Daily Market Color

Risk Assets Decline on Global Growth Concerns

US stocks are selling off the most in a month while Treasurys are rallying marginally as falling oil prices and tepid US economic data renewed global growth concerns.  Oil prices fell more than 1%, reversing earlier intraday gains and dragging WTI crude below $40/barrel and into bear market territory.  Perceived weakness of the European banking sector also weighed on sentiment after the European Banking Association released its stress test results on Friday.  Italian lender Monte dei Paschi was the only lender with a key capital ratio in negative territory, but the results of other major lenders including Barclays and Deutsche Bank did little to instill confidence in the sector.
Newly released US economic data painted a mixed view of the economy.  US consumer spending increased more than expected in June (0.4% actual vs. 0.3% expected), but a separate report from the Commerce Department showed inflation remains muted.  The personal consumer expenditures (PCE) price index, excluding the volatile food and energy components, rose only 0.1% in June, following a 0.2% advance in May.  The annual pace increased to 1.6%, but remained below the Fed’s 2% target. 

Small regional and community banks received a positive confirmation from regulators in the form of final rulemaking yesterday after the FCA, FHFA, FDIC, Federal Reserve, and OCC announced in a joint statement that banks with less than $10 billion in assets (along with commercial end users, and a few other entity types) are exempt from margin rules for non-cleared swaps under Dodd-Frank.
All three major US stock indexes are currently down between 0.50% and 1.0%.  Treasurys yields are flat to down 1.5 bps in the front end and up 1-2 bps in the long end of the curve, while swap rates are 1-2 bps higher across all major maturities as spreads widen.


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