Afternoon Markets Aug 28th 2019

Markets fearful of continuing uncertainty over relations between
U.S & China sending Treasury yields lower, but stocks are resilient today rising nicely! Stocks were mixed in Asia ! Equities mostly in the red except FTSE ! US STOCKS RISING WITH Dow +200/210/Nasdaq & S&P +20 area ! VIX 19.5 area ! Treasuries rallying- - 30yr traded overnight below 1.91% as heard large overseas buying as our yield looks good as Germany -0.72%, France -0.44%, Japan -0.275% (even Italy's 10yr breaking 1% for 1st time on optimism over politics, hit .98% -16bp, big 2 days)/ hitting record negative lows-Right now 2yr 1.49-1.50%/10yr 1.45%/30yr 1.925-1.93%, 2s/10yr -4bp, 3mo/10yr -52/-53 bp now ! Oil rising nicely , paring gains, +1.7% to $55.90 area on stockpiles falling in U.S (-10,027k vs expected -2,850k)/Iran no talks it looks like with Trump unless sanctions removed & calling for unity to overcome U.S 'economic war') ! Gold falling slightly to $1,541 area ! LIBOR Barely moved, fell 1mo new low, 3mo rose, 6mo fell, 1yr unchanged

UK's Johnson suspending parliament from 9/12 to 10/14th so pushing a no-deal Brexit scenario despite strong criticism from Corbyn, Hammond, Becrow, -next week will be interesting as they will try to block this suspension ! Italian politics -Di Maio/PD have reached agreement to form a coalition govt. until next scheduled elections in 2023/ Conte to become PM (usually rivals team up to keep Salvini out of power) ! Trump said Fed can't 'mentally' keep up with the competition ! S&P 500 DIVIDEND YIELD ROSE YESTERDAY ABOVE 30YR . 1ST TIME SINCE MARCH 2009 ! KC Fed wrote a paper concerning negative interest rates can 'exacerbate' dis-inflationary trends ! Daly talks about monitoring impact of 'mid-cycle' reduction ! 5yr auction was strong !
***Later: Fed's Daly around 5:30pm
***Tomorrow: Jobless claims, GDP, Pending Home sales, 4wk $55b/2mo $40bT-Bill, 7yr $32b note ! Best Buy reports !

!! DATA !! AUCTIONS !! CENTRAL BANK SPEAK !! POLITICS !!! * Fed Talk: Barkin- Monitoring rate cut's impact- "If you look at the data, the national economy appears great. Unemployment is at 50-year lows, GDP growth is solid and consumers feel confident and are spending"-"International economies are weaker, though, and uncertainty -- particularly around trade -- is elevated. Business investment dropped in the second quarter"-"In that context, and with the risk of inflation muted, the FOMC decided earlier this month to make a mid-cycle reduction in interest rates, with the goal of providing a little insurance for the continued growth of the economy and strength of the labor market. We are monitoring its impact"

• Negative interest rates can exacerbate disinflationary trends rather
  than help stimulate inflation to higher levels, says a new paper from the
  Kansas City Fed. Andrew Glover writes in a "very preliminary" paper that
  "negative interest rates are likely to make things worse in an economy
  plagued by liquidity traps, given plausible estimates of the Phillips Curve and natural rate of interest." Glover writes, "reducing the nominal rate below zero simply allows for price-setters to conceive of more deflation, to which they respond by cutting their prices more severely than when the nominal rate was zero." Central bankers may be able to break this cycle with negative rates, but only via very aggressive action, the paper says.
• 5yr Auction: Strong $41b @ 1.365% vs 1.375% WI, bid/cover 2.48x vs 2.26x-
• Pound (-1.1% earlier, losses pared thou ) is falling as UK PM Johnson is heading towards a no-deal Brexit by suspending parliament after they return from summer recess (9/12th begin) only to return for a Queen's speech on 10/14th, 2 weeks before the 10/31st deadline ! Corbyn said Johnson wants to avoid scrutiny of no-deal Brexit plan- he is 'appalled at recklessness' of
  Johnson's govt and will do 'everything we can' to block this & he'll call for
  confidence vote 'at some point". Johnson said parliament still 'ample time' to debate Brexit ! Speaker Becrow accuses Johnson of 'constitutional outrage" ! France's Bezieux said the UK cant' be allowed to 'have their cake and eat
  it"-Can't quiet EU and retain advantages of being in it ! Ireland's
  Coveney said withdrawal agreement still only way for orderly Brexit- it can't
  be renegotiated, alternatives must do same job as Irish backstop ( backstop
  currently only viable solution to border) ! Next week will be big if want to
  block no-deal Brexit-can try to block, delay with emergency legislation and
  leave courts to decide ! Rees-Mogg said suspension is a 'completely proper
  constitutional procedure' Hammond says MPs will move against no-deal next week !!
• Italy- President Mattarella met with 5 Star/PD leaders today have agreed to form a majority govt. to avoid elections, Salvini grabbing power- Conte being PM, but who becomes Deputy PM is the question as they want their own and 5 Star's head Di Maio wants it-Yesterday they agreed they would stay within EU deficit/budget limits. If they do agree, expected that President will grant Conte a week or so to form a cabinet. 10yr fell below 1% earlier ! Di Maio reported he refused League's proposal to become PM in a new deal with Salvini's party !
• Moody's affirms ratings for MUFG, SMFG, MIZUHO A1/P1, A1 Senior unsecured debt ratings !
• China: Reports that they halted new purchases of U.S soybeans ! US Chief of Staff Short says that phone calls have occurred U.S-China (remember China's foreign ministry has said it was unaware of the phone calls mentioned by Trump)-USTR OFFICE REAFFIRMED plans are a go for Sept.1st tariff increase to 15% from 10% on $300bm and rest (retail stuff like cell phone, laptop) 15% on 12/15th.
• What Dudley wrote (yesterday ) "might be the least responsible statement by a former financial official in decades," Larry Summers
• France/U.S- FM Le Maire to talk to OECD's Gurria tomorrow then visit U.S in coming days to meet w/Mnuchin to further discuss plans for intl. digital tax (follow-up G-7 talks).