EmailThe S&P 500 Financial Index has tumbled 3% today. Greek concerns have once
again risen to the top of the market watch and thus financials are being chopped
down. Given the recent run up in the group it is not surprising to see the move
this morning. And, the market playbook has of course been to attack financials
when Greece debt concerns are driving markets lower and today is no exception.
There are two pieces of news that are also aiding the decline though. The first
is a growing expectations that the Fed will cut its IOER rates at the FOMC
meeting this week. This would be viewed as a negative for banks as it would
force them to take more risk with some of their assets in uncertain times. We
are of the opinion that this will not occur this week as it is likely the Fed
will want to keep some arrows to deal with issues and an announcement of
'Operation Twist' would be more likely at this juncture. The second news item of
interest is statements from the FHFA about raising the cost of some of its
guarantee fees. The idea is top put the pricing more in line with the private
sector and thus make privates more competitive. The problem for the financials
is that this will raise the cost of doing business with the GSEs. Jefferies
(JEF) will be providing earnings tomorrow morning before the open. This is of
interest as it is one of the last remaining brokers with a fiscal year end in
November and thus reports earlier than its peers. This provides market
participants with a proxy on capital market performance during Q3.
News of Note
1) Wunderlich notes the mortgage REITs advanced in price on average last week. The Federal Reserve joined efforts with the European Central Bank, and others, to provide more dollar liquidity for euro zone financial institutions, which could be helpful in mitigating fears of counterparty risk in repurchase agreements, which is often disregarded. They note AGNC, TWO and HTS declared Q3 dividends in-line with Q2, while announcement from NLY, CIM, MFA, ANH and MITT are upcoming.
2) UBS AG (UBS) states the loss resulted from unauthorized speculative trading in various S&P 500, DAX, and EuroStoxx index futures over the last three months. The positions taken were within the normal business flow of a large global equity trading house as part of a properly hedged portfolio. However, co states the true magnitude of the risk exposure was distorted because the positions had been offset in our systems with fictitious, forward-settling, cash ETF positions, allegedly executed by the trader. These fictitious trades concealed the fact that the index futures trades violated co's risk limits.
