Morning 9-18

FOMC Meeting behind us so now the Election Is the biggest event risk on the horizon. The problem is it is 7 weeks or so away so likely markets chop around with no real purpose till then. We already see the dollar sideway, Nasdaq  tried to break out of its sideway range to the downside but has yet to do so with momentum last 8 trading session SPX  between 3310 -3424  yes a hefty range but still going nowhere


 Momentum to the downside can explain Nat Gas down ~19% from Wednesday’s highs LNG demand still okay but industrial demand is a the lowerst for this of year since 20159BBG).Momentum to the upside is Soybeans, last 3 days +6%,yesterday was a contract high Volume day, open interest is increasing all signs of a bull market  higher prices and higher open interest.

 Stimulus hopes fading per morning money “Democrats and Republicans appeared even further away from a coronavirus relief deal on Thursday, despite mounting calls from rank-and-file lawmakers — and even President Donald Trump — for action. “With no mood for dealmaking in either party, the House and Senate are leaving for the weekend without any progress on an agreement, casting further doubt that Congress can muster the political will to adopt another massive economic stimulus measure before the November election.”

News:

  • White house Will ban some transactions over wechat and tik tok starting Sunday-BBG
  • Quadruple witching today
  • PBOC: Sets USDCNY ref at 6.7591 vs 6.7675 prev, strongest lvl since May 6 2019-ITC markets
  • Libya will restart some Oil exports oil -trading lower today
  • FT: Scientific groups advising the UK govt are recommending another 2 week national lockdown

Markets:

 Stocks sideways,Dollar 20 tick range sits unchanged, Bunds up a bot Bonds little changed to higher.JPY approaching strongest level vs Dollar in 6 months ,possibliltes of some verbal intervention from BOJ  if 104 handle taking out. Remember the “begger thy neighbor “policy no central bank wants a strong currency these days, Japan is closed on Monday and Tuesday  so any verbal intervention may have to wait a few days. 3 fed speakers on calendar 2 doves and a  slight hawk also interesting to hear the first few fed speakers post meeting as they try to explain what they really meant in their policy statement, Bullard at 9,Bostic at 11 and kashkari at 2:00.  European bank index -2% travel and leisure  group -2.6%(virus proxy)

More beans

Weekly Exports to China you can see the seasonal pattern and if true more demand is coming.

Corn Exports to China firming again.Do the stories of Corn crop damage due to Typhoons actually going to have an impact on supply?

Bonus chart

Spot Gold chart overlay with NDX

an odd day

Nat gas headed for one of the worst days in over a year,Longs taken out to wood shed a bit of forced liquidation ongoing. LNG exports trending higher,so we cant blame that for drop in prices weekly storage number beat by two standard deviations so plenty of supply available.Shoulder month upon us as October volume and open interest continue to drop and as November becomes the front month winter weather becomes focus.its still summer for pEte’s sake so no more weather concerns for a spell. nat Gas headd for one of the worst days in 1.5 years.

oil is on the opposite side as it continues its impressive run higher today,A bit of bullish comments from opec and maybe just maybe some unwind of a Long Gas/Short oil spread ?? CL +2.4% Brent +2.7% CLV option expiration today maybe adding a bit to volatility movement in CL.

Plenty of Cross currents today in lumber ;Fires,better weather west coast,a possible peak in spot prices,Steady growth in Single family Home starts. lets look at Lumber curve showing a bit of the backwrdation coming out of it.The curve doesn’t contain all the information one needs to trade but it at lest can give you a picture of supply situation.

The matrix not making much sense today dollar is /was stagnant but precious metal taken out to wood shed a bit,Nasdaq tested big support level and bounced for now it looks like a retest is in the cards. I m leaning Option expiration tomorrow as reason for collapse in prices.

Soybeans continue to impress Export demand strong soy +16% since August USDA report(@karenbraun)

Morning 9-17

Central banks:

 Bank of England left policy unchanged but   hinted strongly that negative rates may be coming, the bank plans to explore how a negative bank Rate could be implemented effectively “ BBG  GBP dropped .5% on news, Front End gilt yields dropped hard by ~5 bps ,further into negative territory both 2 & 5  year yields currently stand at -.12%  Not a sign of confidence in the Economy now is it?

 Bank of japan left rates unchanged, vowed to work closely with new PM and upgraded economic forecast for first time since March a sign that Economy has bottomed-(BBG)

Fed not Dovish enough? Some say for the reason for drop in stocks, my take is that market wanted a stronger signal that more QE is on the way, not just punting to hopes of Fiscal stimulus. With the Election 7 weeks away, the Fed does not want to be perceived as being partisan one reason I believe they shied away from a firm commitment for more QE.

 Markets:

 A traditional Risk Off move stocks Lower bonds higher European 10-year yields lower by 1-2 bps across board. In treasuries longer yields down a bit more then short end 30s -4.6 bps 3s -1.6bps thus flattening the curve. A bit of pessimism regarding the US economy possibly the reason. Currencies sideways outside of the GBP better then expected Aussie jobs report caused a brief spike in the currency currently trading sideways. Oil touch heavy after yesterday’s Short squeeze, OPEC tele- conference today Saudi Arabian oil minister issuing some harsh comments towards countries that do not comply with production cuts. Soybean  continue to trade above $10 as strong  Export demand continues. Lumber trade choppy last 2 days as Forest fires and possible decrease in Spot prices making the trade directionless for now.

TGA Treasury General Account

Remember all the theories surrounding the Treasury’s general account and what it may be used for, next round of Stimulus for one well that hasn’t materialized yet.The account is dipping a touch but staying quite hefty compared to last year.

One reason possibly for the account to still be quite large is the lack of use of the Feds main street lending programs,recall ” The Federal Reserve established the Main Street Lending Program (Program) to support lending to small and medium-sized for profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic.” below graph from Bloomberg shows little if any interest in this program.maybe someone should ask Powell at today’s presser why is it so

Morning 9-16

News:

  • Fatal crashes of the Boeing 737 Max were caused by a “spectacular” regulatory failure by the FAA and Boeing’s focus on profits, a damning congressional report concludes.
  • Annual inflation rate in the United Kingdom slowed sharply to 0.2% in August from 1% in July and compared to forecasts of a flat reading. It is the lowest reading since December of 2015, amid a big fall in prices in restaurants and cafes, arising from the Eat Out to Help Out Scheme. Other downward contributions came from air fares and clothing.(trading economimcs)
  • Speaker Nancy Pelosi on Tuesday heeded a call from her members to commit to keeping the House in session until there’s a coronavirus relief deal, but the vow does little to break the stalemate in bipartisan negotiations that is at the heart of Democrats’ concerns.(roll call)
  • More politics (Yuck) Negotiations on government funding to avoid partial shutdown starting Oct. 1 have hit a rocky patch over a Democratic push to postpone 2020 census-related deadlines. The dispute was threatening to upend congressional leaders’ aim for a drama-free “clean” stopgap measure (Roll Call)
  • OECD saying that while the Global Economy is still expected shrink this year the slump won’t be as sharp as previously feared (BBG)
  • PBOC: sets USDCNY ref at 6.7825 vs 6.8222 prev, strongest level since May 9 last yr. ….. Strong yuan normally good for Risk
  • Per Bloomberg Global companies have sold $2.61 trillion of notes this year across all currencies surpassing previous years records. Record low rates why not borrow

Markets and Fed:

 Fed meeting today and thus markets sideways. Nothing much expected from meeting today we will see updated macro-Economic projections and likely a small tweak to their policy statement. Unlikely they commit to more QE today and no major new innovations are expected. Press conference will likely see plenty of Questions regarding the New Flexible average inflation targeting which they announced in late August. I will be watching the macro projections to see what the Fed thinks they economy will look like in the short term. Remember that all the volatility happens during press conference  not at the 1:00 announcement.

 Retail sales just released missed expectations both non-store retailers (internet sales) and Department stores were lower the latter dropped from +2% to negative 2.3% M/M but eating and drinking was +4.7% higher. All in all, not a good retail sales number    stocks a bit weaker now Bonds a bit of a better bid. Hurricane sally made landfall near Gulf Shores Alabama as a t category 2 hurricane a bit stronger than expected. This is a slow-moving storm which will Drop plenty of rain on the area. Not much in the way of Energy infrastructure this far east of New Orleans but still needs to be monitored. Crude oil +25 this morning due to a surprise draw down in stocks reported by API. Canadian CPI released this morning   missed consensus and with UK inflation touching lowest since 2015  all central banks have work to do to goose inflation Higher. Now you know why no country wants their currency to strengthen too much vs peers.

Outside of Lumber and maybe hogs  markets are sideways  last few days  lets hope post fed they loosen a little.

Lumber and Lennar

From BBG comments from Lennar conference call

I am not a meteorologist but according to the NOAA’s Storm prediction Center day 3-8 Fire weather outlook issued yesterday,show Risk level for more fires as not critical, compared to today’s risk level of elevated. A sigh of relief for citizens and maybe for Lumber market as well.November Lumber volatile as you would expect ,but failed to hold a limit bid so far today.