Will they or wont they Hike In September,this hangs over market. Fridays jobs will go a long way in tipping scales one way or another.As of this morning 38% chance of Fed hike
Month End flows.
OIl: Bullish news
Updated Monthly oil data from EIA,using New methodology shows oil production was lower than initially reported by 100k a day for first half of year.
China has been taking advantage of Lower oil to stock her SPR.It was reported earlier today that china bought a record 36 million barrels over the month of August
OPEC on wires saying that dont want oil price to drop so far that cuts Development of new wells.Saudi Oil output for Aug. dropped 70k a day
- OPEC willing to talk to partners about OIl price
- Run up in oil has shifted higher Fed hike probability to 40%
1:00 Weekend Fire in Alberta Canada puts synacrude out put at risk bullish for WTI due to cushing supply drop
China said Earlier Sunday that it will stop Supporting the Stock market, but with China their always seems to be a “ but…”.This time it seems China Wants brokers to do their part and step up and Buy Stocks. China stocks Rallied 3% in afternoon session, to close day -.82%, a monthly close of -12.5%.This announcement and “hawkish Fed” in Jackson Hole weighed On Stock Futures.
Stanley Fischer spoke about Inflation on Saturday and what markets have taken from it is that FED is ready to hike rates this year, and September is definitely in play. Central bankers have signaled that China turbulence has not altered their opinion on US economy and the Path higher for Inflation. BOE Carney reiterated this about the UK economy this weekend as well. Last week, the implied probability for a fed hike at September meeting was as low as 21%, now it stands at 38%, the highest since august 19th.
In Euro Zone we saw CPI core unchanged from Last month 1%, Italy’s CPI was .1 higher vs last month and German retail sales 1.4% vs f/c 1.1. Euro is a touch higher and Dollar a tad lower. More to do with month end positioning than anything else.
2 years and Fives unchanged but 10;’s and 30’s find themselves bid. Bullish flattening of curve for now. Bunds are unchanged and Buxl steady.UK on bank holiday may have sucked Volume out of markets overnight. Plenty of Event risk later this week, ECB meeting, Payrolls and Month End flows today.
Commodities are under some heavy profit taking as all are lower. Oil -2% after an amazing 2 day run to upside, +17% since last Monday.
Month end Stats:
• Asian Equities biggest monthly decline 3 years
• Oil set for 3rd monthly decline
• Soybeans set for 2nd monthly decline
• China yuan biggest monthly loos since 1994
Kocherolkota Known Dove stuck to Script Inflation too low,need stimulus to get back to 2%.But he is non voter this year.
Fischer : permanent Voter Sounded more hawkish than neutral.Even though he tossed a few crumbs to doves(market volatilty affects decision,made no decision on Sep Hike)
Hawkish Side Recent data impressive,cant wait for case to be overwheleming, heading in direction of higher rates, economy near full employment
Rate hike expectations now 36% up from 30% this morning.
Jackson Hole Symposium has already given markets a steady flow Of Fed speakers ,Consensus I find,is one Looking past recent volatility and Focus on Data.Inflation Still Non existent , PCE core y-o-y dipped below consensus.consensus. September Hike seen at 30%, still can change with a strong Jobs Report or a hawkish Fed quote.
The Close today of all products will be important
Base metals and Oil moving Higher with Dollar.is it now a strong US Economy=Strong Dollar=More demand for “stuff” Just a thought.
From MS. Oil Catalysts
Potential bullish catalysts for oil could include:
1. China stimulus, particularly a large fiscal package.
2. A further reversal in the trade-weighted USD. Any stability in China’s FX or
additional changes in expectations for the path of US rates could be catalysts.
3. Excitement over declining US production as figures come in. Greater cuts to
capex budgets and a renewed fall in the rig count may also bring the focus
back to declining US supply
4. A modest easing in OPEC production, even if just for seasonal maintenance.
5. Headlines about an emergency OPEC meeting, even if no action is taken
6. Congress voting against the Iran deal. Overcoming a veto seems unlikely,
but such a vote could undermine confidence in the deal’s success.
7. More resilient GDP and/or oil demand figures could help ease macro fears
10:00 Tropical Storm Ericka:
She has shifted path,now moving further towards Gulf .Short covering before weekend
What a week, not done yet though. In China’s Afternoon Session Stocks started to lift, invisible hand at work? Looks like it. They closed higher by 4.8%, taking 2 day total to a gain of 10%.Shanghai still Down 8% for week. EM in Asia all closed higher, Taiwan +2.5%.In Europe both stoxx and Dax have a good chance to close higher this week. Mondays lows clearly in the rear view Mirror. Some European Numbers overnight but markets paid little attention. German CPI a touch Weaker, UK GDP in line and Euro Zone Economic Confidence better. Almost every move in Stocks, Bonds and commodities have not seen volatility like this since 2008-09.The Move yesterday up in OIL was amazing. The Short covering rally was coming we never know when.
The FED is front and center, September hike Expectations stand at 30%.jackson Hole Symposium starts today in full.3 fed presidents will be interviewed on Bloomberg TV, Bullard on Now, Korlekota and Meister later. They probably will show up on fox, cnbc. China has Blamed FED for stock Market crash, other central bank heads urge Fed to get on with it and raise Rates! Not an easy situation for fed now. Fischer Speech on Inflation tomorrow is important for Fed policy. Bullard said this morning that Fed should look past last 10 days of volatility.
• Markets have seen Record outflows, Merrill Lynch said 26b outflows in August from Stock markets.
• China pumped another $9.4b into markets last night. Trying to stem outflow of yuan.
• Venezuela calling for emergency opec meeting falls on Deaf ears
• Watch For FED headlines throughout day
Dudley’s comments from yesterday still providing a Lift to Risk,Can delay September liftoff..
GDP Stronger than Consensus,Put Sept Hike back in conversation.Good is good and bad is bad in regards to Spoos.They rallied following GDP Report as signs of strength in USA is good For stocks amidst Global slowdown fears.
Rally in China stocks Good for beans,Cattle and all commodities
9:00 International Grain council said that World Wide grain stocks will hit a 29 year high.After initial china euphoria more supply should weigh on prices.
Still talk of China Selling Bonds to cover yuan intervention,But Bill gross and Morgan Stanley have questioned validity of statement.
11:00 Massive amount of Short covering in Oil as it traded above a prior days high for first time in 2.5 weeks.Energy sector was +3%,helping spoos to register a $37 dollar gain.Dollar is higher during this,Adjust your playbook! JPY continues to trade lower and should be good for Risk
2:30 Stock Imbalances lean toward buy of $200m seems very light.Some may have been expecting a larger Imbalance on buy side as .Dow and spx all over the map
All is well in the world. Shanghai composite closed higher for first time in 6 days, but just looking at the “box score” is deceiving. It was down for the morning session and started lower for the afternoon, but with 45 minutes to go before the close an Invisible Hand miraculously stepped in to Buy, It rallied over 6% and closed higher by 5.3%.Rumors that PBOC was the buyer. Any risk related asset caught a bid, “safe” assets were offered and we were off to the races. Oil, base metals, European and WE stock futures all higher. Bunds also started session bid, but once Spreads vs. Bunds took hold she cratered under pressure. Bunds -41 Buxl -160. Curve play evident in treasuries, Bonds up, short end down.
Yesterday Feds Dudley indicated that a September liftoff is not a guarantee as he hinted that global issues could delay FED move. Some talk that October could be the Date for Liftoff, we will see. Jackson Hole Conference starts today and we have seen KC fed President George being interviewed on both CNBC and Bloomberg. She said every meeting is a live one, but also voiced some concern on low flation and Global issues. Talk that China has been selling treasuries to buy Yuan(>$100 B??). Morgan Stanley doesn’t see it.
• Risk On so far today. Yesterday SPX had biggest up day in 4 years.
• All EM Stock markets Higher, All European Bourses higher (CAC and Dax +2.6%) Gold even hanging on to a small bid.
China is selling both Treasuries and German Debt,5 through 30’s to help pay for her Intervention and stimulus measures( pumped another 21b into banks yesterday).China needs to raise yuan holdings.This will be driving force behind treasury moves and curve fluctuations.Bonds 7 handles lower from Mondays high
Shanghai Composite fluctuated between gains and Losses 11 times yesterday before closing lower by 1.25%.
E minis are expected to be volatile once again today,after unprecedented sell off into close yesterday.
9:45 Feds Dudley:
Sounding dovish as he sites international developments can’t be ignored when setting Domestic policy. Dollar sold and treasuries bid .Spoos sideways.China slowdown to affect prices of US goods and services
Also as reminder ECB praet hinted that if ECB inflation goals not met more stimulus could come.Tried to talk Euro down from 1.15 handle.Regardless 2 Central bank officials hinting at lower rates.
Rate hike % dropped from 26% to 24%. Not a big move but direction towards no chance is what is important.
10:45: Ugov inflation survey for UK showed dip in 1 year expectations to 1.4 .Pound does not like that down 205 pips vs. dollar.( 80 lower when survey released)
Cattle: the continuation of plenty of supply,Limited demand and end of Summer grilling all weigh on Cattle.Live is trading at levels we haven’t seen in over a year.The rebuilding of the herd at higher weights too much for the limited demand
Gasoline: Has dropped 4000 ticks since 8-13. We are on contract lows.Quicker return of Whiting refinery to service and end of driving season.
OIL numbers review:
- Storage -5425 vs f/c 1450
- production .11 % lower than last week
- Imports lower
- Gasoline Production Down
- Crude refinery Inputs lower
- Gasoline supplied lower
- cushing build
The build in products and lack of Demand for them outweighed any bullish oil news.
Crude oil calendar spreads Continue to be bid.A couple of reasons:
1) whiting refinery back on line sooner then thought
2) Refinery maintenance to be smaller that historic norms. Thus more oil demand
3) cushing draw for tomorrows EIA Numbers?
Outright Crude oil Is in middle of range,been testing the lows but cant flush.
For Gulf Refineries,drillers a second tropical storm is just of coast of Haiti,it poses no threat to the gulf.
FED rate hike Expectations stand at 26% for September move.Unchanged from yesterday,down from 50 last week.
Was China rate move enough to convince Buyers to step in?So far yes, but day is early.Dead cat bounce or reestablish trend?Risk On move today but with a strong dollar.Always need to have the play book.
Soybeans firm on China news and for second consecutive day an Unknown buyer of beans (china) has stepped in.Corn is heavy as Crop progress running at historical pace.
Euro -200,JPY -100 unwind of yesterdays Action Dollar +1.277
Bonds have no reason to rally.Stocks still firm,2 year auction was average to poor.All markets possibly waiting to to see response out of china when Stocks open there later tonight.Heavy selling out of Bunds and also some commentary about how The FED should look past China and still hike in September.Real good round of profit taking ongoing due to weak technical s as well.2-30 yield spread wider by 21 BPS last 2 days.