Market Brief – Thursday 9/26/19

Stocks wasted no time unwinding yesterday’s rally as liquidity conditions continue to dry up. The New York Fed’s overnight repo operation was increased to $100 billion today but only saw $50.1 billion in bids, which is a sign the liquidity constraint might be easing. The NY Fed’s 14-day repo operation was increased from $30 billion to $60 billion and saw $72.75 billion of bids tendered. If banks are kicking the liquidity can down the road, it could spell trouble unless the underlying cause is fixed.

Pending Home Sales rose in August by +1.3% and increased +2.48% over last year. Many of the recent existing home sales were pre-sales, meaning potential buyers put deposits down on unfinished homes. The housing industry is hoping lower mortgage rates spur buyers, but if it doesn’t, the housing market is in big trouble.

Treasury yields fell in overnight trading, but U.S. investors were quick to bid yields higher until the stock market started selling off. There continues to be a slight bid to drive yields higher, but the Treasury Bears are thinning in rank.

Oil and gas producing stocks led the market lower as they once again break support with crude oil falling right behind them. Agricultural commodities were oscillating between a slight gain and loss in early trading on news that China is looking to purchase more U.S. agricultural goods. The U.S. Dollar continues its slow ascent which is further tightening financial conditions.

Today’s $32 billion 7-year Treasury auction was met with strong demand. Foreign bidders took 65.2% of the auction and domestic bidders took 14.6% of the auction, which left securities dealers with 20.2% of the auction. Yields fell following the auction.

After this morning’s settlement of Monday’s Treasury auction zapped liquidity and caused stock prices to fall, investors happily resumed bidding stock prices higher ahead of third-quarter earnings. Treasury yields closed lower, but sellers dominated the price action for most of the day. Liquidity should be normal tomorrow but will run into problems on Monday as more Treasury auction settlements hit the markets.