Repo News

(Bloomberg) — The Federal Reserve Bank of New York’s
operation to inject cash into the financial system over the end
of the year was undersubscribed on Thursday, possibly an
indication of diminishing need for funding over that period.
Primary dealers submitted $31.3 billion in bids for the
Fed’s 14-day term repo operation, the first two-week offering
that spans year-end.

*The NY Fed’s $120 bn overnight repo demand dwindled to $26.25 bn or just a 21.9% subscription rate. Once again, the lack of need speaks to the cash in the funding market to start the day eating up available collateral

Worries about year end liquidity starting to dissipate , reminder Fed is throwing almost 1/2 trillion dollars at problem

Yield curves

First, before we talk about Yield curves lets look at outright Bund Yields which are approaching a big resistance area,If broken maybe we see a bit of Liquidation in futures.Less bad to Good IFO data likely a catalyst

Now On to the U.S. Yield curve which is and has been steepening or trading higher for the last few weeks,So much so that 2019 Highs are in jeopardy of being taken out.Recession worries, which flatten the yield curve earlier this year are forgotten. A steeper yield curve on the other hand indicates optimism about global growth,I will use a Morgan Stanley Explanation for a steeper curve which I think is appropriate for this time. “The yield curve is a reflection of global demand and supply of capital and provides an indication of what participants think long term inflation prospects will be.” so A steeper yield besides other things indicates a positive outlook for global economy as demand fro Capital likely on the rise and maybe a whiff of inflation.


3 month 10 year
2s10s

Morning 12-18

Most Markets Drifting but GBP down, .5% after dropping 1.53% yesterday as the Threat Of hard Brexit resurfaces.

Random bits of News:

2019 will be the fourth best year ever for global stocks. It only took every central bank conducting QE simultaneously, for the first time since the financial crisis ( Zerohedge)

(Bloomberg) — China’s central bank lowered the rate it charges on shorter-term loans to lenders and injected $29 billion into the financial system before an expected bout of tighter liquidity next month

The Ifo Business Climate Index in Germany rose to 96.3 in December from an upwardly revised 95.1 in the previous month, easily beating market expectations of 95.5. That was the strongest reading since June, boosted by an improvement in companies’ assessment of the current situation, as well as their expectations. Across sectors, sentiment improved among manufacturers and service providers, but deteriorated among traders and constructors.

 Latest Spending  bill,$1.4 trillion , to keep Government open for the upcoming fiscal year likely to be signed by trump next week, Deficits don’t much matter anymore. Part of the new deal repeals some taxes, which will leave a shortfall of $400 B in revenue over the next decade, Sell more bonds!! Via Bloomberg “Tax reductions in he spending bill will cost $426.3 billion over a decade, according to the non-partisan Joint Committee on Taxation. The bill would renew a series of industry-specific expired tax breaks for biodiesel, renewable energy, and alcoholic beverages. The legislation also repeals three taxes funding the Affordable Care Act: a medical device tax, a health insurance fee and an excise tax on high-cost health plans.”

Bitcoin taking it on the chin again From Bloomberg “ A lot of chatter over the catalyst for this systemic and major selling has been associated with a Chinese cryptocurrency scammer allegedly liquidated his stolen horde via over-the-counter markets. The initial sell-off by Plus Token caused a domino effect, causing mass liquidations.As NewsBTC.com’s Yashu Gola reportsPlusToken, a fraud scheme that duped investors of more than $2bn, dumped huge bitcoin stockpiles from its anonymous accounts, according to Chainalysis.”

Fed Ex -7% pre market as they lower outlook for second quarter in a row

Tesla may drop prices 20% in China

Markets:

 No Economic Relapses today, EIA numbers at 9:30, Trump Impeachment vote tonight  is a no event.

Bonds up a touch Bunds down Gold -.3%, palladium .25% oil trading down .5% after bearish API storage numbers showing builds across the board. Nat Gas -1.9% as Christmas Warm up expected.

Soybeans

SPX $7 range today as the Holiday market narrative takes control.I imagine White house and China do not want to upset the proverbial apple cart and not talk trade for a few weeks so as to let markets work on their own.

Soybeans are bid due to Deescalation US china trade tariffs and the Expected news that Argentina is raising Export duties on all grains to help fill their Budget deficit thus making US AG products a bit cheaper

January Soybeans +7% since most recent lows
January Soy oil, always seems to be moving higher but has exploded recently due to strength in beans and hopes for new Bio diesel deal.

Economic Data

A run down of the Economic Data points from Europe and USA released in last 24 hours. Almost all of it Second tier in importance regardless most of it was good news for economy (from Trading economics) take notice of the EU trade surplus data this will not make trump Administration happy,in fact lighthizer has already commented on US/EU trade talks.

U.S.:

US Building Permits Rise to 12-1/2-Year High
Building permits in the United States increased 1.4 percent from a month earlier to a seasonally adjusted annual rate of 1,482 thousand in November 2019, beating market

Housing starts in the US went up 3.2% mom to an annualized 1.365 million units in November. It compares with an upwardly revised 1.323 million rate in the previous month and expectations of 1.345 million. Starts at the single-family segment were the strongest in ten months and multi-family starts were the highest since August

Industrial production in the US increased 1.1 percent month-over-month in November of 2019, following an upwardly revised 0.9 percent fall in October and beating market expectations of a 0.8 percent rise. It is the biggest jump in industrial output since October of 2017, due to a bounce back in the output of motor vehicles and parts following the end of a strike at General Motors.

Europe:

The Euro Area trade surplus widened sharply to EUR 28 billion in October 2019 from EUR 13.2 billion in the corresponding month of the previous year and beating market expectations of EUR 17 billion. It was the largest trade surplus since March 2017, as exports rose 4.1 percent from a year earlier to EUR 217.9 billion while imports fell 3.2 percent to EUR 189.9 billion.

Italy’s trade surplus increased to EUR 8.057 billion in October 2019 from EUR 3.828 billion in the corresponding month of the previous year and beating market estimates 

Morning 12-17

Just when you thought we were done talking about it  Brexit back in headlines and making an Impact on the pound,which is lower by 1.25%,Gilts +55 ticks, Nominal gains of .5%

Telegraph: PM Johnson said he’ll guarantee Brexit by end of 2020, with or without a trade deal as part of a Brexit bill; PM set to push through a radically altered bill that’ll prevent parliament from extending the transition period beyond Dec 31st 2020; Downing Street intends to hold this vote on Friday https://bit.ly/2EvaySh ( ITC markets)

Pound Slides as Johnson Moves to Block Any Further Brexit Delay- Sterling slid as much 0.7% to $1.3236 and weakened against all of its Group-of-10 peers in early Asian trading Tuesday. Johnson’s planned legislation will include legal text to prevent the government from delaying the day Britain stops being subject to EU laws, even if no new trade terms have been secured in time, an official said. https://www.bloomberg.com/news/articles/2019-12-17/pound-slides-on-reports-johnson-will-block-further-brexit-delay?srnd=markets-vp

Boeing halting production of 737 Max is obviously bad for the company’s earnings but what about a drag on U,S, GDP? Bloomberg saying that  the company’s decision could take as much as .5 % off of GDP as  Boeinfg  and all the companies that supply parts will feel the hit.

 Markets:

 Stocks In Asia Closed with Impressive gains Shanghai and the Kospi +1.27% Taiwan +1.3%. Disappointing Earnings and Outlook from Unilever weighing on European stocks, All but one stoxx 600 sectors down on day. Oil a touch higher maintaining the trade above $60, just as an aside China imported 11.18 million barrels of oil in November a world record, per Bloomberg the growth in imports has not peaked. Nat Gas -1.5% as Cold weather forecast around Christmas is less impressive then a few days ago, copper little changed but short-term trend is up. Spoos unchanged, Bonds and   treasuries higher. Per Bloomberg, the spread between the BBB and BB corporate spreads the tightest since 1994 as Chase for yield knows no bounds

 Repo Comments show no heightened fears of liquidity squeeze z(IFR news):

GC opens 1.59% bid at 1.57%, which is 12.0 bps below Monday’s opening level and 9.0 bps above the closing level of 1.50%.

*Yesterday’s coupon settlement and corporate tax payment elevated GC to 4.0 bps under the upper limit of the rate corridor of 1.75%, but little else. The liquidity supplied by the daily overnight repo was more than sufficient. The $50 bn 32-day term operation was oversubscribed as expected- with year-end GC trading 4.00% at 3.75%, a term operation conducted at 1.56% should be attractive.

*Along with 2 repo operations, a $35 bn 13-day term (conducted from 8:00 am ET to 8:15 am ET), and the daily $120 bn overnight operation (8:30 am ET to 8:45 am ET), $85 bn 1-and 2-month-bills settle today. That settlement is accompanied by a $12 bn paydown so the GC rate will likely stay at the current level or move lower. The term repo demand could be tepid due to only $17.76 bn rolling off an the maturity date is December 30th so it does nothing for financing over year-end.

YTD returns

Below is Snapshot of the Top Stock Indices from U.S. and Europe with YTD( year to date returns) in USD performance.Today the Stoxx 600 hit an all time high,Dax is less then 1% away from ATH. The majority of experts saying European Stocks will outperform U.S. next year ,I will believe it when I see it. The FTSE 100 +12% even with all the doom and gloom surrounding Brexit and its impact on the Economy

Morning 12-16

“Cease-fire on trade war tariffs even though Details of deal a but Murky still.” Bloomberg

 Economic data overnight Saw UK PMI drop to a four month low as production dropped to  the lowest since July 2012, Eurozone and German  manufacturing PMI’s  both missed expectations and China’s Industrial production beat expectations and Retail sales \a bit better than  Forecast

 Bad data, good data markets do not care too much about that now, FTSE +2%, Dax +.75%, Cac +1% both Spoos and Nasdaq +.5%, Bonds a bit heavy, Bunds Up slightly and gold little changed. Copper +.7% A rumor this morning that Trump and president Xi are going to sign trade deal in Davos has added a to the positive sentiment this morning. Tight range in oil overnight but Crude still hovering around the $60 handle. Fed repo operation today was for 32 days it   was oversubscribed by $4B  no need to panic. The Fed is providing, at least in there eyes, ample liquidity over the turn of the Year let us hope it is enough.

This week we see Second tier US economic data, Central bank meeting from Japan and UK and A couple of Fed speakers. A bit of Risk on Theme so far this morning

Easier rates

Today’s retails sales number was on the weak side of expectations,Some may use the late start to the Christmas shopping season as an excuse.But market pricing for Interest rate cuts or what the Overnight implied rate will be at next years Fed meetings show lower rates expected versus yesterdays closing levels.take a look at the circled area which shows the September and October meetings,it isnt a drastic move lower but the direction is what is important, markets pricing in a bit more easing after today’s events.