Treasuries rallied overnight on reports that China has threatened retaliation after the U.S. House passed a bill supporting Hong Kong protests. Risk markets are underperforming today on the perception that this does nothing to help in the current trade negotiations. The Fed’s overnight repo operations were fully subscribed ($75 billion) for the first time in three weeks, reaffirming that the issues in short-term funding markets have yet to be resolved. The Fed is discussing the supply of bank reserves ahead of the October 31 FOMC meeting, which could very likely result in the announcement of new asset purchases to expand the Fed’s balance sheet (and reserves supply). However, there’s been increased chatter in financial markets that the current issues may be more attributable to bank regulatory constraints rather than the supply of reserves. The truth likely lies somewhere in between, but JPMorgan Chase CEO Jamie Dimon has been more vocal in recent days regarding regulatory obstacles limited to them and other large banks from providing liquidity during times of funding mismatches. This is something the Fed should also be discussing given its role in macroprudential oversight of the largest financial institutions.
The September retail sales report was worse than expected, sparking concerns that personal consumption may be slowing amid the recent headwinds in financial markets and the global economy. Headlines sales fell 0.3% over the month versus expectations of a 0.3% gain, and the important “control group” figure was flat month-over-month versus an expected 0.3% increase. The control group is used in the personal consumption calculation for GDP, and while one month does not make a trend, sentiment can affect behavior, which is why market participants were watching this report more closely.
Managing Director, Investment Management Group
|10/16/2019||MBA Mortgage Applications||—||0.50%||5.20%||—|
|10/16/2019||Retail Sales Advance MoM||0.30%||-0.30%||0.40%||0.60%|
|10/16/2019||Retail Sales Ex Auto MoM||0.20%||-0.10%||0.00%||0.20%|
|10/16/2019||Retail Sales Ex Auto and Gas||0.30%||0.00%||0.10%||0.40%|
|10/16/2019||Retail Sales Control Group||0.30%||0.00%||0.30%||—|
|10/16/2019||NAHB Housing Market Index||68||71||68||—|
|10/16/2019||U.S. Federal Reserve Releases Beige Book|
|10/16/2019||Net Long-term TIC Flows||—||—||$84.3b||—|
|10/16/2019||Total Net TIC Flows||—||—||$43.8b||—|
|10/16/2019 – 10/18/2019||Monthly Budget Statement||$83.0b||—||$119.1b||—|
|10/17/2019||Housing Starts MoM||-3.20%||—||12.30%||—|
|10/17/2019||Building Permits MoM||-5.30%||—||7.70%||8.20%|
|10/17/2019||Philadelphia Fed Business Outlook||7.6||—||12||—|
|10/17/2019||Initial Jobless Claims||215k||—||210k||—|
|10/17/2019||Industrial Production MoM||-0.20%||—||0.60%||—|
|10/17/2019||Manufacturing (SIC) Production||-0.30%||—||0.50%||—|
|10/17/2019||Bloomberg Consumer Comfort||—||—||62.7||—|
|10/17/2019||Bloomberg Economic Expectations||—||—||49.5||—|
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