Morning 9-23

Ugly, Ugly European PMIs are reasons for run up in fixed income and lower European stocks

From trading Economics:

The IHS Markit Germany Manufacturing PMI fell to 41.4 in September, missing market expectations of 44 and pointing to the steepest contraction in factory activity since the global financial crisis in mid-2009. Output shrank at the sharpest pace since July 2012 and new business dropped the most in more than a decade. Also, the job shedding rate accelerated to the fastest since January 2010.

The IHS Markit Eurozone Manufacturing PMI slumped to 45.6 in September 2019 from 47.0 in the previous month and below market consensus of 47.3, a preliminary estimate showed. The latest reading pointed to the steepest contraction in the manufacturing sector since October 2012 as output fell the most since December 2012. In addition, new orders declined at the fastest rate since July 2012, due to further steep loss of export sales. In addition, sentiment about the year ahead in manufacturing was the lowest since 2012, contributing to a further culling of factory jobs, which were cut to an extent not seen since April 2013. On the price front, input costs fell the most since April 2016, leading to one of the largest falls in factory selling prices for three-and-a-half years..

European Stock Sectors:

Autos-2.4%., banks -2.3%, Basic resources -2.2 oil and Gas -1.4%. Stock Indices in France, Germany Italy and Spain all down>1% 10 year Sovereign yields all Lower   Italy 8 bps and France 7bps. Silver +2%, gold a bit higher, and Copper -1% as recession worries out of Europe drive. Flows

Per Bloomberg, “trade groups from both US and China said last week’s low level talks were constructive and that the cancellation of Chinese Reps Visits to US Agriculture states was done by the US side and not the Chinese. Vice premier expected to visit U.S. second week of October

Risk Off due to European recession worries

Repo comments from Reuters

The NY Fed Open Market Desk has through $75bn o/n repo operations last week helped to alleviate stress in funding markets. GC repo rates are lower, EFFR/OBFR are lower and SOFR has also calmed down as a result of the Fed’s Temporary Open Market Operations. While calm is has been restored these episodes are expected to become more frequent risking the prospect of a vol related risk premium, early precautionary demand from repo desks, risks of EFFR trading outside of FF target range and questions over SOFR (replacement for LIBOR) after its spike. The announcement of term repos (three operations of 14-days each of at least 30bn) should be seen as another short-term fix.

Calendar: Light on Economic data but some Fed speak

  • 8:00 Draghi
  • 8:50  NY fed president Williams   He will be talking Repo markets
  • 10:30  Fed Daly
  • 12:00 Feds Bullard

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