Spoos trading heavy as Europe closes.Spoos -7 handles Nasdaq -17 .Both amazon and google down from early morning highs.With the exception Of Information related stocks All SPX sectors are in the red.Congress has passed a 1 week Stopgap bill as they couldn’t reach a deal today to fund the Government through September.That might be weighing on Stocks a bit but markets believe a deal will pass.Todays GDP report was not pretty but markets were expecting that but still it was not a promising start to the year.
Yesterday Draghi Sounded dovish in his Q&A portion of his press conference, But today Hard Data contradicts this sentiment. Euro Zone CPI was released and both headline 1.9 vs. f/c 1.8 prior 1.5% and Core 1.2 vs. f/c 1 prior .7 beat expectations. The core CPI was highest since March 2013.Euro rallied and bunds were sold. Euro area to watch is this week’s highs 1.0951, then 1.10 handle. A poor GDP report from the US could give the energy the Euro needs to break above that area. The other item’s note overnight has to do with politics, of course. In an Interview with Reuters trump had this to say about North Korea “There is a chance that we could end up having a major, major conflict with North Korea. Absolutely, “We’d love to solve things diplomatically but it’s very difficult,” yesterday North Korea Ran some propaganda videos with Bombs hitting the White house. Plenty of Saber rattling between the 2 countries. Earnings overnight from some titans Goog and Amzn were better than expected .Analysts are raising full year Estimates for companies something they historically do not do this time of year.
Republicans said they will not bring a healthcare bill to the floor over weekend and this appears to clear the way for A Government budget bill to pass through Congress. A CR, Continuing resolution may be passed for 1 week so paper work surrounding bill can be written.
US GDP First look, Chicago PMI highlight economic calendar today. No fed speakers as they are in Black out period. Europe Closed Monday and japan on Holiday all next week. Fed meeting and Unemployment next week as well .Once we are done with GDP All eyes will be on politics again.
Oil Higher as Iran said they may be open to participating in future production cuts. Gold steady and spoos +2 handles. All eyes on Cattle open after 2 days of Limit up moves.
Quite a 2 day period in the cattle complex .Feeder cattle has been limit up for 2 consecutive days(9 handles) and Live cattle has been up close 5.5 handles.Live cattle has been on a tear for the last 3 weeks trading some 13 handles or 11.8% higher during that time period.Feeder move not as spectacular as the live, but it has been pulled along for the ride.Cattle weights have been dropping for the last 5 weeks less weight=less beef.Boxed beef,measure of retail demand has moved higher by $12 over last 3 weeks.lastly and most importantly the end users,commercial positions in the cattle complex are caught very short.Both They were hedging for lower prices as all end users normally do and this has stung them.I can only follow Spot market on twitter and today there was a real sense of panic as the Spot trade started at $135 and Moved all the way up to $140 with commentary saying few sellers were evident.Both feeder and Live cattle commercial positions are the largest net shorts on record.A squeeze makes perfect sense.
I worry once the squeeze is done markets will drop ,as we know.The million dollar question then is when?
feeder cattle cahrt
Live cattle chart
Below is a daily graph of RBOB June contract.The continued build in Stocks is weighing heavily on prices. Historically the high price for Summer RBOB is scored between late April /Early May.If that holds true that is great news for Consumers but no so great For oil companies.As we all know the demand For gasoline is the main driver for oil demand in the Summer months.If gasoline supplies continue to build it may be a cruel summer for Price of Oil.
Easier if I post article from the Hill. This is reason for flush in spoos
House Democrats will oppose a short-term spending bill if Republican leaders attempt to expedite an ObamaCare repeal bill this week, Rep. Steny Hoyer (D-Md.) warned Thursday.
Hoyer, the Democratic whip, spoke with House Majority Leader Kevin McCarthy (R-Calif) Thursday morning to warn him of the Democrats’ position.
The threat is significant because GOP leaders will likely need Democratic votes to pass a short-term spending bill in the face of opposition from conservatives historically opposed to government funding bills.
“If Republicans announce their intention to bring their harmful TrumpCare bill to the House Floor tomorrow or Saturday, I will oppose a one-week Continuing Resolution and will advise House Democrats to oppose it as well,” Hoyer said in an email.
“Republicans continue to struggle to find the votes to pass a bill that will kick 24 million Americans off their health coverage, allow discrimination against those with pre-existing conditions, and impose an age tax on older Americans. That’s why they are trying to jam it through the House before their Members can hear from the American people this weekend about their opposition to this horrible legislation.”
ECB press conference started out with Draghi leaning hawkish saying Global risks are almost balanced a Hint that ECB maybe a step closer to Ending QE.Euro rallied and schatz sold off.During Q &A Draghi said :
- ECB hasn’t discussed options for June
- ECB did not discuss Exit strategy
- ECB not confident inflation on Track
- ECB did not discuss changing forward Guidance
Down went the Euro.Euro has a gap from Mondays open at 1.08485 and that is clearly in focus as it trades lower.Markets expected a hawkish Draghi and Got it for most of press Conference,but with no solid hint that June will be the meeting that Declares the end of QE Euro bull wanted out.Bunds and BTP’s rallied as well.
BOJ last night left all rates and QE unchanged as expected. The press conference did not give any hint of an Early Exit to QE .In fact Kuroda said “BOJ needs to achieve its inflation target before discussing policy exit. BOJ said inflation target may be reached by early 2019.Yen a touch weaker by about 8 ticks.
ECB left policy unchanged as expected. Draghi press conference at 7:30.A dovish Draghi would be a bigger surprise then a hawkish Draghi. German CPI a touch higher than expected. EZ consumer confidence a multiyear high. European Stocks Steady to lower and Bunds up a few ticks.2 year Schatz down a few ticks on session lows as the hawkish Draghi is expected.
White house hinted at leaving NAFTA but cooler heads prevailed overnight, as trump said we are not leaving. Mexico and Canada are open for negotiations on current deal. Trump tax plan Unveiled yesterday was very light on Details and Thus markets and most experts believe it will be very hard to pass in Current form.it appears that White house will Continue to make Obamacare payments to States. House republicans introduced a 7 day Stop gap bill so both parties can continue to negotiate the budget seems Government will not shutdown on Friday. This has been the baseline outcome. Both Pelosi and Ryan will speak today.
Oil down 2% as RBOB continues to trade lower. Too much oil in the USA and increase in Libyan production the reason
Durable Goods, Earnings and politics will be drivers of action today.Amzn ,Goog and MSFT after the close.
Please find below the top 5 US exports to Mexico,tariff free due to NAFTA.If US backs out of this agreement you could see less demand for these products as US may very well slap tariffs on them.
According to Website POLITICO trump Administration finalizing an Executive order to withdraw from NAFTA.Peso and CAD lower Some multinational Companies spiking lower as well.
Budget deal that was signed sealed and delivered is hitting some snags.Congress has 2 days to pass new budget but now talk of Continuing resolution of current budget because a deal may not be done by Friday. Stay tuned
Weekly Oil numbers bearish product,s bullish crude. the latter was a surprise as the lead in from the API numbers had markets leaning bearish.Crude Oil production increased by .14 % and Exports Increased as well.Demand was lower for both gasoline and Distillates and this will offset some of the bullishness of the crude oil number.Regardless oil has a nice move higher but upmove should be tempered by weaker products.Move higher in oil providing a bid to Spoos XLE +1%
What was thought of as a done deal, Government avoiding a shutdown may not be such a layup.Talk that Obamacare payments may not be made under new Budget deal which will anger Dems.Saga continues.