Morning 5-22

End of Hong Kong Autonomy?  Surprise Announcement overnight by China sent stocks Lower  and Bonds higher   …

China looks to tighten its control over Hong Kong. China signaled it will impose new national-security laws on Hong Kong, dealing a blow to the territory’s autonomy as Beijing seeks to stamp out widespread pro-democracy protests that have challenged leader Xi Jinping.
Hong Kong stocks tumble. Global stocks fell, with Hong Kong shares leading regional declines. The Hang Seng Index closed down 5.5% in its worst day since July 2015.(WSJ)…China Communist party for the first time in 25 years did not release a GDP Forecast (BBG)  does this indicate the forecast to gloomily to release?… Shanghai Composite Index closed 1.9% at 2813, Shenzhen Component down 2.2% and Chinext index down 2.5%. (Mizuho)   NEWS

… But Stocks have rallied back to almost unchanged, White House will not idly sit by be on Guard for anti-china tweets and tape bombs from the White House….Fitch Changed Australia’s ratings to Negative…. India Unexpectedly cut Interest rates as fears of the first negative print to GDP in 40 years looms…Chains including Starbucks, Chipotle and Shake Shack are seeking delayed or reduced rent payments for June, a sign of the financial trouble facing both restaurant operators and their landlords(WSJ)….

“A number of states reported above-trend increase in cases  yesterday, including Arizona, Delaware, Illinois, Mississippi and North Carolina, but none of the numbers were startlingly bad and it would be very premature to worry about a shift in the trends. … For the first time since the crisis began, not a single state reported cases rising by 5% or more. The median state increase in cases was 2.1%, down from 2.7% a week ago. (Politico)….

“A bipartisan group of senators reached agreement on a bill that would ease restrictions on emergency small business loans that are designed to curb massive layoffs during the Covid-19 pandemic. (Politico)…

On Moderna’s announcement of a vaccine that worked in a very small study, Dr. Anthony Fauci acknowledges the full data have not been “peer reviewed.” But he tells @NoelKing: “Having looked at the data myself, it is really quite promising.” @Morning Edition @NPR…

Trump says he won’t close the country if second wave of coronavirus hits… Trump said “we are not closing our country” if the U.S. is hit by a second wave of coronavirus infections. “People say that’s a very distinct possibility, it’s standard,” Trump said when asked about a second wave during a tour of a Ford factory in Michigan. “We are going to put out the fires. We’re not going to close the country,” Trump said. “We can put out the fires. Whether it is an ember or a flame, we are going to put it out. But we are not closing our country.” (Pro Farmer)


 Spoos Higher now 49 handle range Nasdaq Unchanged, European Bourses mixed Mib +1.3% …Dax unchanged Bunds also Little changed…   Treasuries higher but well off session highs  The Yuan off session lows but not by much trading 7.15 Oil looking at first red day in 7 Gold and Silver back on the bid after yesterdays profit taking trade Dollar bid  +.4%  Not a surprise with Yuan Weakness

No Economic releases today So Tweets and China related comments will be the driver of Flows Opex for treasury Complex

Breakeven Inflation

Inflation or deflation argument of late reminds me of the old Lite beer commercial taste great or Less Filling.Plenty of opinions on the subject and rightfully so as short to medium term forecast depend on which one you may believe in. I myself believe Dis- Inflation will be around for a bit longer then 2022 but just my opinion. Below are two charts that show what break even inflation markets are pricing in for inflation, in the short term :

1 year inflation breakeven

Horizontal line=Zero or Inflation below Zero Deflation but notice that trend is turning higher

2 year Break even rate

2 year Break even inflation almost back above zero and this to trending higher.A very Simple look at inflation expectations if both 1 and 2 year move and stay Positive less need for negative Fed funds rate,but if these maturities stay persistently below zero=Deflation maybe the negative fed funds chatter perks back up.

All 50 States open..

all 50 states in one way shape or form are reopening as Connecticut becomes the last state to do so …Florida reporting new cases increased 1.1% vs 7-day Average of 1.6%(Mizuho) IRS reporting employees can return to work in three states Kentucky,Utah and Texas beginning early June (Politico).Tests in the U.S.,over the last week have averaged 350K a day(Morning dispatch) traders optimism outweighs pessimism.

Commentary from Morgan Stanley

Macro: Lows in Growth Are in. ‘U’ Is Fine, ‘W’ Is Not
We think April saw the lows for growth in this cycle, and data will
now start to improve from that low base. In this early phase of the
cycle, we think rate of change matters more than level; a ‘W’ is the
problem, not a ‘U’. Our cycle model is in ‘repair’, and suggests better
risk asset performance once the data lows are in
. “Factor exposure – long value, neutral on momentum: Our trade portfolio has a value bias and
is short momentum.”

Bloomberg financial conditions appear to be showing a “V” shaped recovery as metric moves closer to positive territory

Morning 5-20

Retail Earnings:

  • Lowe’s shares soar after same-store sales surge 11.2%(CNBC)
  • Earnings per share: $1.77, adjusted vs. $1.32 expected
  • Revenue: $19.68 billionvs. $18.32 billion expected
  • Same-store sales: up 11.2% vs. 3.3% expected


 digital sales, or online sales +141%  fueled first-quarter gains, but the big-box retailer’s earnings results Wednesday showed it paid a hefty price for that growth as labor costs rose and sales of higher-margin items like apparel dropped….Shares were up less than 1% in premarket trading.


  • Growing chatter of negative Policy rates in U.K. what was once a murmur is moving to a shout as U.K sold Bonds with negative yields for the first time
  • In The U.S. Foreigners hold the smallest proportion of treasuries since 2002 as Central banks sell treasuries to raise dollars(BBG)
  • Silver prices are +14% last 4 days and +52% from March lows (WSJ)
  • U.S. China find an old topic to argue about… Taiwan!
  • Airline Company’s starting to see people book more flights calling it a possible inflection point (WSJ)
  • Facebook will allow some workers back Into office on July 6th and is unveiling a new “shops” product which could increase companies ad revenue  Stock +2%(BBG)
  • Both JPM and GS saying Central banks may have to ramp up QE to offset the Increase in Government supply of Debt(BBG)
  • (Bloomberg) — The Samsung S&P GSCI Crude Oil ER FuturesETF said it has appointed several new clearing brokers and will resume the creation of shares on May 21, according to a filing


 Risk On  Spoos, Nasdaq Dow  all + >1%  European stocks Mixed, Cac unchanged, Dax +.25%  Italy’s MIB -.5%  Continued optimism about reopening country to blame for  strength…2965  level in Spoos again in play need a close above it to gives bulls a bit more confidence… No economic releases today so sentiment and headlines will drive flows…. Crude higher so far today Yesterday’s API oil data leaned bullish the above oil comments also provide a bid. dollar just a touch lower treasuries sideways awaiting the first 20 year bond auction in a few decades… Gold A touch higher plenty of experts calling a top in gold thus the large amount of shorts in product thus   plenty of fuel if rally can continue.

Virus News

Brazil recorded its largest single-day jump in coronavirus cases and deaths on Tuesday, reported Reuters, citing the latest data by the health ministry. The country reported an increase of 17,408 cases to bring its tally to 271,628, the report said. Brazil now has the third-highest number of cumulative cases globally behind the U.S. and Russia, according to data compiled by Johns Hopkins University…. Trump considering a travel Ban…..The coronavirus pandemic could cost the global economy $82 trillion over five years, a Cambridge study warns. The cost projections are based on 2019 gross domestic product volumes which stood at $69.2 trillion for the world’s 19 leading economies.

Headlines from this Afternoon

Not a good close for stocks based on the Negative commentary regarding Modern vaccines.President Trump throws a bit of gas on the sell off saying im disappointed with China

  • SPX – 1.59%
  • Nasdaq – 0.54%
  • Russell 2k -1.95% –
  • Dow -1.05%
  • @seungminkim Some policy NEWS from inside the GOP lunch – Trump expressed opposition to the $600/week unemployment benefit boost once it expires in July, per three sources. House Ds want to extend through January 2021
  • A quiet June CL expiration

Oil rigs from