News in D.C. steals spotlight from European Central Bank

The headlines today were supposed to be dominated by the European Central Bank’s rate decision, but news closer to home was also driving the markets today. 

Surprising rate hike in Europe 

Earlier today, the European Central Bank (ECB) announced a 50bps rate hike of its key interest rate, with the goal of getting inflation under control. This was the first hike by the ECB in 11 years, which fueled a bond market rally and led the yield on the 10-Year U.S. Treasury Note back below 3.0%. 

The 10-Year Treasury Yield is seen as moving hand-in-hand with mortgage rates and provides a good indication of investory sentiment in the economy. When the yield goes down, like today, it indicates a rising demand for Treasury bonds, which is a safer investment. 

Market moving news back home 

In addition, the Manufacturing Index report from the Philadelphia Fed provided a weak business outlook with general activity both declining in July and missing the market expectation. This news, coupled with higher-than-expected weekly jobless claims reported by the Labor Department, only added fuel to the fire. The fire being concerns about the direction of the economy and a push towards safer investments. 

Stocks were down early on the news, along with the announcement from the White House the President tested positive for COVID. Stocks have since rebounded after the news came out that the President’s symptoms are being reported as mild. 

Overall, a decent day for most asset classes, which are being led by mortgage-backed securities, which are currently up 13+/32nds as of this writing. Tomorrow, economic data is very light, so should be a textbook summer Friday. 

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