A few graphs

Comex Copper continuation Chart close only at 2 + year highs

Bloomberg Commodity index 6 months forward graph ,

Yuan Daily

from NAHB

Lumber prices increased by about 8% over the last week alone. Current cost increases are unsustainable, so home buyers and homeowners wanting to remodel should be prepared for price shock and delays. It is past time to temporarily suspend the lumber tariffs.
@NAHBhome

Morning 8-31

  JPMorgan and Goldman Sachs economists hiked their Q3 GDP annualized growth tracking estimates to +27.5% and +30%, respectively, from +20.0% and +26.5%.

Also on Friday, BMO’s Belski reinstated his year-end S&P price target at 3,650, further adding that he sees the index climbing to 3,850 in the next 12 months.* (Yahoo Finance)

  (Bloomberg) — Soybean futures in Chicago advanced for the sixth day to the highest since June 2018 on strong demand from China and worries about deteriorating U.S. crop conditions. Grains also gained. China has stepped up purchases of U.S. farm goods since the
end of April, with soybean sales for delivery next season currently running at their highest level for this time of year since 2013. “Weekend rains disappointed and the upcoming week
looks like another dry one, but cooler,” said Matt Ammermann, a commodity risk manager at Stone. The USDA is likely to say in a weekly report later on Monday that soybean conditions worsened last week, he said.

Seasonals. Since 1950, September is the worst performing month of the year for DJIA, S&P 500, NASDAQ (since 1971) and Russell 1000 (since 1979). Sizable gains in September 2009, 2010, 2012, 2013 and 2017 have lifted Russell 2000 to second worst (since 1979). September’s performance does improve slightly in election years, but it is still negative nearly across the board. Only the Russell 1000 and Russell 2000 have been able to escape negative territory and post modest 0.2% and 0.8% average gains respectively in the last ten election year Septembers. (Almanac Trader) H/T Mizuho

  On his 90th birthday, Warren Buffett’s Berkshire announced it had acquired “slightly more” than 5% stakes (valued at roughly $6.63 billion) in each of the five Japanese trading companies, Itochu Corp (8001.T), Marubeni Corp (8002.T), Mitsubishi Corp (8058.T), Mitsui & Co Ltd (8031.T) and Sumitomo Corp (8053.T). Diversification from Apple? Maybe Japan is the new gold? Perhaps with a market that is “all in” on the reflation trade/yield curve steepeners, Japanese stocks is one of the best ways to express that trade. These firms offer sizable dividend payments and strong cash flows, and they also offer diversification away from the dollar. Following the news, Marubeni and Sumitomo ended up over 9%, followed by Mitsubishi and Mitsui at over 7%. Itochu rose 4.2% to a record high. Marubeni, Mitsubishi, and Sumitomo are still 10% down on the year, versus a 6% fall in the Topix. Buffett’s firm said it could raise them to 9.9% over time. (Bloomberg)

 Dollar  Index narrow range overnight trading roughly at Fridays lows, the Yuan is at a One  year high as  It trades at 6.8436.Plenty of shorts in DXY it seems primed for a bounce I’m watching 92.127 in Dollar for support and likely stretch that that down to 92 even. Month End today so possibly some games around the London Fix at 10:00 CST… in the 30 year yield 200 D MA comes in at 1.6643% yields have not been above the 200 D in 18 months…Soybeans +1.5% Corn +1.3%..Silver gaining for the 5th Month in a row Bloomberg telling us the longest monthly winning streak in 10 years  Just released German CPI missed expectations ,Italian CPI in line to lower is not news ECB likes to hear. Nat Gas -2.4% Oil Steady,Stocks sideways to lower and Fixed income in the red

 Economic Calendar: Highlight today Fed Vice Chair Clarinda Speech at 8:00 CST entitled “the Feds new Monetary policy Framework”

News:

 China manufacturing data 6th consecutive above 50 and Services PMI data 31 month high, Another set of PMI data to be released tonight

India reported 78,512 COVID-19 infections today, more than any other country but fewer than Sunday when it posted the world’s biggest, single-day tally, as authorities looked to open more sectors of the economy. (reuters)

 Forty percent of Americans back President Trump’s threat to ban TikTok if it is not sold to a U.S. buyer, according to a Reuters/Ipsos national poll, suggesting that many support the effort to separate the social media upstart from its Chinese parent. (Reuters)

Morning 8-28

 From WSJ-

 WSJ chief economics commentator Greg Ip says the Fed subtly but clearly shifted its priorities away from inflation to employment. Central banks have long operated on the assumption that there is a trade-off between the two. As the unemployment rate drops below some “natural” level, inflation starts to rise, a relationship dubbed the Phillips curve. That means unemployment could be both too high and too low. The new framework implies that unemployment can be too high but never too low.

 From Pantheon Economics “The Fed’s new strategy emphasizes the importance of maximum employment, given low inflation. The presumption of a Phillips Curve link between unemployment and inflation has gone, more or less. The Fed won’t hike until unemployment is back to the cycle lows, unless inflation shoots up (  Emphasis mine).. Another way to look at the new mantra from IFR news Fed will tolerate higher inflation to achieve maximum employment

 Powell also said that FOMC will not rely on just one Inflation Metric to determine level of Inflation a bit of ambiguity gives the Fed plenty of leeway in determining too high or low Inflation

Major News Overnight:

 From IFR news “Public broadcaster NHK reported around 2pm that PM Abe was set to resign(for health reasons). The Nikkei plunged from the 23,315 area to a 22,594 low within a few minutes. The stock index ultimately bounced to finish at 22,882, a net 326 points lower on the day. JGB futures initially popped up to 151.64 on the resignation news and then dived to 151.30 as unwinding of long positions set in. Futures then bounced to the 151.50 area, but the next wave of unwinding came in towards the 3pm close pushing futures down to around 151.40. “

 The JPY +1.17% vs USD, but relatively Flat vs other majors.  DXY, Dollar Index Smacked    -.8%. Trade accordingly Gold, Silver Copper higher Stock steady to higher. Below is Graph of European Covid Cases the trend is not your friend int his case. This hasn’t stopped the Euro from rallying +100 ticks. US yield curve continues to steepen text books will tell us that Higher inflation without worries of fed hiking rates will pressure the Long End, but what do the text books know

 Hurricane Laura Spared the big Texas refineries, possibly some issues  for a handful of Lake Charles ,LA. Refineries and Chemical Plants  Citgo  facility may be shut 4-6 weeks Crude Oil Little changed, Nat gas at Multi- month highs  a bit of technical, Drop in daily  production some of the bigger picture bullish factors.

News:

  • -AFP citing Chinese For Ministry: Chinese consumers could boycott Apple if the US bans WeChat
  • Pres Trump Acceptance Speech: could impose tariffs on firms that leave the US, could end reliance on China once & for all ; next term we’ll cut taxes & bring jobs back from China https://reut.rs/3gvGiHG
  • -Sources: Byte dance have told TikTok engineers to draw up contingency plans in case they need to close their US operation
  • WH Economic Advisor Kudlow: Economy Can Continue to Recover Without More Stimulus

Morning 8-27

 Powell   Speech in a nutshell he is expected to pledge to keep rates lower for even longer than was anticipated just a few months ago. The Fed will likely let Inflation run above 2% for an extended period. Today’s speech will not be a formal announcement, Since the FOMC still must vote on it, this will likely happen in September

From Bloomberg Emphasis mine

(Bloomberg) — No prizes for guessing what the highlight of the morning will be, though I suppose it is worth asking the question of what people expect. It seems a little difficult to credit that Powell would lay out a specific set of policy prescriptions, replete with details, for the simple reason that this is not an official FOMC event. He could perhaps confirm the general thrust of how policy will orient itself henceforth. Of course, the practical result over the next few years is likely to be the same: interest rates locked at ZIRP with a heavy dose of QE. In a sense, the only way he could disrupt that view would be to announce that the Fed has designed that average inflation targeting is a load of baloney after all. As fun as it might be to see how markets would react in such a circumstance, I think we all know that it is unlikely to be forthcoming. All that said, with equities having run up sharply in recent weeks, it would not be a massive surprise to see them “sell the fact” after having profited so handsomely from “buying the rumor.” At the very least, one might expect some sort of rebalancing flow out of stocks and into bonds over the next few days, given the magnitude of the month-to-date performance gap. We have also got a bit of data this morning, of course. Between the claims and the GDP report, I am most interested in looking at the corporate profits data, which will capture not only the earnings of large businesses but also those of small business. I can only assume that the contrast between that figure and the performance of large cap listed equities will be very stark indeed. To contact the reporter on this story: Cameron Crise in New York at

 Via IFR “The stage is set for Chair Powell to announce a change in the Fed’s goal that will consist of no longer being pre-emptive in raising rates to keep potential inflation in check, but acting only after inflation has sustainably reached 2%. A shift would entail maybe 2% inflation average over the medium/long-run allowing for an incorporation of overshoot and make-up strategy. A formal statement will come via the statement when the long-term goals are released with the statement this year not reaffirmed due to the strategic review.

 Markets drifting, most sitting unchanged as I type. Weekly Jobless claims in line with roughly 1 million people filing. Hurricane Laura made land fall as one of the most powerful ever to strike Gulf. Waiting on damage assessment for refineries and LNG terminals, gasoline down 2% so not much worry about major hiccup in gasoline supplies. Abbot labs +10% as FDA clears their 15 minute rapid test, Tonight president Trump gives his acceptance speech at white house Extra security Fencing is in place as talk of protesters gathering to try and disrupt the Speech…. Lumber continues to surge. Bank of Korea cut Growth Forecast, Korea is a proxy for all Asian Growth. China performed military action in South China sea I believe fired two types of Missiles …the Yuan traded to strongest levels since Early January   do not sleep on the strong Yuan

.@kaylatausche as we reported yesterday on @CNBC: GOP is refining its “skinny” stimulus proposal to share w/ members this week. Current package is ~$500b, and includes funding for: – Expanded UI (could be up to $400/wk, per SAO)- New PPP loans – Schools – Covid testing- Warp Speed @JakeSherman

🚨🚨NEWS — @MarkMeadows and @SpeakerPelosi expected to talk later this afternoon, per multiple sources. Covid relief talks have been stalled for weeks. They are the two lead negotiators

Laura

O/N currency Vol

A bit of worry regarding Powell Speech tomorrow shown in Overnight Currency vol

Latest update on Laura Storm Surge to be a bigger threat for Louisiana then Texas 3 of the 4 biggest U.S. refineries located in Texas so still a bit Bearish for Gasoline

Storm Surge Forecast NHC

8-26

 Disruption in the Force??   One of the brightest spots in the Economic Landscape taking a bit of a hit ?

  Mortgage applications in the United States slipped by 6.5 percent in the week ended August 21st, the most since the week ended June 19th and following a 3.3 percent drop in the previous week, data from the Mortgage Bankers Association showed. Applications to refinance a home loan fell 10.2 percent while homebuyer mortgage applications increased 0.4 percent. The average fixed 30-year mortgage rate edged down 2 bps to 3.11 percent.-Trading Economics

 Hurricane Laura  Shifting a bit north Easterly   and possibly not directly hit some of the refineries in in South East Texas. roughly 12% of U.S. refining capacity shut in (BBG)  its not the winds that could delay reopening of Facilities it is the rain and possible floods.Gasoline,RBOB giving back some of the recent gains trading lower  3.3 % as the path of laura a  bit less worrisome for refienries  at least for now.  Human side of story  “ More than half a million people have been ordered to evacuate the U.S. Gulf Coast, with Hurricane Laura set to come ashore tonight in Texas and Louisiana.”-pro Farmer

 Long End Bonds and ultras bunds and Buxl also on the offer again today. One of the reasons is the expectations that Powell will announce an New Inflation targeting regime, backed up by Inflation Hawk Ester comments this morning, thus allowing an  overshoot of the 2% target thus creating and Average level of 2% inflation .Long end does not like inflation a so possibly position adjustments being made

 Inflation hawk K.C. president Mester “ “I have never thought of 2% as a ceiling but to really stay     focused on what anchors inflation expectations in the economy,” George said in a Bloomberg Television interview with Michael    McKee broadcast Wednesday,  Further   from BBG “Esther George, who has been among the most hawkish Fed policy makers, doesn’t oppose some overshooting of the central bank’s 2% inflation target and sees more risk of price pressures
being too weak than too strong.”

 Hmmm ..  Dollar is rallying a bit today Sell the rumor buy the news scenario?? Possibly?  todays Durable good orders beat consensus Business spending proxy, capital good orders and shipments also better then consensus. So plenty of reasons here for dollar to catch a bid.

Markets.. Stronger dollar trade accordingly

From Mizuho

  China copper demand increased 8.6% y/y in Jul, the fastest growth since Feb 2017, a Street analyst said in a note. China’s retail sales of passenger cars averaged about 37,000 vehicles per day in the first three weeks of Aug, rising 12% from the same period last year, according to the China Passenger Car Association. EU governments are extending job-support programs, with Germany earmarking $12 billion for its latest effort – Bloomberg. The focus increasingly turns to what support the U.S. will extend, with companies moving forward with mass job-cut plans. Shares in US homebuilders have surged to record highs, past their peak set during the subprime bubble in 2005 – FT.  

 More News

  • Germany: Extends virus relief for the economy inc help for SMEs until end of this year & extending wage support program until end of next year (was due to expire Mar ’21) https://reut.rs/3aYy7Ti
  • Jackson Hole full agenda will be published at 1.00 BST Thur morning https://bit.ly/3gxKnem

Economic releases

Per Conference Board Data: 38% of consumers expect stock prices to fall over the next year — highest since March and more than those who expect an increase or for prices to stay the same. Also largest increase in a survey period since March/2nd highest since 2012(mizuho)

Consumer confidence 12 month inflation outlook
jobs plentiful-hard to get

new home sales,Not slowing down

Via BBG

8-25

  Laura-Hurricane heading directly for Houston and is expected to be a CAT 3 now. Gasoline rallied 6.46% yesterday and 1.74% this morning. Crude oil lagging with a rally of 0.66% yesterday and 0.21% this morning. (BBG) M =Major Hurricane cat 3 or higher

From NHC

Dow industrial Shake Up …  From Mizuho “Exxon Mobil, Pfizer and Raytheon were dropped from the DJIA in the biggest reshuffling of the index in 7 years. Salesforce.com, Amgen and Honeywell to enter. Only seven years ago Exxon was the world’s largest company. Yesterday it was kicked out of the DJIA. Exxon, the longest-serving member of the Dow, was removed from the index after seeing its value plunge by more than half in the past six years, from more than $450 billion as recently 2014 to about $180 billion today. But Even after the changes and AAPL’s weighting dropping from 12%+ to under 3%, the Dow will still have a 23% weighting in Tech.

China Daily “ Constructive dialogue  between U.S. and China ,decoupling reports wide of mark   Further “This follows a call from Lighthizer and Mnuchin to Chinese Vice President Liu He, that suggests the Phase One trade deal is back on schedule something that has been uncertain lately and stocks markets have experienced decent support overnight.(IFR)

German Aug Ifo new business climate 92.6 vs 92.2 expected from 90.4 previously. Current conditions at 87.9 vs 86.9 expected and 84.5 with expectations at 97.5 vs 98.0 expected and 96.7 previously. As such on the high side overall except for expectations. (IFR News)

Markets…   Yields higher throughout Europe Bunds +5 bps, Italian BTPs highest in a month, tomorrow 15 year bund auction might be weighing a bit ,2 year Schatz auction today okay German Curve steepening indicating some optimism surrounding economy.  30 year yields higher as well Germany +7 bps Italy +8 Bps Netherlands +6 bps Bonds and Ultras weighed down by IG issuance, again  The  latest Abu Dhabi marketing 50 year $ bonds  today we see 2 year auction, tomorrows 5 and Thursday 7 years. Powell on Thursday a reminder. Optimism regarding US China, better  German Data and Possibly some curve trades as both Germany and US trade steeper.    Dollar sideways to lower   the trend is sideways over last week likely waiting to hear from Powell before deciding which way to   go. Grains Higher  as Crop condition drop  and  optimism from China Comments Corn +1.8% Soy +.5% yesterday SPX gapped open higher touched and closed at an all time high Lumber a bit of an adjustment  first down day in 16  Chart look ominous but we need to see todays  close to determine if yesterday was just a  bump in the uptrend or something else WSJ reporting that” U.S. homebuilders have asked trump to resolve trade issues with China” to make lumber cheaper.

Gasoline

Continuation chart… be on the look out for any prolonged refinery shutdowns due to tropical Storms In Gulf, it may continue to give gasoline a lift

Rbob V-X showing a bit of nervousness as Spread moves to Multi week highs

from the twitters “Motiva, the largest refinery in the US (owned by Saudi Aramco) may shut down as both storms head its way” @EnergzdEconomy