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Market Brief – Monday 12/24/18

Sunday afternoon, before the futures market opened, Steve Mnuchin, the Secretary of the U.S. Treasury announced that he called the CEO’s of the six largest U.S. banks to “confirm they have ample liquidity available for lending to consumer[s], business markets, and all other operations.” Mnuchin also confirmed, “they have not experienced any clearance or margin issues and that the [stock] markets continue to function properly.”

Mnuchin then scheduled a call for Monday, Christmas Eve, with the Board of Governors of the Federal Reserve System, the Securities and Exchange Commission, and the Commodities and Futures Trading Commission. He also invited the office of Comptroller of the Currency and the Federal Deposit Insurance Corporation to participate on the call. Mind you, Mnuchin and his family are currently in Cabo San Lucas on vacation!

Mnuchin claims this was done to calm the markets so investors will still maintain faith in the system.

Mnuchin may know something big is about to blow up in the financial system and if he does, I doubt he would still be in Cabo. When major financial meltdowns occur, it’s customary people in Mnuchin’s position return to Washington D.C.

It is more likely that Mnuchin believes something major is about to happen, but he doesn’t know exactly when. Should this be true, Mnuchin clearly knows something Wall Street doesn’t, and Wall Street doesn’t like to be surprised. Regulators assured Mnuchin everything was okay but this didn’t stop stock prices from plummeting.

Today marked the worst Christmas Eve in trading history with equities down across the board. The S&P 500 is now officially in a Bear market, as it is at its lowest level since April 2017 and down more than 20% from its peak. Treasury yields also closed lower.

Today 2-year Treasury auction was met with tepid demand. Investors have been shunning short-term Treasury debt on the belief the Fed will continue hiking the Federal Funds rate next year.

Expect more selling when markets open on Wednesday.