Oct 4. Budget out of whack? Wipe the slate clean.
–Stocks again went out on the highs as yields edged slightly lower. Front eurodollars to reds were flatter, reds to deferred slightly steeper. (Whites -0.75, Reds +1.25, Grns +1.5, Blues +1.25 and Golds +0.875).
–Large buyer early morning buyer yesterday of 82k 0EG 9787/9762ps for 4.0 ref 9806.5 in EDH9. Equivalent to about 14k futures sold. However, the market easily absorbed the selling pressure and floated higher with EDH9 closing at 9808.5. EDZ8 is still flirting with the 9812.5 strike where there is huge open interest; settled 9813.0.
–Interesting comment in the aftermath of Becky Quick’s interview with Warren Buffet: she said he was not selling anything and was waiting to see how the tax program might play out in Washington, that is, defer selling to get a lower rate. The equation comes down to, ‘how much of a tax saving vs how much the market rallies in the meantime.’ In any event, this line of thought likely removes selling pressure at the margin.
–On the other hand, regarding the tax program, Moody’s said it would consider downgrading the US if the plan was passed as proposed. The President off-handedly said Puerto Rico funding is throwing the budget out of whack. So I guess we should feel good about the tax program? And then there’s this: “We are going to work something out. We have to look at their whole debt structure,” Trump said in a Fox News interview Tuesday. “You know they [PR] owe a lot of money to your friends on Wall Street. We’re gonna have to wipe that out. That’s gonna have to be — you know, you can say goodbye to that.” It seems to me that governments typically aren’t that cavalier about dismissing debt obligations. Coincidentally, the ECB is telling banks to set aside more money for bad loans. http://www.reuters.com/article/us-eurozone-banks-ecb/ecb-tells-banks-to-set-aside-more-cash-on-bad-loans-idUSKCN1C90IW
(Maybe they’ve lent to PR!).
–An interesting piece on Zerohedge from Jeffrey Snider notes that treasury repo fails have been over $325 billion for the past three weeks, suggesting collateral tightness. From the article “…potentially an escalating warning about systemic liquidity.” http://www.zerohedge.com/news/2017-10-03/three-straight-weeks-cant-be-ignored
–Yellen gives opening remarks at a community banking conference. Other news includes ADP expected 135k and Non-mfg ISM expected 55.5.
