David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Unhinged Money Markets Trigger Fed Action to Alleviate Stress

    This article by Liz Capo McCormick and Alexandra Harris Bloomberg may be of interest to subscribers. Here is a section:

    “There’s been a sea change in markets, and it’s one the Fed needed to respond to,” said Lou Crandall of Wrightson ICAP. “In the current market environment, there is just not enough elasticity in the repo market to handle the big seasonal swings of the banking system. The Fed needed to come in now and alleviate the immediate problem, while it is also working on long-term solutions.”

    The Fed has considered introducing a new tool, an overnight repo facility, that could be utilized when needed to reduce pressure on key money market rates, but no decisions have been announced.

    The New York Fed declined to comment on the events of this week.

    Actions like the Fed took Tuesday were once commonplace, but stopped being so when the central bank expanded its balance sheet and started using a range of rates to implement its policy in the aftermath of Lehman Brothers’ 2008 collapse.

    Securities eligible for collateral in the Fed operation include Treasuries, agency debt and mortgage-backed securities. In an overnight system repo, the Fed lends cash to primary dealers against Treasury securities or other collateral.

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    Wall Street May Get $40 Billion Reprieve From Trump Regulators

    This article by Jesse Hamilton for Bloomberg may be of interest to subscribers. Here is a section:

    The margin demand, implemented in 2015, has tied up $39.4 billion, according to industry estimates. That’s prompted major swap dealers, such as Goldman Sachs Group Inc., JPMorgan Chase & Co. and Citigroup Inc., to make the rule’s elimination a lobbying priority.

    It would likely be months before regulators scrap the margin requirement. That’s because once the FDIC and other agencies issue their proposals, the public will have an opportunity to submit comments before a final rule could be put in place.

    Republican lawmakers have supported banks on the issue. Some House Democrats have also backed the change, telling regulators in a June letter that they should allow lenders to free up the “large and increasing amount of unusable, locked-up collateral.”

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    China Stocks Fall, Yuan Weakens as Central Bank Holds Loan Rate

    This article from Bloomberg news may be of interest to subscribers. Here is a section:

    China’s central bank drained funds from the financial system and kept the one-year rate on medium-term loans steady on Tuesday morning, a move analysts said shows it’s sticking with its prudent approach to stimulus. That’s even after data Monday signaled the economy slowed in August, with industrial output, retail sales and fixed-asset investment rising less than anticipated.

    “Investors now realize the central bank won’t ease its monetary policy as aggressively,” Zhang Gang, a strategist with Central China Securities Co. “The market was due for a pullback after the Shanghai index climbed above 3,000-point level. Turnover failed to keep up.”

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    Aramco Said to Face Weeks Without Majority of Abqaiq Output

    This article by Anthony DiPaola, Will Kennedy and Javier Blas for Bloomberg may be of interest to subscribers. Here it is in full:

    Saudi Aramco faces weeks or months before the majority of supply from the giant Abqaiq plant is restored after this weekend’s devastating aerial attack, according to people familiar with matter.

    Aramco is still assessing the state of the plant and the scope of repairs, but the state oil company currently believes less than half of the the plant’s capacity can be restored quickly, the people said, asking not to be identified before an official announcement. It’s a more pessimistic outlook than Aramco had immediately after the incident, they said.

    All eyes are on how fast the kingdom can recover from the weekend’s devastating strike, which knocked out roughly 5% of global supply and triggered a record surge in oil prices. The loss of Abqaiq, which handles 5.7 million barrels of oil a day, or about half of Saudi production, is the single worst sudden disruption to the oil market.

    Aramco, the world’s largest exporter, is currently supplying customers from its stockpiles, but is asking some buyers to accept different grades. President Trump has said he’s ready to release oil from the U.S. Strategic Petroleum Reserve to ensure ample supply.

    Saudi Arabia is also starting idle offshore fields to replace some of the lost production.

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    China's Economy Slows Again, Adding Pressure for Policy Action

    This article from Bloomberg news may be of interest to subscribers. Here is a section:

    Industrial output rose 4.4% from a year earlier in August, the lowest for a single month since 2002, while retail sales came in below expectations. Fixed-asset investment slowed to 5.5% in the first eight months, with the private sector lagging state investment for the 6th month.

    The data add support to the argument that policy makers’ efforts to brake the slowing economy aren’t sufficient as the nation grapples with structural downward pressure at home, the risk of yet-higher tariffs on exports to the U.S. and now surging oil prices. Nomura International Ltd. said this all raises the likelihood that the People’s Bank of China will cut its medium-term lending rate on Tuesday.

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    Fast Strike Against GM Breaks Years of UAW Negotiating Tradition

    This article by Andrew Wallender for Bloomberg may be of interest to subscribers. Here is a section:

    “I think that they were just very impatient in this round of negotiations,” said Marick Masters, a management professor and the director of Wayne State University’s labor studies program.

    But there’s a flurry of complicating factors in ongoing negotiations. Union leadership is under increased scrutiny as federal prosecutors continue to unravel a sprawling culture of corruption among former UAW leaders and negotiators.

    There also was a strong sense inside and outside the union that a strike was likely, Masters said. Such an outlook could have contributed to the speed with which the strike was called, according to the professor.

    “It’s hard to say how far apart they are,” Masters said of the UAW and GM. “But I get the feeling that they are pretty far apart. So you hope that they come to their senses pretty soon. But it certainly has the makings to go on for a very long time with the caveat that when reality sets in, they’re probably going to want to sit down and see what they can do to bring things back together.”

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    Crops Surge as China Moves to Increase U.S. Farm Purchases

    This article by Millie Munshi and Michael Hirtzer for Bloomberg may be of interest to subscribes. Here is a section:

    China is encouraging companies to buy U.S. farm products, and will exclude them from added tariffs. Many crop prices are heading for their best week since at least June on optimism that Beijing and Washington are inching toward a deal. The year-long trade spat has undercut farmer profits and boosted debt levels in the U.S. as Chinese demand fell off.

    There was evidence of fresh Chinese buying Friday as the U.S. government reported 204,000 tons of soybeans sold to the Asian nation, the first such announcement in more than two
    months.

    “We are hopeful that this apparent gesture of goodwill by China leads not only to more sales of U.S. pork, but that it contributes to a resolution of U.S.-China trade restrictions,” said David Herring, a North Carolina hog farmer and president of trade group National Pork Producers Council.

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