Earlier this morning we Saw talk of an Executive order to change ethanol mandates and help U.S. Bio fuel demand. This afternoon white house said no E.O. changing the mandate for ethanol. Soy oil collapsed,corn dropped and soybeans gave back more than half there half daily gains.I beleive this story is not over
Crude Oil had a real nice rally into the close almost 100 ticks as the Monthly EIA production data December crude dropping 91kbd and November revised lower as well.I dont think this is a trend that will last but for today was a reason to buy em up into the close.Support in the crude complex@$53.12 was not broken so another reason a rally into the close.
Per Mizuho Month end activity is to sell $9B in stocks and buy in treasuries.Also biggest sell program of the year just went through( measured By Tick data).Bonds higher on this Risk off move.If we believe Mizuho Numbers then this selloff has nothing to do with Expectations for Trump speech and all to do with Month End gyrations.Based on my morning reads I tend to believe and agree with Mizuho.Showing up on twitter over last few minutes are reports of shots fired at a speech given by French president Hollande.These shootings are accidental per twitter?! These shootings may have been some of reason for spoo sell off. Let’s see if Risk can bounce now that we know these are accidental.
Before anyone gets too nervous yesterday’s Pit low in Spoos 2351.70.No need to panic unless this level threatened
An Announcement by trump administration that they are going to change Ethanol rules for refiners and also create an environment for More American demand of Bio fuel has surprised the markets.Below find bloomberg article
(Bloomberg) — Carl Icahn and leading U.S. biofuel trade group presented a deal for revamping Renewable Fuel Standard to White House, according to people familiar with the agreement.
Deal would shift point of obligation for RFS and change EPA regulation to allow more ethanol use during hotter months, according to Bob Dinneen, head of the Renewable Fuels Association Change would “greatly expand the market opportunities for ethanol,” Dinneen says in phone interview
Ethanol will be used year round instead of Seasonal so thus more demand for corn (at its peak +20 cents today) More ethanol =less gasoline (rbob -500 ticks)Refiners that were not built for ethanol mixtures would buy renewable fuel credits to comply with EPA standards.So now no need to Buy these credits thus better for stocks bottom Line.Valero +2%.Within the Executive order There also curbs for importing Biodiesel from Argentina thus increasing demand for U.S. soybeans and Soy oil.This plan though needs passage from Congress to be implemented so Bullishness could wane.
Soy oil almost touched limit and And beans were +140 ticks at her highs.
On the road to Nowhere Easily explains the markets overnight. Spoos 4 handle range, Euro 38 pips, oil 40 cents, Gold $4 and Bonds 14 ticks. Bunds a little more active with a range 52 ticks. Trump speech tonight has everyone and every machine sitting on their hands. All is not lost though as Month end and second look at Q4 GDP may provide some moments of activity. More Than one sources has said dollars need to be sold for months end purpose’s this could come to fruition at 10:00 A.M for London Fix and then 10:30 for European close. A couple fed speakers today may also cause some excitement as rate hike Probabilities for March hover at 48%.Feds Harker @ 2:00 Williams @ 2:30
Title of trumps speech tonight is “Renewal of the American Spirit”. Markets looking for specifics on healthcare, taxes and infrastructure spending. Also hoping trump sounds more optimistic compared to his inaugural speech and reaches out to all Americans. We have already seen some comments regarding his Budget which he will discuss tonight, Increase military spending cut wasteful Government programs to pay for it.
Very light European calendar overnight but French CPI was lower and Italian CPI was reported higher then Consensus. 10 year yields across Europe Higher with France +2Bps.
Above find a graph of the probabilities for .25% rate hike at March meeting.I mentioned earlier that it touched a contract high,currently it is right around 50%.,it was Mid 30’s last week.Feds Harker comments appear to be catalyst. December 17 Eurodollar are being sold aggressively with good volume as rate hike expectations are being priced in and adjustments are being made.Yield curve is flatter on day as the short end takes more of the selling(adjustments then longer end).Quiet day today possibly one reason that markets are being so responsive to “Fed Speak”
Durable good orders were lower than Consensus but some of the sting of the lower Numbers was offset by higher revisions to last month.Pending home sales were also a disappointment.All Eyes on politics as I mentioned this morning. President Trump was meeting with Governors for the second day and then had meeting with CEOs of health insurance Companies.A few of his comments did cause some movement in stocks,A list of a few of his comments:
- proposing a $54 B increase in Defense spending
- trump told healthcare companies they have to work with him to bring down prices
- His tax plan will be really simple
- We will spend big on infrastructure
The last 2 comments gave a small boost to stocks but it short lived.Spoos have a 7 handle range since 8:30 SPX open
The Dallas Fed President Kaplan,a Voter and a Centrist caused some excitement with his speech.Kaplan Said that WE “should raise rates sooner rather than later” and also said “U.S. growth will be higher then 2% this year” he also countered some of these hawkish Comments with dovish ones but market ignored them.The probability for a March hike stands at 46% a “contract high” This increase in probabilities is weighing on Short end of treasuries but doing little to help Dollar.Possibly some deficit worries weighing on Dollar as the White house has been talking Budget today.The above mentioned Increase in Defense spending will be paid for by Cutting other programs and pulling back on Foreign aid.Disbelief by the dollar?
Oil is just churning but Grains are on the Defense as wheat down almost 50 ticks.Short covering rally has run its course and Egypt Looking to buy a few cargoes of Wheat but seem to be ignoring U.S. . First notice day tomorrow for March contracts could be a catalyst for selling .CBOT wheat -2%,KC -2%, Minneapolis -1%
All About Politics overnight. Rumblings that Scotland will call a referendum on her independence caused selling in the pound it is down about 40 Pips, trading 124.11 area to watch below 123.47.P.M May said Unlikely that this will happen. The House of Lords will discuss the Brexit Bill this week so Brexit headlines could have an impact on the trade. Even though there will be objections to the language of the Brexit bill, House of Lords expected to agree to its verbiage. Polls over the weekend in France continue to show little chance of le Pen winning the Election. We have heard that before haven’t we? Options on the CAC stock Index are showing an increase in Volatility during election week and that market not taking anything for granted. French 10 year yields lower and this causing both Italian and Spanish yields to drop as well, the daily update on Schatz yield shows it increasing by ~2 bps. Here in the U.S. all eyes and ears will be president trumps speech to Congress Tuesday night, This Speech has markets full attention. Within his speech market is looking for A More specific timeframe of when policies will be implemented and Want specific numbers on tax cuts and possibly infrastructure spending.
With everyone waiting for trump Speech markets drifting.Nky closed lower by .91%, European Bourses sideways and Dollar little changed. Steel in China traded higher by 3% but other metals sideways. Nothing new about Copper strike.nat Gas going to Zero again as it is down 115 ticks.Pretty big deal in the Brent complex as a rule that hasn’t been triggered in 6 years will be. This rule requires that if Brent spread between 2nd and 3rd months becomes too tight Investment funds will have to sell December contracts and buy June, to the tune of $2 Billion.
- Durable goods orders today
- Feds Kaplan Speaks at 10:00