By Danny Jasper, Senior Vice President, Capital Markets, Castle & Cooke Mortgage, LLC

Mortgages and treasuries are seeing a nice flight to quality bid this Monday morning as talks in Greece have taken a turn for the worse.  Both parties are accusing the other of not being realistic, with Greek Prime Minister Alexis Tsipras stating, “We will wait patiently for the institutions [Greek creditors] to move toward realism.”Meanwhile, German Vice Chancellor Sigmar Gabriel countered with, “We will not let the German workers and their families pay for the overblown election promises of a partially communist government.”

With the deadline for Greece to make their $1.7 billion payment to their creditors fast approaching, lack of progress has equities down worldwide, with European stocks down 2% and U.S. stocks down close to 1% to start the week.  Greek 10-year bond yields are trading higher by over a full percentage point to 12.7%, and U.S. treasuries are gaining back some of their losses from last week, hovering in the 2.35% range.

Markets Focus on Upcoming FOMC Meeting

While Greece is dominating headlines, we have a big week ahead in U.S. economic data as well, as tomorrow marks the beginning of the two-day FOMC meeting.  Three months ago, this was the meeting that most economists expected would be the start of Fed normalization, but with negative GDP in Q1 and weaker than expected consumer spending so far this year, investors are now predicting only a 2% chance that the Fed will start raising rates with Wednesday’s announcement.  Instead, the expectation for Fed liftoff has shifted to September.  That being said, there will be a ton of focus on Wednesday’s announcement, as it is likely to provide more clarity as to what the Fed will be looking for over the next two months to support a move in September.

Aside from the FOMC (Federal Open Market Committee) meeting, the U.S. economic calendar highlights for this week include this morning’s Empire State Manufacturing Survey for June and industrial production for May, housing starts and building permits for May tomorrow and CPI (Consumer Price Index) data for May on Thursday. The Empire manufacturing and industrial production numbers both disappointed, with the Empire number printing at -1.98 vs. 6.00 expectation, and industrial production missing at -0.2% vs. +0.3% estimates.  There are no pertinent government auctions this week.

Currently, the DJIA is down 170 points to 17,728, and the S&P is down 15 to 2,079.  The 10-year yield sits at 2.354%, and rates are better by approximately 0.125 in price depending on rate/product.

Economic Calendar

Date Time Event Period Survey Actual Prior Revised
06/15/2015 08:30 Empire Manufacturing Jun 6 -1.98 3.09
06/15/2015 09:15 Industrial Production MoM May 0.30% -0.2% -0.30%
06/15/2015 09:15 Capacity Utilization May 78.40% 78.1% 78.20%
06/15/2015 09:15 Manufacturing (SIC) Production May 0.30% -0.2% 0.00%
06/15/2015 10:00 NAHB Housing Market Index Jun 56 59 54
06/15/2015 16:00 Net Long-term TIC Flows Apr $17.6B
06/15/2015 16:00 Total Net TIC Flows Apr -$100.9B
06/16/2015 08:30 Housing Starts May 1100K 1135K
06/16/2015 08:30 Housing Starts MoM May -3.10% 20.20%
06/16/2015 08:30 Building Permits May 1100K 1143K 1140K
06/16/2015 08:30 Building Permits MoM May -3.50% 10.10% 9.80%
06/17/2015 07:00 MBA Mortgage Applications 12-Jun 8.40%
06/17/2015 14:00 FOMC Rate Decision (Upper Bound) 17-Jun 0.25% 0.25%
06/17/2015 14:00 FOMC Rate Decision (Lower Bound) 17-Jun 0.00% 0.00%
06/18/2015 08:30 Current Account Balance 1Q -$116.4B -$113.5B
06/18/2015 08:30 Revisions: U.S. Current Account
06/18/2015 08:30 CPI MoM May 0.50% 0.10%
06/18/2015 08:30 CPI Ex Food and Energy MoM May 0.20% 0.30%
06/18/2015 08:30 CPI YoY May 0.00% -0.20%
06/18/2015 08:30 CPI Ex Food and Energy YoY May 1.80% 1.80%
06/18/2015 08:30 CPI Index NSA May 237.995 236.599
06/18/2015 08:30 CPI Core Index SA May 241.409
06/18/2015 08:30 Initial Jobless Claims 13-Jun 275K 279K
06/18/2015 08:30 Real Avg Weekly Earnings YoY May 2.30%
06/18/2015 08:30 Continuing Claims 6-Jun 2200K 2265K
06/18/2015 09:45 Bloomberg Consumer Comfort 14-Jun 40.1
06/18/2015 09:45 Bloomberg Economic Expectations Jun 44
06/18/2015 10:00 Philadelphia Fed Business Outlook Jun 8 6.7
06/18/2015 10:00 Leading Index May 0.40% 0.70%