Dollar General

 

Dollar general Bids for Family Dollar

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Revenons à nos moutons !


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(Bloomberg) — Equities faded amid a fresh batch of weak earnings from the technology sector as flagging growth in China revived global growth concerns. The PBOC said it’ll tweak its policy in a sign that trade tensions with the U.S. are hurting the world’s second-largest economy.

The dollar gained as did the yen while emerging markets fell as investors abandoned risky assets.

Mexico’s peso fell and its bonds slid after the President-elect introduced a bill to eliminate certain fees and commissions charged by banks. Cable extended losses after Jo Johnson resigned as transport minister amid frustration with Brexit negotiations.

Treasuries rose shrugging off a jump in producer prices for October, the most since 2012.

Elsewhere, precious metals fell while crude touched the lowest level since February as it headed for the longest losing streak on record.

Key Headlines:

  • EU is said to require more movement from U.K. on Brexit backstop
  • Trump telling people he wants to replace Ross by year- end: CNBC
  • McConnell says no indication Trump wants to dismiss Mueller
  • Consumer sentiment remained virtually unchanged in early November

 

Financials

(Bloomberg) — Financial stocks were down today, performing better than about half of the market. Almost half of major U.S. banks are failing to satisfy the expectations of the Federal Reserve. Prudential’s PGIM likes U.S. bank debt for recession protection. And American Express is the first foreign payment company to be granted access to mainland China. Top Stories:

  • Canaccord Genuity Group (CCORF -2.1%) named Dennis Lafferty as managing director in the U.S. fixed-income division as the Canadian-based bank boosts its markets business in corporate debt. He will be focusing on distressed debt. Most recently, he co-led the U.S. distressed and high-yield trading teams at HSBC Holdings (HSBC -1.7%) until June of 2017.
  • More than 40 percent of major U.S. lenders are failing to satisfy the Federal Reserve’s expectations in key areas of risk management, the central bank said Friday in a report that reveals the regulator’s overall assessment of the industry. The Fed’s inaugural Supervision and Regulation Report highlights a number of positives, but it also shows how risks may now come from mismanagement, cyber attacks and failures to protect the banking system. Those faults are contributing to so many firms failing to make the top two of the five categories that measure a bank’s strength.
  • The Federal Reserve’s vice chairman for supervision Randal Quarles said Friday that a planned overhaul of the annual exams won’t be in place until at least 2020. But, as a positive for Wall Street, he said the revamp could target the issues that have long frustrated bankers. These include the possibility of having dividend and share buyback plans publicly rejected, the testing process’s lack of transparency and reducing the stigma of failing what’s known as the qualitative part of the assessments.
  • Prudential Financial (PRU -1.2%) investment unit said the bonds of the biggest U.S. banks are a good investment if you are worried about a recession. The firm likes the 10-year notes of financial firms as a robust bet heading into a potential downturn in the world’s largest economy, according to Chief Investment Officer Mike Lillard. “The big money center banks in the U.S. will prove to be very defensive investments in the next economic downturn,” he said, adding that there is a significant probability of a recession in 2020 or 2021.
  • U.S. taxpayers could gain as much as $125 billion if Fannie Mae and Freddie Mac are freed from government control under a revised blueprint released Friday by investment banking firm Moelis & Co. The proposal, which is backed by investors including Paulson & Co. and Blackstone Group LP, could also deliver a windfall for the shareholders in the two mortgage-finance giants.
  • Goldman Sachs Group (GS -3.9%), JPMorgan Chase & Co. (JPM -1.0%), Morgan Stanley (MS -1.5%) and Citigroup (C -3.0%) have presented plans to increase the assets held through their Frankfurt subsidiaries tenfold after the U.K.’s exit from the EU to comply with requirements, several people briefed on the matter said. They are planning to shift assets to Frankfurt because of Brexit, a move that would see their balance sheets in Germany grow to about 250 billion euros ($283 billion), they said. The final size of the assets may change depending on the outcome of Brexit talks, the people said.
  • American Express (AXP -0.2%) said the People’s Bank of China approved its license to become the first foreign payments company allowed to build a network in the nation. AmEx formed a joint venture with Chinese fintech- services firm LianLian that will let charges on American Express-branded cards be cleared and settled in China, the company said Friday in a statement.

Ratings

  • Columbia Banking Upgraded to Outperform at KBW; Price Target $45
  • Synovus Upgraded to Outperform at KBW; Price Target $55

M&A / ECM

  • Equistone Gets Loan From BNP, SocGen for Courir Acquisition
  • Great-West Is Said to Hire Goldman for $1 Billion U.S. Unit Sale
  • Morgan Stanley Has Shares, Acceptances for 58% of VTG
  • Third Point Takes New Stake in American Express in 3Q: Letter

Movers

  • U.S. Financials (S5FINL)
    • E*Trade Financial (ETFC) -1.7%
    • BlackRock (BLK) -1.8%
    • Raymond James (RJF) -1.8%
    • Schwab (SCHW) -2%
    • Regions Financial (RF) -2.4%
    • Franklin Resources (BEN) -2.4%
    • Invesco (IVZ) -2.8%
    • Citigroup (C) -3%
    • Goldman Sachs (GS) -3.9%
    • Brighthouse Financial (BHF) -4.2%
  • KBW Bank Index (BKX)
    • BB&T (BBT) +1.3%
    • Bank of New York Mellon (BK) -1.1%
    • Northern Trust (NTRS) -1.2%
    • Bank of America (BAC) -1.2%
    • SVB Financial (SIVB) -1.3%
    • State Street (STT) -1.5%
    • New York Community Bancorp (NYCB) -1.8%
    • Regions Financial (RF) -2.4%
    • Citigroup (C) -3%
  • KBW Regional Banking (KRX)
    • Boston Private (BPFH) +1.7%
    • Provident Financial (PFS) -1.6%
    • East West Bancorp (EWBC) -1.6%
    • First Midwest Bancorp (FMBI) -1.7%
    • Hope Bancorp (HOPE) -1.7%
    • United Bankshares (UBSI) -1.7%
    • Brookline Bancorp (BRKL) -1.8%
    • Washington Federal (WAFD) -1.9%
    • Sterling Bancorp (STL) -2%
    • Bank OZK (OZK) -2.5%
  • U.S. Asset Management (S5AMGT)
    • Bank of New York Mellon (BK) -1.1%
    • Northern Trust (NTRS) -1.2%
    • T. Rowe (TROW) -1.4%
    • State Street (STT) -1.5%
    • Affiliated Managers (AMG) -1.5%
    • Ameriprise (AMP) -1.6%
    • BlackRock (BLK) -1.8%
    • Franklin Resources (BEN) -2.4%
    • Invesco (IVZ) -2.8%

 

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(Bloomberg) — Treasuries rallied over the U.S. morning session and held most gains into the close as stocks dropped, led by tech names, and flagging growth in China revived global growth concerns. Bund rally into the London close had initially supported Treasury gains, producing bull-steepening move.

  • Yields higher by 3.5bp to 5bp across the curve, with 7- to 10- year sectors leading gains, as 5s30s steepened by ~0.6bp and 2s10s30s fly richened by around 2bp
    • UST 10-year yields at 3.19%, or toward bottom of weekly range; leading into London close, spread vs Germany rose back through 279bp as stops sent bunds higher, outperforming Treasuries
  • Following a strong U.S. PPI print, Treasuries started bull-steepening move; no notable flows were cited, suggesting some of long end weakness may have been ahead of expectations for a busy IG issuance slate next week
    • Small clips of eurodollar sales were also seen after data, including 15k Mar20 at 96.71 and 15k Jun19 at 96.91
    • Eurodollar strip bear steepened, with greens and blues lower by up to 4.5bp shortly after 3pm ET
  • Flurry of activity seen across 10-year Treasury options, keeping with recent theme of selling Dec18 and Jan19 calls vs buying calls further out
    • Flows included around 77k TYZ8 118/119 call spread sold between 20 to 15 ticks, and buying of TYH9 122/123.5 1×2 call spread

 


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(Bloomberg) — Primary market conditions improved for borrowers this week, achieving constructive prints and paying less than half of what they anted up in new issue concessions last week. Investor demand climbed, enabling dealers to push deal spreads tighter throughout the marketing process.

  • Weekly supply was robust as high-grade borrowers printed $22b, topping market expectations calling for $15b-$20b

This Week 4.4

Last Week 9.3

YTD NIC  4.4

  • Broader market conditions helped buoy an already improving credit landscape
    • The Bloomberg Barclays Corporate IG OAS index has narrowed in November, closing last night at +114
    • A split U.S. Congress realized after Tuesday’s midterm elections is the best- case scenario for investment-grade bond spreads, a Bank of America analyst wrote in a note dated Nov. 7
    • Corporate IG funds also returned to inflows with $1.85b added this week vs the large outflow of $3.57b the previous week, according to Lipper Fund Flows data
  • That said there were some clear headwinds
    • Volkswagen Group of America’s 10y is trading 15bps wider
    • MPLX priced its 30y ~15bps back of secondaries as credit curves may be beginning to widen in the long end for lower-rated IG credits
    • The M&A pipeline for the remainder of 2018 is dwindling
      • Takeda Pharmaceutical’s acquisition of Shire plc may be predominantly financed in euros, while Broadcom Inc. recently priced two $9b term loans for its purchase of CA Inc.
  • Early supply projections for the holiday-shortened week ahead are $30b-$35b
    • Real estate investment trust supply is said to be heavier following the NAREIT conference
    • DowDuPont is holding investor calls Tuesday

THIS WEEK’S IG ANALYSES

  • Utilities Pay Low Concessions Ahead of Midterms
  • Waste Connections Upsizes as Primary Trades Improve
  • The Big Primary Day Came After U.S. Midterm Vote
  • ING Brought $1.25b Green Bond Ahead of the FOMC

ISSUANCE STATS

  • Weekly volume $22.000b vs $17.550b last week
  • Week of Nov. 5-9, 2018 Spreadsheet
  • MTD volume $29.350b
  • October volume $85.875b
  • YTD volume $1.011t

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(Bloomberg) — BP’s Whiting, Ind., refinery expects to complete turnarounds on its biggest crude unit and coker and return them to normal operations as soon as the end of next week, person familiar with operations says. MARKET NEWS:

  • BP Cherry Point Shuts Units for Maintenance Activity: Agency
  • Oil’s Rapid Run of Declines Kicks Up Pressure as OPEC Gathers
  • Hedge Funds Cut Nymex Diesel, Gasoline Bets
  • EUROPE OIL PRODUCTS: Fuel Oil Cracks Jump; Gasoline Off Lows
  • Koch Sees Having Gasoline Available at Veracruz Terminal in Oct.
  • Gasoline Pulls Oil Prices Into Reverse: Liam Denning
  • One Last Flurry of Additions as Stockpiles Primed for Winter
  • Delta Fuel Tax Break Gets Another Run at Georgia Legislature

PRICES: Atlantic Coast differentials vs Nymex as of 4:30pm ET

  • 83.5 CBOB +0.38c to Nymex +1.13c
  • 84 RBOB +0.38c to +1.38c
  • ULSD -0.08c to +0.2c
  • Jet fuel +0.75c to -2.75c

Gulf Coast differentials vs Nymex as of 4:30pm ET

  • 85 CBOB -0.25c to -7.38c
  • 84 RBOB -0.88c to -6.88c
  • ULSD -1c to -8.25c
  • Jet fuel -1.23c to -11.13c

Oil Analytics refining margins (as of prior session)

  • East Coast Forcados cracking at $10.84/bbl
  • Gulf Coast Maya coking -66c to $7.49/bbl

Nymex futures and cracks

  • Gasoline December futures -2.29c to $1.6214/gal.
  • Diesel December futures +0.45c to $2.1728/gal.
  • 3-2-1 front month crack spread -10c to $15.63/bbl

Gasoline Arbitrage

  • Front-month U.S.-Europe RBOB-Eurobob swap spread +0.15c to -1.7c/gal

Baltic Exchange freight

  • TC2 U.K./Continent-USAC (37k tons) +2.78 WS points to WS 154.72
  • TC14 USGC-U.K./Continent (38k tons) -3.44 WS points to WS 118.75

 

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(Bloomberg) — Copper posted the biggest weekly loss in almost three months as industrial metals tumbled on a stronger dollar and concern over the outlook for demand in China, the world’s biggest user. Chinese data indicated softer producer-price gains and weak car sales.

The dollar rose to the highest in more than a week, making metals more expensive for buyers using other currencies. Signs of tight supplies have failed to revive metals demand, with copper losing as much as 2 percent Friday even after a report this week showed output at the largest producer slumped.

Drivers

The dollar headed for the highest close since Oct. 31, rallying for a second day after the Fed  signaled  for additional hikes next month and in 2019 Tame  Chinese Inflation  Frees PBOC’s Hand as Economy Loses Steam Codelco customers  will see fees to have metal delivered to southern U.S. ports climb 20% next year, people familiar said, in a sign of robust demand.

The LME Cash to 3-month zinc  spread  was at $63/ton on Friday, near the biggest backwardation in a year, in a sign of a tightening market LME zinc  stockpiles  fell for a 26th day on Friday, approaching 10-year lows seen in March The global nickel market isn’t as tight as it  looks , analysts at Citigroup Inc. say in an emailed note

Prices

LME  copper  -1.6% to settle at $6,056/ton at 5:51pm in London Metal posts 3.6% weekly drop. 

Aluminum, lead, nickel and tin decline; zinc rises.

Commentary

An escalation of trade tensions is becoming the new base case for most commodity investors, Citigroup says in emailed note, and there are doubts about effectiveness of Chinese policy stimulus “As far as today’s market action is concerned, the bears seem to be back with renewed vengeance,”  Edward Meir , an analyst at INTL FCStone, says in note to clients

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-R.W.N II, yours in 322.

Banyan Capital Management, LLC (“BCM”) is a publisher, not a registered investment advisor, and nothing in BCM’s newsletter is intended, and it should not be construed, to be investment advice. BCM’s newsletter is for informational use only. Any mention in BCM’s newsletter of a particular security, index, derivative, or other instrument is neither a recommendation by BCM to buy, sell, or hold that security, index, derivative, or other instrument, nor does it constitute an opinion of BCM (or of any of its officers, employees, agents or representatives) as to the suitability of that security, index, derivative or other instrument for any particular purpose. BCM is not in the business of giving investment advice or advice regarding the suitability for any purpose of any security, index, derivative, other instrument or trading strategy and nothing in BCM’s newsletter should be so used or relied upon. BCM is not acting as your financial advisor nor in a fiduciary capacity, with regard to any securities, index, derivative or other instrument referred to in BCM’s newsletter. Also, no representation is made concerning the tax implications in any applicable jurisdiction regarding any securities, index, derivative or other instrument and BCM is not advising you in respect of the tax implications. All opinions and estimates in the newsletters are given as of the date of their publication on the BCM’s website and are subject to change and BCM does not assume any obligation to update the newsletters or to reference any such changes. BCM hereby expressly disclaims any and all representations and warranties that: (a) the content of its newsletters is correct, accurate, complete, reliable or a guaranty of future performance; (b) any of its newsletters will be available at any particular time or place, or in any particular medium; and (c) that any omission or error in any of its newsletters will be corrected. BCM shall not be liable for any errors or omissions made in its newsletters or for any inaccuracies in its assumptions. BCM specifically disclaims liability for any losses or damages (incidental, consequential or otherwise) that may arise from the newsletters and that are either used or relied upon by anyone for any reason, including without limitation, the use of the newsletters in the preparation of any financial books and records. Although from time to time BCM’s newsletter may link to or promote others’ websites or services, BCM is not responsible for and does not control those websites or services. BCM’s newsletter is published and distributed in accordance with applicable United States and foreign copyright and other laws. Without the prior written consent of BCM, no person or entity, directly or indirectly, may copy, reproduce, recompile, decompile, disassemble, reverse engineer, distribute, publish, display, perform, modify, upload to create derivative works from, transmit, or in any way exploit all or any part of BCM’s website, its newsletter, or any other material belonging to BCM.Without the prior written consent of BCM, no person or entity, directly or indirectly, may offer all or any part of BCM’s website, its newsletter, or any other material belonging to BCM for sale, nor may any person or entity, directly or indirectly, distribute all or any part of BCM’s website, its newsletter, or any other material belonging to BCM over or by means of any medium.Without the prior written consent of BCM, no person or entity, directly or indirectly, may make all or any part of BCM’s website, its newsletter, or any other material belonging to BCM, available as part of or in connection with another website, whether by hyperlink, framing on the Internet or otherwise. At any given time BCM’s principals may or may not have a financial interest in any or all of the securities and instruments discussed herein. At any given time BCM’s principals may or may not have a financial interest in any or all of the securities and instruments discussed herein.

 

Va savoir pourquoi !

 

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WTI Crude OIl settles in Bear Market, Down 21% from October’s high.

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(Bloomberg) — Gold fell for the fourth in five sessions as a report Thursday showing a solid U.S. jobs market bolstered speculation the Federal Reserve will maintain its hawkish monetary policy.

Fed officials are expected to keep interest rates unchanged at the penultimate gathering of 2018, with investors looking for clues about tightening next year.

The dollar climbed for the first time in four days as its resilience continues to drag on the price of gold.

A stronger dollar makes the metal more expensive for buyers using other currencies.

Drivers

The Fed’s tone will give clues on 2019. It will likely continue to describe U.S. growth and labor market as strong, reinforcing the outlook for a December hike U.S. filings for unemployment benefits  held  near an almost five-decade low, indicating a robust job market, Labor Department figures showed Thursday Holdings in gold-backed  exchange-traded funds  -0.2% to 2,131.7 tons on Wednesday South African gold production plunged the most in almost four years in September

Prices

Gold futures for December delivery -0.3% to settle at $1,225.10/oz at 1:31pm on Comex in N.Y.

Bloomberg Dollar  Spot Index  +0.3%. 

Market Commentary

“Gold is down on the jobless claims being softer than what we’ve been seeing coupled with the Fed this afternoon,” Bob Haberkorn , a senior market strategist at RJO Futures in Chicago, says by phone “Gold traders are expecting more of the hawkish tone to continue from the Fed, which would mean weaker gold. They will probably signal a hike for next month or hikes in the next year” Thursday’s Fed meeting “is unlikely to drag gold out of its narrow trading corridor” as it “will probably serve merely as preparation for the next one in December,” Commerzbank analysts say in daily note

Other Precious Metals

Silver futures drop on Comex.

 

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-R.W.N II, yours in 322.

Banyan Capital Management, LLC (“BCM”) is a publisher, not a registered investment advisor, and nothing in BCM’s newsletter is intended, and it should not be construed, to be investment advice. BCM’s newsletter is for informational use only. Any mention in BCM’s newsletter of a particular security, index, derivative, or other instrument is neither a recommendation by BCM to buy, sell, or hold that security, index, derivative, or other instrument, nor does it constitute an opinion of BCM (or of any of its officers, employees, agents or representatives) as to the suitability of that security, index, derivative or other instrument for any particular purpose. BCM is not in the business of giving investment advice or advice regarding the suitability for any purpose of any security, index, derivative, other instrument or trading strategy and nothing in BCM’s newsletter should be so used or relied upon. BCM is not acting as your financial advisor nor in a fiduciary capacity, with regard to any securities, index, derivative or other instrument referred to in BCM’s newsletter. Also, no representation is made concerning the tax implications in any applicable jurisdiction regarding any securities, index, derivative or other instrument and BCM is not advising you in respect of the tax implications. All opinions and estimates in the newsletters are given as of the date of their publication on the BCM’s website and are subject to change and BCM does not assume any obligation to update the newsletters or to reference any such changes. BCM hereby expressly disclaims any and all representations and warranties that: (a) the content of its newsletters is correct, accurate, complete, reliable or a guaranty of future performance; (b) any of its newsletters will be available at any particular time or place, or in any particular medium; and (c) that any omission or error in any of its newsletters will be corrected. BCM shall not be liable for any errors or omissions made in its newsletters or for any inaccuracies in its assumptions. BCM specifically disclaims liability for any losses or damages (incidental, consequential or otherwise) that may arise from the newsletters and that are either used or relied upon by anyone for any reason, including without limitation, the use of the newsletters in the preparation of any financial books and records. Although from time to time BCM’s newsletter may link to or promote others’ websites or services, BCM is not responsible for and does not control those websites or services. BCM’s newsletter is published and distributed in accordance with applicable United States and foreign copyright and other laws. Without the prior written consent of BCM, no person or entity, directly or indirectly, may copy, reproduce, recompile, decompile, disassemble, reverse engineer, distribute, publish, display, perform, modify, upload to create derivative works from, transmit, or in any way exploit all or any part of BCM’s website, its newsletter, or any other material belonging to BCM.Without the prior written consent of BCM, no person or entity, directly or indirectly, may offer all or any part of BCM’s website, its newsletter, or any other material belonging to BCM for sale, nor may any person or entity, directly or indirectly, distribute all or any part of BCM’s website, its newsletter, or any other material belonging to BCM over or by means of any medium.Without the prior written consent of BCM, no person or entity, directly or indirectly, may make all or any part of BCM’s website, its newsletter, or any other material belonging to BCM, available as part of or in connection with another website, whether by hyperlink, framing on the Internet or otherwise. At any given time BCM’s principals may or may not have a financial interest in any or all of the securities and instruments discussed herein. At any given time BCM’s principals may or may not have a financial interest in any or all of the securities and instruments discussed herein.

“Qui vivra verra”

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(Bloomberg) — Treasuries pared gains and the curve steepened late in the U.S. afternoon session following a soft 30-year auction and large block trade in ultra-long bond futures; curve still flatter on the day following initial reaction to Thursday’s U.S. midterm elections. USTs showed muted reaction to news of Attorney General Jeff Sessions resignation.

  • Just ahead of cash settlement at 3pm ET, 6,031 WNZ8 block trade printed at 148-24, which pushed 5s30s above 36bp level as long end weighed; curve ended flatter by 2.2bp on the day after having dropped as low as 34.3bp before finding support at 200- DMA
  • Yields across front end were cheaper by up to 1.6bp, flattening 2s10s by 2.7bp; 10-year yields ended around 3.22%, richer by 1.1bp
  • The 30-year bond auction was notably weak, which triggered a sharp steepening move as results were released; the sale tailed by 2.3bp, while bid-to-cover was lowest since 2009; directs were soft at just 2.9%
    • Initial long-end weakness was faded via 4,975 USZ8 block buyer
  • Eurodollars were steady, with reds lower by up to 1.5bp while rest of the strip was marginally weaker; option flows included large buyer of upside via 2EM9 97.75 calls over U.S. morning session
  • Treasury options included 42k TYG9 118.5 calls bought at 33 ticks, targeting ~3.11% yield ahead of Jan. 25 expiry

(Bloomberg) — FNCL CC spread to 5/10-year blend (+95) closed 2bp tighter; UST 10Y yield closed 3bp higher at 3.23%.

  • All levels/prices/yields as of close, according to Bloomberg data
  • Primary/Secondary spread ~1bp tighter at +73bp; trailing 3- mo. high/low close: +89bp (Oct. 2)/+71bp (Nov. 2)
  • 10Y yield ~3bp higher at 3.23%; trailing 3-mo. high/low close: 3.23% (Oct. 5)/2.81% (Aug. 24)
  • FN30 CC yield ~1bp higher at 4.09%; trailing 3-mo. high/low close: 4.09% (Nov. 6)/3.56% (Aug. 20)
  • FNCL 3s +63bp to 5/10-yr blend, tighter by ~3bp, 90-DMA +62bp
  • FNCL 4s +91bp to 5/10-yr blend, tighter by ~2bp, 90-DMA +92bp
  • FNCI3/FNCL3.5 unchanged
  • Volatility (1M10Y) ~1.0bp lower at 63.1bp; trailing 3-mo. high/low close: 65.1bp (Oct. 30)/49.4bp (Oct. 1)
  • 10Y swap spread ~0.4bp tighter at 5.7bp; trailing 3-mo. high/low close: 7.8bp (Aug. 24)/3.8bp (Oct. 5)
  • 2/10 slope ~1bp wider at +30bp; trailing 3-mo. high/low close: +34bp (Oct. 5)/+19bp (Aug. 24)

 

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Downside protection in Yuan (CNH) options diminishes since President Trump’s phone call with Xi of China.

 

 

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(Bloomberg) — Coffee futures rebounded from a two-day drop amid heightened volatility as traders weigh ample supplies and currency swings. Futures rose in both New York and London as volatility held near the highest in at least a year.

While prices have climbed since September as a stronger real curbed the appeal of exports from major grower Brazil, supplies remain ample there as well as in Vietnam. Wednesday’s gains also came as a weaker dollar helped push most commodities higher.

Drivers

Global demand for robusta coffee is seen climbing to record this season, according to an RCMA Group forecast Heavy rains may delay harvesting in Indonesia this week, Radiant Solutions said Brazil’s real held above a three-week low, while the Bloomberg Dollar Spot Index fell as much as 0.6%

Prices

Arabica  for December +1.2% to $1.1455/lb in New York  Prices dropped 5.7% in the previous two days Robusta  for January +0.9% at $1,684/ton Slid 3.5% in the previous two days Arabica’s 30-day historical volatility is near a two-year high, while a measure for robusta is near the highest in a year

Market Talk

Coffee futures had been under pressure amid concerns about big crops and as the dollar tried to rally, but the greenback couldn’t hold,  Jack Scoville , vice president at Price Futures Group in Chicago, said in a report. “Some problems with too much rain have been noted in Central America.”

Other soft commodities

Raw Sugar  for March +0.6%;

White Sugar for March +0.3%

Cocoa for March +0.3% to $2,394/ton in New York Reaches highest for a most-active contract since July Beans decline in London Cocoa Market  to Be Balanced as Demand Rises.

 


-R.W.N II, yours in 322.

Banyan Capital Management, LLC (“BCM”) is a publisher, not a registered investment advisor, and nothing in BCM’s newsletter is intended, and it should not be construed, to be investment advice. BCM’s newsletter is for informational use only. Any mention in BCM’s newsletter of a particular security, index, derivative, or other instrument is neither a recommendation by BCM to buy, sell, or hold that security, index, derivative, or other instrument, nor does it constitute an opinion of BCM (or of any of its officers, employees, agents or representatives) as to the suitability of that security, index, derivative or other instrument for any particular purpose. BCM is not in the business of giving investment advice or advice regarding the suitability for any purpose of any security, index, derivative, other instrument or trading strategy and nothing in BCM’s newsletter should be so used or relied upon. BCM is not acting as your financial advisor nor in a fiduciary capacity, with regard to any securities, index, derivative or other instrument referred to in BCM’s newsletter. Also, no representation is made concerning the tax implications in any applicable jurisdiction regarding any securities, index, derivative or other instrument and BCM is not advising you in respect of the tax implications. All opinions and estimates in the newsletters are given as of the date of their publication on the BCM’s website and are subject to change and BCM does not assume any obligation to update the newsletters or to reference any such changes. BCM hereby expressly disclaims any and all representations and warranties that: (a) the content of its newsletters is correct, accurate, complete, reliable or a guaranty of future performance; (b) any of its newsletters will be available at any particular time or place, or in any particular medium; and (c) that any omission or error in any of its newsletters will be corrected. BCM shall not be liable for any errors or omissions made in its newsletters or for any inaccuracies in its assumptions. BCM specifically disclaims liability for any losses or damages (incidental, consequential or otherwise) that may arise from the newsletters and that are either used or relied upon by anyone for any reason, including without limitation, the use of the newsletters in the preparation of any financial books and records. Although from time to time BCM’s newsletter may link to or promote others’ websites or services, BCM is not responsible for and does not control those websites or services. BCM’s newsletter is published and distributed in accordance with applicable United States and foreign copyright and other laws. Without the prior written consent of BCM, no person or entity, directly or indirectly, may copy, reproduce, recompile, decompile, disassemble, reverse engineer, distribute, publish, display, perform, modify, upload to create derivative works from, transmit, or in any way exploit all or any part of BCM’s website, its newsletter, or any other material belonging to BCM.Without the prior written consent of BCM, no person or entity, directly or indirectly, may offer all or any part of BCM’s website, its newsletter, or any other material belonging to BCM for sale, nor may any person or entity, directly or indirectly, distribute all or any part of BCM’s website, its newsletter, or any other material belonging to BCM over or by means of any medium.Without the prior written consent of BCM, no person or entity, directly or indirectly, may make all or any part of BCM’s website, its newsletter, or any other material belonging to BCM, available as part of or in connection with another website, whether by hyperlink, framing on the Internet or otherwise. At any given time BCM’s principals may or may not have a financial interest in any or all of the securities and instruments discussed herein. At any given time BCM’s principals may or may not have a financial interest in any or all of the securities and instruments discussed herein.

бить без баса

 

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(Bloomberg) — TIPS breakevens expanded this past week despite a sharp sell-off in energy, while wage-growth data has kept a bid for breakevens by investors looking past gasoline deflation over the next month or two.

  • The curve flattened a great deal: nearly 5bps from five-year to thirty-year. The yield between 5yr and 10yr is getting close to flat, and may actually get there with further energy pressure.
  • Real Yield    Real Yield   Change       Carry         Change Adjusted for Carry
  •  5yr              1.12%             0.086%       0.000%       0.086%
  • 10yr             1.15%             0.079%      0.000%        0.079%
  • 30yr              1.33%           0.040%       0.000%        0.040%

 

  • Breakevens widened across the curve, with the longer dates outperforming. Energy selling off almost 7% over the past week wasn’t enough to turn the 5yr breakeven negative, but was enough to have it lag on the curve.
  • BEI     BEI     Change Carry Change Adjusted for Carry
  • 5yr     1.93% 0.013% -0.003% 0.010%
  • 10yr 2.07% 0.017% -0.002% 0.016%
  • 30yr 2.12% 0.033% -0.001% 0.032%

 

  • The 1y1y real yield continues to march higher, adding another 4.2 bps this week.
  •                             Today      Last   Week       Change
  • 1y1y Nominal   3.295%    3.217%              0.078%
  • 1y1y Inflation    2.220%    2.183%             0.037%
  • 1y1y Real            1.076%    1.034%            0.042%
  • 10yr inflation swaps outperformed cash; otherwise, the basis was pretty quiet.
  • Basis
  •           Basis    Chg
  • 5yr  0.270%  0.005%
  • 10yr 0.210% 0.029%
  • 30yr  0.234% -0.001%

 

  • NOTE: Jacob Bourne is an FX strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.

 

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Don’t Blame Fed Policy for the Market Correction: Macro Man
(Bloomberg) — In a few days, the sound and the fury surrounding the midterm elections will be behind us and markets can get on with their lives. While it’s certainly possible that a shocking result could shift the market narrative for more than 48 hours, the base case is surely tilted toward a renewed focus on the favored themes of trade tensions and Fed tightening. Last month’s growth scare and a few presidential tweets have sharpened the focus on the interest rate cycle, raising concerns that the Fed may be on the brink of a policy error. The reality is that the Fed is simply “taking back control” of its policy settings; while that may have been a driver behind last month’s P/E de-rating, it’s likely that there are other factors at work as well.

The notion that “everything matters” is as false as the idea that “nothing matters,” but for financial markets the truth probably rounds toward the latter. As such, the theory that the composition of Congress over the next couple of years will probably exert a minimal marginal influence on asset market returns has some appeal.

That puts the focus back on familiar topics like trade tensions and the Fed, where there appears to be a growing drumbeat of support for the notion that the Fed is on the brink of over-egging the tightening cycle. It feels like many of the proponents of this theory have forgotten that there’s no divine right to 15% annualized returns with minimal drawdowns, the last seven years notwithstanding.

It’s stating the obvious, but the Fed controls its monetary stance by adjusting the level of nominal interest rates. How accommodative monetary policy is depends not only on the funds rate but also on the level of inflation and the neutral interest rate.

It should come as little surprise that marginal changes in the policy rate tend to be reflected in changes in the Fed’s policy stance, at least since the early 1980s. Well, that was the case until the current decade, when a combination of the zero lower bound and Fed gradualism broke the historical link between changes in the nominal funds rate and changes in the Fed’s policy stance. That’s a big reason why the Fed has exerted so little control over financial conditions during this cycl.

It’s notable that despite 100 bps of nominal tightening over the past 12 months, according to this framework the Fed’s policy stance has only tightened by 35 bps thanks to rises in core inflation and the neutral interest rate. That doesn’t sound like much, and it isn’t.

Over the past 12 months the P/E ratio of the S&P 500 has fallen by 2.44 (the multiple using 1-year forward expected earnings has fallen by a similar but slightly smaller amount.) That’s a pretty substantial de-rating; it’s worse, in fact, than any observed in either of the previous two rate-hike cycles, both of which saw the Fed’s policy stance tighten by 200 bps over the course of a year.

Over time the relationship between Fed policy and the market multiple is decidedly non-linear. There tends to be a negative correlation during tightening cycles and non-recession easings, but a positive correlation during economic contractions and bear markets. Last year was a notable exception to this relationship, where the Fed’s policy stance rose the most over a twelve-month span since 2006, yet the market multiple increased. This year has represented the hangover from that stock-market party.

An obvious explanatory variable for these discrepancies is the White House, where the feel-good factor surrounding Donald Trump’s deregulation drive and tax cuts has (belatedly) been replaced by concerns over trade policy and the uncertainty that it’s engendering.

Obviously, there are a lot of moving parts here, and this framework probably underweights the impact of the overall Fed policy suite–particularly the forward guidance towards restrictive policy moving forwards. But that’s a separate issue that we’ve discussed elsewhere.

Ultimately it’s a good thing if the Fed is taking back control of changes in its policy stance. So, too, is a more realistic assumption of the future risk-adjusted return on the part of investors. You can blame the Fed if you want, but it doesn’t mean that you’re right. And it also doesn’t mean that the strike price of the Fed put for equity investors is visible with the naked eye.

 

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(Bloomberg) — U.S. stocks climbed with the Nasdaq outperforming as Apple, Amazon and Alphabet advanced; trading volume light with congressional elections in focus.

Treasuries rebounded from near session lows after 10-year note auction drew a yield 1.2bp lower than the WI level and produced a record indirect allotment.

The auction offset another poor showing by direct bidders; the two-year climbed to its highest since 2008. The dollar pared early session losses.

Emerging markets assets mostly unchanged with the Turkish lira the outlier, falling as much as 2% vs the dollar.

Elsewhere, oil headed for an eight-month low as concerns over continued supply mounted.

Key Headlines:

  • U.S. Treasury sold $27.0b in 10-year notes at a yield of 3.209%
  • Average price for whole milk powder falls to $2,655, according to GlobalDairyTrade
  • Turkey court convicts HDP lawmaker Togrul on terror: AA
  • U.S. job openings fell in September from a record in the previous month

 

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(Bloomberg) — Treasuries grind lower, flattening the curve, as yields ended close to cheapest levels of the day shortly after cash settlement and traders looked ahead to Tuesday evening’s midterm results. Futures volumes were below average again amid muted activity, while demand for downside protection on 10-year notes continued to ramp up.

  • Yields were higher by 1.3bp to 2bp out to the 10-year sector, while the long end was marginally richer on the day, flattening 5s30s by 2bp and 2s10s by 3bp; 10-year yields reached 3.22%, almost matching Monday’s high.
    • Large curve trade via 5-year and ultra-long bond futures triggered early flattening momentum, which then extended into the close with 5s30s reaching as low as 37.4bp.
  • Solid 10-year auction, which traded through the WI by 1.2bp, briefly halted the grind higher in yields; direct allotments were weak once again at just 1.2%; indirects were at record 73.8% high.
  • Treasury futures volumes were just 60% of 10- day avg up to 3pm ET, although options activity was more robust with demand seen for short-term hedges against a rise in 10-year yields.
    • Flows on the day included around 50k 117.25 TY Week 2 put options bought at 6, equivalent to around 3.32% in yield.
  • U.S. stocks climbed Tuesday as tech names outperformed, led by Apple, Amazon and Alphabet, which added to downside in Treasuries; trading volumes were light given focus ahead on looming congressional election results

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(Bloomberg) — Only one corporate new issue is pricing Tuesday amid the highly watched midterm elections.

  • Waste Connections is raising $500m of debt to use for general corporate purposes and acquisitions; the deal was upsized from an initial target of $400m.
    • The waste management company reported earnings last week, saying it’s on track to meet or exceed its full year forecast and also raised its quarterly dividend.
    • Fitch upgraded the issuer’s long-term issuer default rating one notch to BBB+ on Friday.
  • Volkswagen Group of America Finance is reaching out to fixed income investors today and tomorrow for a possible multi-tranche offering, while Whirlpool wrapped up investor calls last week.

ISSUANCE STATS Day $500m  WTD $2.000b   MTD $9.350b  YTD $991.109b

DEALS

  • Waste Connections US Inc (WCN) Baa2/BBB+
    • $500m 10Y at +105; +110a (+/- 5), +125-130

EM/SSA

  • Landwirtschaftliche Rentenbank (RENTEN)
    • $1.25b 5Y at MS+5; MS+5a, MS+6a
  • Suzano Austria GmbH (SUZANO) BBB-/BBB- (S&P/Fitch)
    • $500m Tap of 7% 2047 at 6.85%; 6.90%a (+/- 5), very low 7%s
  • Aeropuerto Internacional de Tocumen SA (AITOCU) BBB/BBB (S&P/Fitch)
    • $650m Tap of 6% 2048

 

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(Bloomberg) — Investor enthusiasm for soybean futures appears to be dimming with aggregate open interest declining to the lowest since February.

Soybean prices have fluctuated in recent sessions before U.S. elections on Tuesday and the government’s crop estimates on Nov. 8, while U.S.-China trade woes weigh on trading.

China is finding ways to go without U.S. soybeans, Archer-Daniels-Midland CEO Juan Luciano says Tuesday. U.S. exports continue to trail their usual pace amid China’s tariffs, and Brazil’s crop faces beneficial rain.

Drivers

Early planting in Brazil’s Mato Grosso may lead to an earlier-than-usual harvest, allowing China to shun U.S. supplies, Luciano says on a conference call.

The company is confident in U.S. exports with other buyers stepping up for shipments as prices remain low.

On Monday, aggregate open interest at ~750,120 contracts was the lowest since Feb. 12 Chinese Vice President Wang Qishan said Beijing remained ready to discuss trade resolutions . He warned that China wouldn’t again be “bullied and oppressed by imperialist powers”.

U.S. inspected  1.2m tons for export in the week ended Nov. 1, down 51% y/y, USDA data showed Monday.

Prices

Soybean futures for January delivery fall 0.2% to $8.84 a bushel on the Chicago Board of Trade Aggregate trading for this time falls 44% below the 100-day average, according to data compiled by Bloomberg.

On Monday, the contract dropped 0.2%; 60-day volatility declines to the lowest in almost four months

Market talk

Traders are waiting for developments on the trade dispute,  Matt Ammermann , commodity risk manager at INTL FCStone in Plymouth, Minn., says in a telephone interview More may emerge after the U.S. elections and G-20 summit in Argentina Commerzbank forecast 4Q price average  at $8.75

Other markets 

Corn futures for December delivery fall as much as 0.5% to $3.72 a bushel 

Wheat futures for December delivery rise as much as 1.3% to $5.13 3/4 a bushel

 

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-R.W.N II, yours in 322.

Banyan Capital Management, LLC (“BCM”) is a publisher, not a registered investment advisor, and nothing in BCM’s newsletter is intended, and it should not be construed, to be investment advice. BCM’s newsletter is for informational use only. Any mention in BCM’s newsletter of a particular security, index, derivative, or other instrument is neither a recommendation by BCM to buy, sell, or hold that security, index, derivative, or other instrument, nor does it constitute an opinion of BCM (or of any of its officers, employees, agents or representatives) as to the suitability of that security, index, derivative or other instrument for any particular purpose. BCM is not in the business of giving investment advice or advice regarding the suitability for any purpose of any security, index, derivative, other instrument or trading strategy and nothing in BCM’s newsletter should be so used or relied upon. BCM is not acting as your financial advisor nor in a fiduciary capacity, with regard to any securities, index, derivative or other instrument referred to in BCM’s newsletter. Also, no representation is made concerning the tax implications in any applicable jurisdiction regarding any securities, index, derivative or other instrument and BCM is not advising you in respect of the tax implications. All opinions and estimates in the newsletters are given as of the date of their publication on the BCM’s website and are subject to change and BCM does not assume any obligation to update the newsletters or to reference any such changes. BCM hereby expressly disclaims any and all representations and warranties that: (a) the content of its newsletters is correct, accurate, complete, reliable or a guaranty of future performance; (b) any of its newsletters will be available at any particular time or place, or in any particular medium; and (c) that any omission or error in any of its newsletters will be corrected. BCM shall not be liable for any errors or omissions made in its newsletters or for any inaccuracies in its assumptions. BCM specifically disclaims liability for any losses or damages (incidental, consequential or otherwise) that may arise from the newsletters and that are either used or relied upon by anyone for any reason, including without limitation, the use of the newsletters in the preparation of any financial books and records. Although from time to time BCM’s newsletter may link to or promote others’ websites or services, BCM is not responsible for and does not control those websites or services. BCM’s newsletter is published and distributed in accordance with applicable United States and foreign copyright and other laws. Without the prior written consent of BCM, no person or entity, directly or indirectly, may copy, reproduce, recompile, decompile, disassemble, reverse engineer, distribute, publish, display, perform, modify, upload to create derivative works from, transmit, or in any way exploit all or any part of BCM’s website, its newsletter, or any other material belonging to BCM.Without the prior written consent of BCM, no person or entity, directly or indirectly, may offer all or any part of BCM’s website, its newsletter, or any other material belonging to BCM for sale, nor may any person or entity, directly or indirectly, distribute all or any part of BCM’s website, its newsletter, or any other material belonging to BCM over or by means of any medium.Without the prior written consent of BCM, no person or entity, directly or indirectly, may make all or any part of BCM’s website, its newsletter, or any other material belonging to BCM, available as part of or in connection with another website, whether by hyperlink, framing on the Internet or otherwise. At any given time BCM’s principals may or may not have a financial interest in any or all of the securities and instruments discussed herein. At any given time BCM’s principals may or may not have a financial interest in any or all of the securities and instruments discussed herein.