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 2^nd and 3^rd 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

Biggest surprise this afternoon is the Fed rate hike Probabilities for March moving to 40%,With all the speculation and talk of  trump trade unwinds,delayed stimuls, I would think this probability would be going down not up.last Week this metric touched 45 %.

Another news item that grabbed markets attention were comments from Trump’s chief Economic advisor Gary Cohn who said “White house not on board with border-adjustment tax plan from Republicans” this caused a real nice jump in retail stocks.XRT is your retail ETF.The question now can the Dow close higher for the 11th consecutive day?I believe 13 is the record but I will have to double-check that.One of the French presidential Candidate,Fillon is being investigated by french Authorities. He is one of the front-runners to advance to second round of voting so if his candidacy is  disrupted it does complicate things further in France.Euro traded down to session lows on announcement  but that was a drop of 10-15 pips  nothing.

If crude oil can settle  above $54 it would be first time in  5 weeks that the weekly close did not have a $53 handle. range bound Ongoing chatter of   continued increase in open interest in the 55 calls and 50 puts in  WTI. the rationale is that many player believe  prices will not extend out  of that range.Today a slight adjustment as the april $54.50 calls are highest volume strike.

Next Week  Tuesday all eyes on trump speech to congress.

Real nice move in the  shorter part of the U.S. yield curve and Some, if not most of it due to Short covering.The Risk Off trade helping and roll activity as well. Surprisingly the March rate hike probabilities stand at 38% ,up 3% from Tuesday and the highest this week.This evidence would be bearish to neutral not bullish  for five’s.

Chart above is the March 5 year future with Open interest  the bottom  histogram.Pretty clear to see that prices  took a leg higher with open interest dropping precipitously,this is a text-book example of short covering.To reference my points above is this due to roll activity,slow down in economy or just unwind of trump trade?Dont know just yet,but what we do know is that Short covering is ongoing in 5 year complex.

Schatz yield  german 2 year.

RISK OFF:  European Stocks getting hit hard as Company earnings weigh. Royal bank Of Scotland -6% as it reports 9^th straight quarterly loss. BASF Chemical maker In Germany reported earnings and said “profit outlook weighed down by gloomy European view “That stock down 3.6% biggest drag on Dax. All 30 Dax stocks lower today and all 19 stock sectors in Europe Lower. The largest decliner is the Basic resource sector down 2.75% as a group. This is an important characteristic as the strength of the trump reflation trade is in serious doubt. These doubts stem from comments from Trump administrators, most recently treasury secretary munchin and people on the hill. If congress wants/Has to do Obamacare first, then tax cuts, then infrastructure plan   impact will not be felt till 2018 at the earliest. The cart has definitely been put in front of the horse  on this trade so pull back, profit taking disappointment call it what you like but the Reflation trade may have overstayed its welcome. Trump gives a speech today to Conservative convention and then on Tuesday to Congress. The reflation trade could be back in full swing after the Tuesday speech if he talks up stimulus package. But for now Spoos down 10 handles Dax -1.6% and Cac -1.4%.French politics not playing a role today as latest Poll has le Pen losing ground in second election. Just about stocks, Ftse mining Index -2.9%, of the 500 European Stock Index 400 lower. The 2 year schatz is discussed everyday now, her yield down again today to -.94%, commentary is of no near term bottom. Keep buying them.( see chart above )

In the risk off mood precious metals higher both gold and silver highest in 3 months, but surprisingly base metals are all higher. This really puts a dent in my Reflation trade is dead commentary. One explanation could be the weekly commodity stockpiles in Shanghai dropped 2.9 Tons. Dollar down 31 ticks also maybe helping the move higher in them. Yen and Euro higher as well

Calendar:

• New home sales 9:00
• Trump speech to CPAC conference at 9:15 He is speaking to his base  so remember that
• Day 2 of annual USDA conference so be on lookout for Grain comments