Cattle

Quite a move  yesterday in  Live cattle .Here is a 5 minute chart of the action  as it was sitting near lows and then sky rocketed up to touch limit.This occurred over last 30 minutes of trade.

lc day

Some talk of   higher trade in the spot market,This proved to be false as  the Action was steady to lower in Spot.Box beef values continue to print sideways to lower.So what was reason?I think Over sold conditions at an Important support area  caused buyers to step in and than a good ole fashioned squeeze into the close.Cattle markets are very irrational more so then most markets.There is a sense in the cattle markets  that someone knows something more than I do  so If market moving violently one way  I better join in.

Here  is daily chart of LCV  I believe a bottom has been found.This more so than anything else was cause for run up in prices.

lc

Price action broke through the lows  and then closed up near highs,leaving the support area of 105.25 in tact.This will stay that way until a close below this  level negates the double bottom pattern.Problem with cattle is similar to Corn and Wheat  just too much of it!

EIA and other action

EIA numbers were Bearish as Demand moved lower and Supplies moved higher. 2 minor Bullish metrics may limit the downside.Cushing stocks had a larger than consensus draw  and  gasoline stocks in NY harbor,Delivery point for contract, reported a draw.This may limit the downside in prices.Distillates  Stocks were higher than consensus both nationally and on the  east coast,prices should find it hard to move higher.Refinery demand measured by refinery inputs was lower but by a slim.38%  but none the less lower.Oil continues to move lower and squeeze the longs.

Lower oil appears to  provide a bid into long end treasuries as they continue to move higher  and Steepen the yield curve.Inflation and inflation expectations more a feature for Long end pricing then the short.Spoos moving lower and trade appears to be one of “risk Off” and not one of fed rate expectations.Spoos have just traded below prior 2 days Pit lows.September probabilities for rate hike are down 2% vs. yesterday’s Close.I wouldn’t get too  wrapped up in  the “theme ” for today’s trade as  Month end machinations probably the culprit.Lower Oil having  a big  impact  on todays trade CL -2.5%. I guess if Ihad to choose a theme it would be Lower oil causing a risk off move.

Gilt Auction

Every tuesday Brings the reverse Auction from the BOE(QE) of long dated,15+years gilts.These bonds are in high demand  and have  been a problem for BOE to wrestle them away from holders.One way to entice them is to pay a hefty premium over the current prices and that is what BOE did. For some maturities BOE paid 200 ticks above current cash prices. At last week’s auction BOE paid 140 ticks above current prices for some maturities.

The  reverse bid to cover at today’s auction was 2.08,in line with the last 2.But what drove prices higher was the hefty premium that The BOE paid.I will monitor this metric for the next few auctions.For holders of these bonds it sounds like easy money doesn’t it?

Oil Collapse

Strong Dollar,Iran  Saying they would like to produce 50ok more barrels oil per day by end of year  and tropical depression 9  turning into an afterthought and not a hurricane all weigh on prices.This fundamental cause for weakness has pushed prices below  support levels and in turn  caused some longs to be squeezed. Cl – 1,3 % and brent -1.8%  Reminder that tomorrow is the last day for October brent and september Rbob and Heating Oil. Just hitting wires  Iraq says it will Support Oil Freeze. Small bounce in prices

Grain update  tomorrow  is first notice day for September contracts,Corn has traded down to 7 year lows.Trading 307 now  have not had front month corn contract trade below $3 in 10 years.

morning 8-30

See if you heard this one before Low Unemployment (lowest in 21 years) a beat on monthly retail sales but yet Inflation stuck in the doldrums. This is Japan. They reported these retail sales and unemployment numbers overnight, but yet ministers are still on the wires talking about ways to weaken the yen. The latest is that BOJ could but Foreign Corporate debt and thus weaken yen as they convert currencies for Purchase. Yen -40 Pips. Vice Chairman Fischer on Bloomberg radio and he offered nothing new to the rate hike Rhetoric. He did Not mention September specifically and thus by the admission of this word treasuries caught a small bid. He also said “no way to commit to one and done have to see how data unfolds.” All eyes still on Friday’s payroll numbers.

Let’s stick to the low Inflation story with Germany, She reported Inflation that was below consensus for the Month of August. Bunds and buxls have stayed bid and Euro has traded heavy, down 25 pips. ECB reported that holdings of Debt have approached 1 trillion euros. We keep seeing these weak Inflation numbers speculation will continue to grow of more QE. Ridiculous.
Oil is Bid as 11% of production in Gulf has been shut due to tropical Depression #9.These depression expected to turn into a storm but not strengthen into a Hurricane. Its projected path is one to move across Florida and then out to sea. Watching Heating Oil as talk of Diesel shortages in Europe may cause an Increase in Demand.
• Wheat at Multi year low, Heavy rains in Iowa have caused little concern for Now.
• Yesterday’s price action in the Bonds is due to the continued lowering of the terminal fed funds rate. Some calling for 1.5 in 10 years’ time.

On Second Thought..

Spoos higher, Long end treasuries higher, Gold and silver higher.  If dollar wasn’t in the green you would think yellen never spoke on Friday.Some of the Bullishness Is in response to the expectations of the Fed Hiking Once this year and on  hold for the foreseeable future.Also  even though the fed  could hike BOE,ECb and BOJ are still  conducting some form of asset purchases and possibly could increase these purchases.The long END of US yield curve still a much desired place for Investors money and as long as some  central banks continue to Provide stimulus some of this money will end up in  Bonds.Another factor is that with the Fed hiking rates it will keep inflation down  and thus not be a bearish factor for long end.technicals also playing a small role as real  good yield resistance has caused prices to find support.Roll activity and Month end Adjustment fill out list of Excuses for higher Treasury prices.

One day  Stocks don’t like higher  rates, then next they do.Financials leading the charge higher today  as they as a group +1.19%even utilities  which abhor higher rates are  +.5% as a group.I believe a small rate  hike is not a bad thing as many fed officials have hinted at. if Hikes are done in  moderation,almost certainly the case it  will be a confidence builder for Economy. Stronger economy=higher stocks.mizuho out with a piece saying Dividend payout for US stocks could reach a near record  $100 Billion in Q3..Another reason to buy stocks!

Both Oil and Rbob showed a hefty jump in net longs for week ending 8-23.These weekly position reports have turned into a  contrarian Indicator as Speculators get long  prices move lower and vice versa. I believe this is happening again in Oil and Gasoline.tropical Disturbance 9 which is located in the Gulf of Mexico will not turn into anything more than a storm Event risk also coming out of Gasoline market

Hawks everywhere

Fed Governor Powell On Bloomberg TV “I would support Gradual pace of rate hikes”  Dollar higher 2 year lower. The 2 year Yield  at a 2 month high,above 200dMA for first time in 10 weeks.Yen now down 108 ticks .5 year Yield highest since brexit vote as the short end still being sold.Spoos dont like the  higher rate talk as they are sitting near 3 week low.The FED going out of its way to signal a strong possibility of a September hike.Message received!

Feds Fischer

Vice chairman Fischer appeared om CNBC and clarified chair Yellen’s comments He Said” Yellen’s speech Consistent with a September rate hike” Also Next Jobs report  “Will weigh on  rate hike decision.”  Dollar higher,yen through support,yield curve flattens as Short end prices show a  greater chance of September hike.Five years -7 ticks  ultras -4! readjustment for sure. Higher  dollar weighing  on all Commodities with the exception of Oil as Rumors of a Yemeni missile having struck a Saudi oil installation keeps it bid.Stocks saw biggest sell program of the Month,based on Tick Data per BB and traded into a  gap from early August.The move higher in dollar has shaken the markets out of the doldrums at least for a few hours.

In the Energy space The Tropical wave located near the bahamas is still providing worries.Model guidance shows possible track  running into the gulf.All  forecasts for now  bu tit may keep a bid in the oil through the close.

Yellen

Janet yellen’s first comments to hit wire were that  Rate-Hike has Strengthened in recent months and that Fed is close to achieving goals on employment and Inflation.Dollar Rallied  hard  but as More comments filtered in Dollar turned lower.This is a problem with the News wires as they decide which headlines to put out first ,in this case a hawkish one.Yellen went on to repeat that Fed still data Dependent and she mentioned that it is getting harder to predict the path of Fed funds rate .This offset the  initial hawkish move.The Content of Yellen speech based on her title was talking about tools the Fed has at its disposal so of course she would talk about QE,Forward guidance and the Like.This is not meant to  be taken as fed leaning towards using these tools anytime soon,it is part of her Speech.There were only 3 paragraphs set aside for the Economy so  not an extensive Discussion of current state of Affairs.Yellen did repeat what Vice Chair Fischer said last week that fed is “Closer to reaching goals on inflation and Employment”Closer is not a definitive answer to when rates will move higher.

Initially hawkish Yellen but upon Further review she didn’t mention anything new about the Economy still data Dependent and will make decisions based on Data.next weeks Unemployment report looms large  as always! Little change in rate hike probabilities vs. pre Speech.

Grains (soy beans)

   Out to the woodshed we go with soybeans they closed lower by 3%. Support has given and longs liquidating .The pro farmer tour of Crops have not reported anything Bullish for Soybeans.Crops looking  real good .Not only have soybeans toppled But Soymeal as well it closed down 2.5% and Soyoil less bad only down 1%. The net longs in Soybeans have been liquidating and this probably won’t stop  as Weather concerns abate and Support has broken.Aggregate soybean volatility was higher by 9.5% today,but the move lower  was more orderly than Chaotic.

 Corn finds itself lower as well .The pro farmer  tour did offer some words of caution regarding  Size of Corn Crop but it shouldn’t cause a bullish move. Crop will still be a record.

 Overnight Currency vol. is closer to lows then highs,Indicating  little worry that Yellen will rock the boat.The  25 Delta Risk Reversals  Show  less negative pricing  since yesterday in GBP Indicating  more calls then puts being bought ..Similar scenario In Yen more upside being bought then downside,the Euro is the opposite as the skew moves More negative  and pricing in More of a downside move then upside.