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Morning Meeting Notes QuickNotesBofAML Equity Client Flow Trends Private clients bought the dipTechnicals meet Fundamentals

(Bloomberg) — U.S. stocks pared losses, the benchmark S&P 500 Index touching the lowest level in more than four months.

Saudi Arabia geopolitical fallout, angst over China’s slowing economy and earnings all weigh on equities.

Caterpillar, considered an economic bellwether, has lost 21% of its market value this month as tariffs boost metal costs and trade frictions fuel demand concerns.

Disappointing earnings from Renault and some European tech companies added to Europe’s pain.

The dollar fell, with haven currencies leading the way while Treasuries gained the most since May amid the turmoil in equity markets.

Treasuries retreated sharply from near session highs in late trading, with price action matched by flurry of futures volumes; Treasuries had aggressively rallied over U.S. morning during risk-off bid, which pushed 10-year yields as low as 3.111%, richest since Oct. 3.

  • Yields were lower by 2.5bp to 4.5bp shortly after the close, with gains led by belly of the curve, steepening 5s30s by ~1.8bp; 10-year yields ended around 3.16%, richer by more than 3bp on the day
  • Treasuries pared gains as S&P 500 Index rebounded late in U.S. afternoon; the index was just ~0.3% lower an hour ahead of the equities close after having been down as much as 2.3%
    • Almost 60k TY contracts traded in three-minute period during afternoon session in retreat from near highs, highest volumes of the session
  • Treasuries rallied in early U.S. trading in flight-to-quality move which was triggered overnight; USTs extended gains as some key U.S. stocks were hit pre-market following earnings results
  • Large block sale in bond futures knocked Treasuries off highs mid- morning, while UST options activity included huge buyer of TY 120/121 call spreads, paying around $10m premium
  • Eurodollar strip bull flattened, with greens and blues higher by up to 4.5bp; early risk-off move saw as much as 5bp priced out of the June Fed-dated OIS contract, as market repriced Fed policy path for next year

Demand at Tuesday’s 4-week Treasury bill sale remained weak for the second straight auction as indirects took 23.6%, which is 0.1% more than last week; however, the 8-week improved from its inaugural offering.

  • Treasury sold both $40b 4-week and $25b 8-week bills at 2.180%, though the 4-week sale tailed by 1.5bp, while the 8-week auction stopped short by 0.5bp, according to Stone & McCarthy
  • For the 4- week auction, “presumably, the biggest turnoff for potential investors was the maturity date, Friday, November 23,” which is the day after Thanksgiving, “when investors typically try to avoid having rollovers,” Jefferies economist Thomas Simons said in Tuesday note
    • Hard to judge the 8-week sale, since there’s a limited auction history; next week may be more interesting, when the 4-week “runs into less interference”: Simons
  • This week’s auctions will raise about $16b of new cash upon settlement
  • The effective fed funds rate was unchanged at 2.19% on Monday, according to New York Fed data; with IOER at 2.20%, spread of IOER over fed effective was 1bp
  • Fed funds traded in a 2.17%-2.35% range Monday, with volume at $54b, according to data posted on the New York Fed’s website; the 75th percentile rate was 2.19%
    • Fed’s overnight bank funding rate set at 2.18% on Monday; market volume was $127b
  • If the Fed raises interest rates by 25bps in December as expected, a chorus of Wall Street economists say it will only raise IOER by 20bps
    • Story: Wall Street Sees Fed Making Another Technical Tweak in December
  • Five counterparties took $4.5b at the Fed’s reverse repo operation Tuesday, up from $3.2b on Monday


  • SOFR, the Alternative Reference Rates Committee’s preferred benchmark to eventually replace Libor, set at 2.18% as of Oct. 22, New York Fed data show
  • Other rates based on Treasury repo transactions:
    • Broad General Collateral Rate (BGCR) set at 2.17%
    • Tri-party General Collateral Rate (TGCR) set at 2.17%
  • O/N GC repo 2.27/2.20, opened at 2.25/2.18
  • 1-wk repo 2.28/2.26
  • 2-wk repo 2.27/2.25
  • 1-mo repo 2.30/2.27
  • Daily total UST, agency repo fails rose to $43.5b Oct. 22, above the 5-DMA $35.2b, DTCC data show; compares with $34.4b Oct. 19
  • Current 5Y trades more in line with other securities in the repo market, averaged 2.17% at 12pm ET close, Nex data show; averaged 2.12% at 8am open


  • Treasury’s cash balance rose to $373b from $370b on Oct. 19
  • Treasury bills held by primary dealers rose to $21.4b in the week ended Oct. 10 from $12.3b in the week prior
  • 1-mo Treasury bills 2.160%
  • 3-mo Treasury bills 2.329%
  • 6-mo Treasury bills 2.470%
  • 12-mo Treasury bills 2.648%
  • 1-mo discount notes 2.15% on Oct. 23
  • 3-mo discount notes 2.26% on Oct. 23


  • Issues of AA financial paper with 81+ days to maturity totaled 48 on Oct. 22 vs 25 on Oct. 19; compares with 97 on Oct. 18
    • 1-mo AA financial CP 2.23% Oct. 22
    • 3-mo AA financial CP 2.42% Oct. 22
  • Total outstanding CP fell to $1.083t in the week ended Oct. 17 from $1.102t the prior week; foreign financial paper fell to $308b in the week ended Oct. 17, from $313b
  • O/N Libor 2.1739% vs 2.1706% Monday
  • 1-mo Libor 2.2814% vs 2.2865%
  • 3-mo Libor 2.4899%, highest since November 2008, vs 2.4874%
  • 6-mo Libor 2.7476%, highest since November 2008, vs 2.7293%
  • 12-mo Libor 3.0344%, highest since November 2008, vs 3.0310%
  • Libor-OIS spread widened to 21.1bp from 20.4bp prior session

The EUR reversed earlier losses when the EU told Italy to revise its budget, an unprecedented move.

Elsewhere, oil slumped to its lowest in five weeks and emerging market stocks faltered.

(Bloomberg) — The International Maritime Organization is sticking with its plans to stop ships from carrying high-sulfur fuel, a move that would bolster the watchdog’s broader regulations to limit air pollution from vessels starting in 2020. MARKET NEWS:

  • PBF Chalmette Is Said to Start Multiunit Turnaround in Jan. (1)
  • Height Sees IMO 2020 Implemented on Time, With High Compliance
  • U.S. Midwest Refinery Restarts Are Helping Canada Crude: CIBC
  • IEA Sees Deficit in Global Gasoil Market in 2020 Due to IMO
  • Trump’s Ethanol Pledge Could Be Undermined by EPA, Grassley Says
  • Colonial Accepting Bids for Surplus CBOB, RBOB on Cycle 55
  • LyondellBasell Houston Refinery Reports Process Upset: Filing
  • ETHANOL: U.S. Supply Weekly Production Survey Before EIA Report
  • API Is Said to Report Gasoline, Distillate Stocks Fell Last Week

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

  • 83.5 CBOB +0.25c to Nymex +0.13c
  • 84 RBOB +0.02c to -0.1c
  • ULSD unch at parity
  • Jet fuel unch at -3.5c

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

  • 85 CBOB -0.13c to -5.88c
  • 84 RBOB -0.5c to -5.25c
  • ULSD +0.13c to -5.38c
  • Jet fuel -0.05c to -8.25c

Oil Analytics refining margins (as of prior session)

  • East Coast Forcados cracking +36c to $7.73/bbl
  • Gulf Coast Maya coking +78c to $7.65/bbl

Nymex futures and cracks

  • Gasoline November futures -6.99c to $1.8368/gal.
  • Diesel November futures -6.97c to $2.2484/gal.
  • 3-2-1 front month crack spread -1c to $16.43/bbl

Gasoline Arbitrage

  • Front-month U.S.-Europe RBOB-Eurobob swap spread -0.45c to -2.0c/gal

Baltic Exchange freight

  • TC2 U.K./Continent-USAC (37k tons) -1.95 WS points to WS 124.72
  • TC14 USGC-U.K./Continent (38k tons) -0.94 WS points to WS 130.31

Cocoa falls, dropping back below the 50-day moving average, on signs of ample supplies from the Ivory Coast, the world’s biggest producer.

Arabica coffee jumps in active trading after Monday’s plunge of 3.6%, the most in 16 months. Drivers Cocoa arrivals at Ivory Coast ports in the week ended Oct. 21 rose 63% y/y, according to a person familiar with government data Arrivals since the season started Oct. 1 are up 61% y/y, according to data compiled by Bloomberg  Prices Cocoa for December delivery falls 1.5% to settle at $2,187/ton on ICE Futures U.S. in N.Y. after slumping as much as 3% Arabica-coffee for December delivery rises 2.9% to $1.211/lb after touching $1.1635, the lowest for a most-active contract since Oct. 12 Aggregate trading rises 42% above the 100-day average, according to data compiled by Bloomberg

Market talk “The outlook for strong production in the coming year has been enough” to shift sentiment on cocoa, Jack Scoville , vice president at Price Futures Group in Chicago, says in a report “Main crop production ideas for Ivory Coast and Ghana are high, but are being reduced in Nigeria” The coffee market is looking for a “fair” level after recent wide swings, Rodrigo Costa , U.S.-based coffee director at trading co. Comexim, says in a telephone interview

Other softs Cotton futures for December delivery fall 1.3% to 78.99c/lb Aggregate trading rises 40% above the 100-day average, according to Bloomberg data On Monday, the price rose 2.7%, the most in three months

Soybean futures slipped as open interest continued to shrink. American farmers have made more progress harvesting their bumper crop, signaling ample supplies ahead.

Market Movers  Aggregate  open interest  in CBOT soybeans fell to 843,037 contracts as of Monday, lowest since Sept. 13, data compiled by Bloomberg show “A decent amount of progress” has been made in the U.S. harvest, and given the weather outlook, “I don’t think we need to have a whole lot of risk premium in the market right now,”  Joe Lardy , research manager for CHS Hedging LLC, says in telephone interview.

Latest News A New  Wheat  Champion Emerges in the Southern Hemisphere Argentina is on course to shove Australia off its pedestal as the top producer and exporter of wheat in the Southern Hemisphere as a drought is cutting shipments Down Under Russian Minister to Meet With Grain Traders Amid Record Exports Russia’s Agriculture Minister  Dmitry Patrushev  plans to talk to wheat exporters on Friday, a meeting that could signal whether the country will take any steps to limit record wheat exports

Corn/Soy China Sept.  Corn Imports  40,000 Tons, -83.4% Y/y YTD corn imports rose 27.7% y/y to 2.91m tons

Wheat Argentina’s  Wheat  Crop Forecast Seen Down on Hail, Frost Buenos Aires Grain Exchange will likely cut its forecasts after the crop incurred losses from hailstorms and frosts, chief estimates analyst  Esteban Copati  says in a phone message Russia  Wheat Export Forecast Raised to 33m Tons by IKAR Wheat export forecast increased from 32.5m tons, mainly due to bigger domestic crop, Moscow-based Institute for Agricultural Market Studies, or IKAR, says in email.

Crop Weather U.S. Midwest Turns Rainy, Cold to Start November Passing showers this week won’t delay corn and soybean harvests in the Midwest or wheat planting on Great Plains, while heavy rain and possibly snow next week probably will slow fieldwork, Mike Tannura , meteorologist at T-storm Weather in Chicago, says in a telephone interview Argentina Corn and Soybean Crops to See Favorable Rain Crops in central and northern Cordoba may get favorable rain in the next few days, Don Keeney , senior agricultural meteorologist at Radiant Solutions in Gaithersburg, Md., says in an email.

  • Prices Corn for December +0.2% to $3.70 1/4 a bushel
  • Soybeans for January -0.2% to $8.71 a bushel
  • Soybean meal for December -0.7% to $310.70 per 2,000 lbs
  • Soybean oil for December -1.3% to 28.76c/lb
  • SRW wheat for December +0.2% to $5.09 a bushel
  • HRW wheat for December little changed at $5.07 1/2 a bushel

Key Headlines:

  • Khashoggi’s killers must be held to account, G-7 ministers say
  • Richmond Fed’s Oct. mfg. survey at 15 vs 29 last month
  • Eurozone consumer confidence at -2.7 in October vs. -2.9 in September
  • Trump, Chinas XI to meet at G-20, White House confirms
  • Dombrovskis says the Italy’s public debt to GDP last year requires stricter expenditure targets
  • Italy’s Di Maio: “It’s the first budget that the EU doesn’t like”


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


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