Out to the woodshed with Livestock.Live cattle,feeder cattle and lean hogs all limit down.Too much supply for both.Continued talk of more supply than Processing ability is not good for higher prices but reall good for lower prices.Front month Live cattle will settle below $1.00 for first time in 6 years.Weekly Slaughters continue to increase as Packers margins are still positive,lets make money while we can.Since margins are still good why wouldn’t you continue to bring product to market.Some action might be due to month end Plays but I wouldnt look too much into that.The bottom line is that there is more supply than demand and in some cases more supply then can be processed into retail product.until market finds balance,prices should trend lower.
Rumor earlier this morning is that Deutsche Bank’s fine will be lowered from $14B to $5.6B .DB has rallied smartly as a result DB higher=Dax Higher=risk on!.Also helping the Risk on move is Chicago Pmi and Michigan Confidence revision were both higher than consensus.
In the bond complex Long end leading treasuries lower.In turn steeping the yield curve for second day in a row.Inflation worries? or readjustment of Inflation expectations? 1,2,5 and 10 year Inflation break-even are trading higher today continuing the trend higher.Reuters telling us “chunky algo sales” and Block trade but of 10k 131.25 Puts in the 10 year complex adding to the bearish pressure.Plus stocks continuing to press higher will lead to lower bond prices.As I mentioned before I will default to Month end/Quarter End for price gyrations.
Here is a snapshot of movement in the Credit default Swaps overnight.All of Europe’s big banks are under stress.Stoxx bank index gapped open lower but has clawed back about half it losses as the sense of panic eases(currently lower by 2.5%).A couple of things that have cause the markets to exhale .1) Swiss Government has said “*SWISS GOVT TO EASE TAX BURDEN FOR TBTF CAPITAL. *SWISS GOVT TO FACILITATE ACCUMULATION OF CAPITAL BY TBTF BANKS(TBTF=To Big Too Fail) And secondly The USA could just lower the $14 Billion fine they levied on DB.The Fine is what started the latest leg Lower in the stock.I believe the fine will be lowered to a more “manageable level” DB CEO out saying “media speculation causing unjustified concerns” “bank balance sheet Has never been more stable over past 2 decades” Dax is currently -.9% but has rallied roughly 1.3% off a session lows.Spain and Italy both down ~1.8%.We could see some “tape Bombs” today regarding DB but it appears that the panic maybe over.Spoos only down 2 handles as the too are recovering losses and sit 2 handles away from session highs.DB gapped open lower by they too have clawed back over half their losses
Oil followed Stocks lower and has now followed them higher.Dont need to repeat story but I believe a Bottom is in place until more evidence of actual Production cuts appear.
Not too much in the way of Economic releases overnight.german retail sales beat Expectations,EuroZone Core CPI missed by .1 and a handful of second tier UK data had minor impact on the trade.All eyes on banks and the fluctuations of DB.
Dollar higher,Euro (-65 pips) yen(-25) and GBP steady .Gold,silver platinum up a touch but in no real hurry to do anything.We do get personal spending and PCE Inflation at 7:30.Normally these have little impact on markets.Chicago PMI at 8:42 and U of Michigan Confidence also should not be of much Importance.Month end/Quarter end and banks will be driver of action today
Crop report at 11:00 Should be a mover
News headlines indicating that hedge fund clients are withdrawing funds and possibly moving assets out of Deutsche bank. Bloomberg saying at least 10 hedge funds could be looking for a new Clearing firm as Questions about banks solvency swirl.
DB bonds also being sold as Credit default swaps move higher as does 1 year probability of default
We have seen a mid morning Sell off in the Dax which caused weakness in the spoos and thus “risk”.No one specific reason for selloff,chatter of hefty sell programs in Dax. I believe Dax ran into resistance(10570) and when it couldn’t break it sell off occurred.Month end/ quarter end could be blamed also ongoing Deutsche bank worries as well.This snapshot of the Dax does not show that prices did print below yesterdays lows,an outside day.
here we have Spoos on a 30 minute chart,it too ran into Good resistance at 2165 before it followed DAX lowered
Oil was sideways for most of day and that caught a bid as we approached the European Close. December Brent traded above $50 and WTI Pressed above Yesterdays All session highs.Also helping the Brent complex is worries about a shortage of Diesel.If you recall from 2 weeks ago the Colonial Pipeline was ruptured.The line 2 which carries Diesel,was then used to carry gasoline.So the USA is a touch short of diesel at the moment and thus less exports going to Europe.Also Refinery issues in Europe making Diesel a little more expensive. Gasoil crack spread +40% also helping the bid.
A little bit confusing today is the trade in bonds. Yesterday they ran inverse to Oil,today they seem to be positively correlated.I think the bonds are trading off the weakness in Stocks and not so much the Run up in oil.
Deutsche Bank ADR trading -5.5%
Here is a look at yesterdays closing prices for top gainers in energy sector.This is how higher oil Impacts the SPX. lets see if we get a repeat today.
What we know so far.
OPEC decided to CUT PRODUCTION not freeze it at today’s informal meeting.If they do actually follow-up with Cuts it will be the first time in 8 years that OPEC has done this.In August OPEC production was ~33.3 MMbpd Announcement today lowers production to 32.5 starting in November.Todays Decision is light on Details as we don’t know how much Each country will have to cut.Will Iran be excluded from a cut?or will they Continue to ramp up production and then freeze it in Novemember?Plenty of Questions need to be answered and time needed to see if Cuts are actually Implemented.But regardless of the specifics OPEC announced a production cut,much to everyone’s surprise.
Net changes on day
- CL +4.75%
- Brent +5.5
- Gasoline 5.3%
Run up in oil weighed on Bonds,Created a bid into Copper,Commodity currencies and SPX.Inflation metrics also moved to the upside.Higher oil could be a godd thing