morning 9-27

From yesterday’s Powell Press Conference:
“The main thing where we may need to move along a little bit quicker (in rates) is if inflation surprises to the upside. We don’t see that, we really don’t see that.”
Commentary from Morgan Stanley
“Powell’s view suggests that, for Treasuries to break to new yield highs, US CPI inflation needs to surprise to the upside – and not just based on factors related to tariffs .As a result, we continue to suggest investors maintain duration longs, and consider adding to them if weakness takes hold after euro area inflation data later this week…”
Yesterday’s release of Summary Of Economic projections(SEP) left Core PCE forecast Unchanged for 2018,-19,and -20.To paraphrase from the chairman’s testimony ,Worries about tariff Induced inflation are still a concern but little evidence of price pressures showing up now. To piggy back on what Morgan said above I will add that If Inflation metrics remain tame no need to accelerate pace of rate hikes and thus less chance that Treasury yields,10s and 30s breakout to new 2018 highs. It is and always has been that inflation dictates the pace of rate adjustments.
Yesterday afternoon President Trump held an 80-minute press conference touching on all Subjects, the highlights that matter to Traders:
• Not happy with rate increase
• China’s president Xi may not be his friend anymore due to suspected meddling in our elections
• Refuse to meet Canadian PM Trudeau for one on one NAFTA talks and threatened to slap tariffs on Autos
Overnight Shanghai closed lower as the Friendly relationship between Trump and Xi maybe on the Rocks, and increase worries about trade tensions. Shanghai stocks sold off into the close dragging copper down in the process,-1% on day. Dollar trading on the strong side this morning +.4% and this at the margin weighing a bit on base metals as well. Worries again about the Italian budget announcement, five star league wants 2.4% of GDP budget whereas the 2% limit is where the other parties rest is causing concern for BTPs yields +5 bps and Euro-.3% and MIB -1.1% leading decliner in Europe. Dax and Stoxx 50 little changed this morning but stocks in Turkey and Russia both up greater than 1%.Spoos little changed and NASDAQ +23 handles, also little changed.
US yield Curve flatter today for third consecutive day as No inflation worries =Buy the long end. Energy Secretary Perry said No discussion on releasing oil from SPR prior to election
Calendar:
• 7:30 durable goods and Final look at Q2 GDP
• 9:00 Pending home sales
• 9:30 Nat Gas Storage
Fed Speak:
• 1:00 Kaplan non voter
• 3:30 Powell

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