Market Brief – Friday 9/20/19

Quadruple-witching day is upon us once again many futures and options contracts expire, which usually means for a fairly volatile day. For the fourth day in a row, the New York Fed conducted repo operations and this morning they injected $75 billion of overnight liquidity against $75.55 billion of offers. While the markets are breathing a sigh of relief, next week more than $250 billion of U.S. Treasury debt issuance is set to occur, which should cause liquidity to dry up once again.

The Trump administration granted temporary tariff waivers on hundreds of Chinese goods with most of the exemptions set to expire on August 2020. China followed suit by exempting sixteen product lines from the U.S. after President Trump delayed the next round of tariffs by two weeks.

The New York Fed announced starting on Monday and lasting through October 10th, that they will make $75 billion available per day for overnight repo operations as the U.S. Treasury is set to begin a massive borrowing spree. In addition, the NY Fed will offer three 14-day repo operations for up to $30 billion next week. The NY Fed is clearly trying to buffer the heavy Treasury issuance coming without restarting Quantitative Easing.

Stocks fell after the China trade delegation canceled their trip to Montana and Kansas and decided to head back to China sooner than expected. Speculators who are betting on the S&P 500 holding 3,000 points were forced to come in to bid stock prices higher as option expiratory day continues.

Stocks closed lower on the day as liquidity continues to dry up as evident by the New York Fed’s decision to continue repo operations until early October. Treasury yields headed lower with 10-year yields stopping out at support.

Despite China walking away, agricultural commodities held support as producers know just how bad this next crop harvest is going to be. With early harvest starting soon, we will soon find out what the truth is. Even as flooding is shutting down oil and gas production in Texas, oil and gas producing stocks closed lower on the day. Gold was up but remains an overly crowded trade.