Market Brief – Thursday 9/19/19

After Fed Chair Powell dismissed the overnight repo operations by the New York Fed as temporary liquidity injections to deal with the third-quarter tax payments, the New York Fed announced after yesterday’s market close that they will conduct a third repo operation up to $75 billion before markets open tomorrow. Investors will be closely watching to see if this offer is oversubscribed, and if it is, it means dealers didn’t get the liquidity they needed in the two prior repo operations.

This morning’s repo operation by the New York Fed was oversubscribed as offers came in for $83.875 billion against a cap of $75 billion, leaving someone short dollars today. In the global supply of dollars, a shortage this small isn’t a huge deal, but it is potentially a symptom of a larger dollar shortage issue that was created when the Fed tightened monetary policy.

Existing Home Sales saw their biggest increase in two years as they rose +1.3% in August and +2.6% on a year-over-year basis due to lower mortgage rates. Consumer survey data shows that consumers aren’t eager to purchase homes, so August may not be the start of a purchasing trend.

Stocks rose in early trading on the back of Microsoft which beat earnings expectations and announced an additional $40 billion of share buybacks. Treasury yields were flat in early trading as U.S. investors attempt to drive yields higher from their overnight lows.

The S&P 500 made a weak effort at trying to make a new all-time high and failed, despite investors getting another rate cut. Fed rate cuts were supposed to be bullish for stocks, but as of today, they aren’t as the S&P 500 were flat on the day. Treasury yields ticked higher as sellers push bond prices lower as the Fed began buying Treasury securities to lower the Federal Funds Rate.

In a surprise move, the New York Fed announced a $75 billion repo operation that will occur before markets open tomorrow. The lack of dollar liquidity is more than a shortfall of currency to cover estimated tax payments. While the dollar shortfalls aren’t big, it suggests the financial system may have bigger problems that have yet to surface.

After breaking through resistance a few days ago, oil and gas stocks crashed back through support as fears of an oil shortage are passing. Agricultural commodities continue to hold support as global buyers continue to buy U.S. agricultural goods.