weekly initial jobless claims report from the Labor Department was released this morning.  The number of new claims for the week ended July 21th increased 9,000 to a seasonally adjusted 217,000 (215,000 estimated).  The prior week’s number was revised upward by 1,000 from 207,000 to 208,000.  The four-week moving average, which is often considered to be a less-volatile measure of the change in employment, fell by 2,750 to 218,000– again remaining near 50 year lows.  Also detailed in the report, the number of continuing claims decreased by 8,000 to 1.745 million for the week ended July 14th.

 

 

The Commerce Department announced that durable goods orders increased by 1.0% month-over-month for June, failing to meet the expectations of a 3.0% gain. This was the only increase recorded of the three releases during the second quarter. The headline number was bolstered by a 2.2% increase the orders for transportation equipment.  Core capital goods orders (nondefense, excluding aircrafts) rose 0.6% (+0.5% expected), and the prior month’s reading was revised higher from a gain of 0.3% to a gain of 0.7%.  Adding to the healthy outlook, core capital shipments were also higher increasing by 1.0%, exceeding the estimates for a 0.4% gain.