Morning 6-27

He said, she said Event driving flows this morning

  • From South China Morning post at 3:30 Ish , US and China agree  to tentative    truce before G20 summit  
  • Then around 4:45 this morning    Chinese Diplomat says    NOT AWARE OF SCMP REPORT ABOUT A TENTATIVE TRADE DEAL: BBG
  • China is insisting that ban on tech sales to Huawei be lifted before any deal is signed    …Not good for negotiations I believe  
  • G-20 leaders arriving in Osaka as I type, Plenty of tape bomb material  Is possible over the next few days    as world leaders meet face to face           
  • For the second time in a little over a week Goldman lowered end of year forecast for US 10 year yields   ,they predict 1.75%,joins peer JP Morgan    
  •  Open interest — a measure of a market’s liquidity — in the Eurostoxx futures index hit record highs on a monthly basis of 4.61 million lots on Monday
  • German CPI in line with expectations
  • GERMANY AND FRANCE, OTHER ALLIES, TOLD U.S. DEFENSE CHIEF ESPER THAT 2015 NUCLEAR PACT ON IRAN MUST BE UPHELD, SHOULD NOT BE JEOPARDIZED-Reuters
  • President Donald Trump will have breakfast with Saudi Arabia’s Crown Prince Mohammad Bin Salman before a high-stakes meeting with Chinese President Xi Jinping on Saturday, White House spokesperson Hogan Gidley said.
  • Negative comments Regarding Boeing sees stock 2%
  • Per Bloomberg Junk bonds have already returned more this year than last 2 years Combined,searc for yield knows no bounds

 Bonds higher stocks higher, Bund little changed Dollar sideways as markets await Trade deal talks and  on the lookout for Tape bombs related to  trade and Iran. Stocks in Japan, China, and Hong Kong closed higher, Dax up a touch. Gold pulling back from multiyear gains trading back towards $1400  And Bitcoin futures -13%.US economic calendar doesn’t offer much excitement, and a 7 year auction at noon. Oil down a bit as it  has plenty of future event risk from trade talks, Iran and OPEC meeting  next Monday Tuesday.Copepr little changed stuck in a tight range. Month end quarter end tomorrow.

Tale of the Tapes

Major Averages rolling over a bit,the biggest decliners are the interest rate sensitive Sectors
Feeder cattle limit Bid in front Month August as selling may finally have dried up.I don’t think I ‘m too excited to hold longs overnight,but don’t listen to me I just advise the traders,they make decisions.

Term premium

Not to go down the rabbit hole too much but below find graph of term premium of treasuries maturing between 1-10 years via Bloomberg. More to it I know but one can think of Lower term premium as a risk on indicator as long dated rate expectations drop.A weekly chart below show levels at lowest price in a few years.

here is same metric on a daily chart over last 6 months.Notice the big drop in premium as markets priced fed rate cuts.

A bonus Chart below , Average German bond yield of all maturities on a weekly time frame,Not a big surprise but to see it visually drives home the point a bit more ..

Morning 6-26

News

  • For the 17th time?? Mnuchin says, “Two sides are 90% of the way there and I believe there is a pathway to complete this”  Markets continue to trade off  this “news” so why not keep rolling it out   Spoos +13 handles, Nasdaq +52  Dow  + 100 Dax +.5% and majority of European Bourses are higher
  • Yesterday API reported a big Draw in oil supplies 7.55 Million barrels Wti +1.9%    Rumor that PES Philadelphia refinery ,after a fire last week has put in motion the process of shutting down . If true this will be a huge blow to East coast gasoline supplies as this is the largest refinery on the coast and will drive up  RBOB  Currently gasoline +3%, Front month Crack spread +5%
  • Micron and Intel are finding legal work arounds to continue to do Business with Huawei
  • Bitcoin +14% at one point overnight trading above 12,500

 After yesterday’s Push back from Bullard’s  “I think 50 Bps cut would be overdone”   And Trade optimism Treasuries are trading lower as the probability of 50 Bps cut in July has been cut in half, per Bloomberg pricing.it is not zero let’s be clear on that it is roughly 20%. A story circulating that Bullard was asked to be a Fed governor, a permanent voting member, but he declined, President Trump trying to pack the governors with the ultra doves. Dollar a bit higher today after posting best day in a week as the less rate cut trade gives it a boost. Euro little changed   and trading in a tight range

Waiting For the weekend meeting between trump and Xi until then all eyes on the news wires.

Calendar:

9:30 EIA oil numbers

10:30 Feds Daly Dovish

Powell

Last 2 paragraphs from his speech

Last week, my FOMC colleagues and I held our regular meeting to assess the stance of monetary policy. We did not change the setting for our main policy tool, the target range for the federal funds rate, but we did make significant changes in our policy statement. Since the beginning of the year, we had been taking a patient stance toward assessing the need for any policy change. We now state that the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

The question my colleagues and I are grappling with is whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation. Many FOMC participants judge that the case for somewhat more accommodative policy has strengthened. But we are also mindful that monetary policy should not overreact to any individual data point or short-term swing in sentiment. Doing so would risk adding even more uncertainty to the outlook. We will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.