The King Report September 13, 2019 Issue 6091
As expected and DEMANDED, the ECB cut its deposit rate 10bps to -.50 and reinstituted QE, to the tune of €20B per month – open ended, commencing on November 1.
Anyone with a modicum of financial literacy knows that ECB NIRP is killing European banks. The spread lending business cannot survive on negative rates. The lending spread is too small.
Seth Klarman: Investors Can No Longer Rely On Mean Reversion
"For most of the last century," Seth Klarman noted in his second-quarter letter to Baupost's investors, "a reasonable approach to assessing a company's future prospects was to expect mean reversion." He went on to explain that fluctuations in business performance were largely cyclical, and investors could profit from this buying low and selling high. Also Read More
ECB officials and academics’ solution to the negative rates (NIRP) problem for banks is ‘tiering’ – exempting some deposits from negative rates. So, ‘tiering’ was announced on Thursday.
Die Welt’s @Schuldensuehner: ECB announces tiering details. Exempt tier will be remunerated at annual rate of 0%. Two-tier system will first be applied in 7th maintenance period of 2019 starting on 30 Oc2019. Multiplier that will be applicable as of that maintenance period will be set at 6, higher than exp.
ECB is probably not happy w/reaction in bank share prices, despite tiering, & change in TLTRO terms, Citi says. That's a pretty typical reaction to ECB meetings but it remains to be seen if this is in fact reflection of persistence of easing or mainly profit-taking after rally
Italian banks rallied on the cheaper loans; but DB declined.
July Eurozone industrial production declined 0.4% m/m and -2.0% y/y. -0.1% and -1.4% were expected.
When ESZs headed south on profit taking after Draghi, Team Trump saved stocks.
@realDonaldTrump: European Central Bank, acting quickly, Cuts Rates 10 Basis Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports.... And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!
It is expected that China will be buying large amounts of our agricultural products!
In response to a question about Trump’s allegation of depreciating the euro, Draghi risibly claimed that the ECB does not target currency rates.
Trump Advisers Considering Interim China Deal to Delay Tariffs
Trump administration officials have discussed offering a limited trade agreement to China that would delay and even roll back some U.S. tariffs for the first time in exchange for Chinese commitments on intellectual property and agricultural purchases…
For the umpteenth time, Trump has retreated on trade. Xi knows that Trump is his hand puppet now.
China, U.S. Showing a Little Goodwill as Trade Talks Near
China is considering whether to permit renewed imports of American farm goods including soybeans and pork… The Ministry of Commerce said Thursday Chinese companies have started inquiring about prices for U.S. agricultural products including soybeans and pork…
As we keep harping, China cannot fool with its food imports. You’d think Trump would know this.
Ahead of trade talks, China makes biggest U.S. soybean purchases since June – trader
Privately run Chinese firms bought at least 10 boatloads of U.S. soybeans on Thursday, the country’s most significant purchases since at least June… at more than 600,000 tonnes were the largest by Chinese private importers in more than a year, are slated for shipment from U.S. Pacific Northwest export terminals from October to December…
"Absolutely Not": Stocks Tumble After White House Denies It Is Considering Interim Trade Deal
At midday, reports surfaced that indicated that Draghi lied about the ECB backing for QE. Draghi told the world that there was wide vocal support for QE, so no vote was needed. A few hours later, ECB officials told the world that Draghi lied. Ergo, Draghi’s Farewell will go down in infamy.
Draghi Faced Unprecedented ECB Revolt as Core Europe Resisted QE [11:53 ET]
- France, Germany, Netherlands opposed immediate QE resumption
- ECB Markets Chief Benoit Coeure was also against the move
Other dissenters included, but weren’t limited, to their colleagues from Austria and Estonia, as well as members on the ECB’s Executive Board including Sabine Lautenschlaeger and the markets chief, Benoit Coeure, the officials said…
“There was more diversity of views on APP. But then, in the end, a consensus was so broad there was no need to take a vote. So the decision in the end showed a very broad consensus. As I said, there was no need to take a vote. There was such a clear majority.” Mario Draghi, Sept. 12 press conference in Frankfurt…
ESUs, which yielded to ESZs as the front month during US trading, whipped wildly from the ECB Communique release until the NYSE close. As we expected, a significant amount of traders sold the rally on the ECB news. However, the latest US-China trade hype & hope induced algos and traders to buy.
Gold peaked at 8:38 ET (1532.20). Gold traders waited for Draghi’s press conference and then unloaded.
Traders Pare Bets on 2019 Fed Easing on Possible China Deal
- Futures show about 54 basis points additional cuts by year-end
- Quarter-point reduction on Sept. 18 is still priced in
January fed funds futures indicate a rate of about 1.60% at the end of 2019, compared with 1.575% at the close of Wednesday’s session. With an effective fed funds rate at 2.13%, that implies around 54 basis points of additional Fed reductions this year…
Lost in the euphoria of the ECB stimuli and the latest US-China kabuki dance is the fact the US August Core CPI increased 0.3% m/m and 2.4% y/y, the largest increase since September 2008. 0.2% m/m and 2.3% y/y were expected. Headline CPI increased the expected 0.1% m/m.
U.S. Core Inflation Exceeds Forecasts as Medical-Care Costs Jump [0.7%, biggest since 2016]
Initial Jobless Claims fell to 204k from 219k. 215k was expected. No sign of recession here!
The Treasury auction of $16B of 30s, the final tranche, was a tad soft: 2.27% vs. 2.254% WI.
Positive aspects of previous session
A rally on ECB/Draghi and the latest US-China trade hype
Negative aspects of previous session
ESZs sold off 13 handles during the final 80 minutes of trading
Ambiguous aspects of previous session
Did anyone notice that US Core CPI y/y is at its highest level since September 2008?
First Hour/Last Hour Action [S&P 500 Index]
First Hour Up; Last Hour Down
Previous session S&P 500 Index High/Low: 3020.74; 3000.92
Pivot Point for S&P 500 Index [above/below indicates daily trend for traders]: 3010.41
You might be talking to robots at McDonald's drive-thrus soon
McDonald's this week took a step toward automating how it handles your order when it acquired artificial intelligence company Apprente. The Silicon Valley-based startup was founded in 2017 to create voice-based platforms for "complex, multilingual, multi-accent and multi-item conversational ordering," which McDonald's plans to incorporate in its drive-thrus initially…
Elizabeth Warren proposes sweeping increase in Social Security benefits, financed by wealth taxes
An immediate benefit increase of $200 per month for current and future beneficiaries. Warren also proposes new rules that would provide additional benefit increases for low-income, female, disabled, minority, and former government worker beneficiaries…
Today – Due to predictable profit taking after the ECB Communique and Draghi’s deceitful press conference, the traders were not able to push to the S&P 500 Index to a new all-time high (3027.98).
Thus, the main scheme for today will be the usual suspects trying to force the S&P 500 Index to a new high to induce greater fools to buy the breakout. Astute traders will carefully scrutinize the action near a new high because a failure or false breakout with a sudden reversal could instigate spirited selling.
Be alert for the Friday afternoon rally that precedes expiry week!
ESZs (December eMini S&P 500 Index futures) are +3.75 at 21:30 ET.
The S&P 500 Index 50-day MA: 2950; 100-day MA: 2917; 150-day MA: 2884; 200-day MA: 2817
The DJIA 50-day MA: 26,596; 100-day MA: 26,323; 150-day MA: 26,185; 200-day MA: 25,696
S&P 500 Index support: 2997, 2985-90, 2972, 2955-60, 2940-45, 2930, 2922, 2914, 2900, 2880
Resistance: 3020, 3027, 3040, 3050
Expected economic data: Aug Retail Sales 0.2% m/m. ex-Autos 0.1%, ex-Autos & Gas 0.2%; Aug Import Prices -0.5% m/m, -2.0% y/y; ex-Petro -0.1% m/m; Exports -0.1% m/m, -0.3% y/y; UM Sentiment 90.8, Current Conditions 107.8, Expectations 85.2; July Biz Inventories 0.3% m/m
S&P 500 Index – Trender trading model and MACD for key time frames
- Monthly: Trender and MACD are positive – a close below 2502.93 triggers a sell signal
- Weekly: Trender is positive; MACD is negative – a close below 2816.78 triggers a sell signal
- Daily: Trender and MACD are positive - a close below 2902.51 triggers a sell signal
- Hourly: Trender and MACD are positive – a close below 2997.52 triggers a sell signal
US attorney recommends proceeding with charges against McCabe, as DOJ rejects last-ditch appeal
The looming McCabe indictment is just a preliminary bout. It’s due to allegedly fibbing during the IG’s investigation. The next shoe will be the IG report on FISA abuses. The Main Event is Durham vs. et al.
@JackPosobiec: Daily reminder that Comey, Andrew McCabe, and Peter Strzok were running the FBI
Rod Rosenstein Authorized Mueller to Investigate Flynn’s Son, Sidney Powell Says
“We know that Mr. Mueller got a letter from Mr. Rosenstein that allowed him to target Michael Flynn Jr., and there was significant pressure to enter a guilty plea while they were hiding all the evidence that showed he had not been an agent of Russia, that there were no Logan Act violations,” Powell told Hannity. Hannity asked Powell about the possibility that Flynn took a plea deal in order to protect his son from being prosecuted. Powell did not confirm Hannity’s scenario, but suggested it was possible…
“I don’t want to speak now to things that are not a matter of public record, but stay tuned because more and more will become apparent as we proceed through the litigation.”… “The plan, at least right now anyway, is not to withdraw the guilty plea, per se, but to have the entire prosecution dismissed because of egregious misconduct,” she told Hannity…
U.S. declassifies key name [Saudi official] in Saudi-9/11 suit, but won't release it publicly
The long-awaited decision involved whether to disclose the name of a person who allegedly directed two men in California who assisted hijackers in the 9/11 attack
@JackPosobiec: 25 years ago in 1994, Forrest Gump, Jurassic Park, Shawshank Redemption, Lion King, and Pulp Fiction were all in theaters at the same time. Compare to Hollywood today
Swedish journalist @PeterSweden7: So far this year in Sweden:
- 182 shootings.
- 120 explosions.
- Cars being set on fire every night.
- 21 women raped every day on average in 2018.
This is madness.