Morning Report: FOMC minutes confirm Fed is worried about the global economy

Vital Statistics:

	Last	Change	Percent
S&P Futures	2010.8	4.2	0.21%
Eurostoxx Index	3265.5	40.6	1.26%
Oil (WTI)	50.18	0.8	1.52%
LIBOR	0.319	0.001	0.19%
US Dollar Index (DXY)	94.81	-0.509	-0.53%
10 Year Govt Bond Yield	2.12%	0.01%
Current Coupon Ginnie Mae TBA	104.8
Current Coupon Fannie Mae TBA	104.3
BankRate 30 Year Fixed Rate Mortgage	3.83

Markets are higher this morning as commodities continue to rebound. Bonds and MBS are down.

Import Prices fell 0.1% in September and are down almost 11% on a year-over-year basis. 

Wholesale inventories rose 0.1% in August, while wholesale sales fell 1%. Both numbers were worse than expectations. The increase in the inventory to sales ratio is a worrisome sign., You typically see the ratio build ahead of a cyclical recession. 

The FOMC minutes confirmed what everyone suspected - that international worries prompted the Fed to hold interest rates steady at the September FOMC meeting. Overall, the Committee seemed rather constructive on the US economy in general. The Fed Funds futures are currently handicapping a 10% probability of a hike at the October meeting and something like 40% in December. 

Note that while the Fed is sanguine on the US economy, economists are generally more cautious. A survey of strategists and economists puts the chance of a US recession at 15% over the next 12 months. It is important to note that the Fed's forecasts for economic growth have been consistently high since the Great Recession. 

Representative Kevin McCarthy withdrew his name from consideration for the next House speaker after allegations of an affair ended up on a Wikipedia page. This leaves current speaker John Boehner in charge for the time being. Interestingly, the Wikipedia edit emanated from the US government itself - someone in the Department of Homeland Security. After the Secret Service started distributing confidential information on Representative Chaffetz, it looks like the worker bees in the government are going directly after Republican politicians. It will be interesting to see if anyone in the Obama administration actually cares. 

Hillary's plan for the financial system. A surtax on banks with over $50 billion in assets, an increase in the statute of limitations for financial crimes, and toughening the Volcker rule regarding proprietary trading. 

Note that margin debt is falling on the stock exchanges. This could be a reaction to the turmoil in overseas markets. Generally speaking margin selling tends to exacerbate downward moves, so having less margin debt is actually a good thing. 

The share of foreign homebuyers is at an 8 year low in California. 

Morning Report: Brazil downgraded to junk

Vital Statistics:

	Last	Change	Percent
S&P Futures	1936.2	-6.5	-0.33%
Eurostoxx Index	3216.4	-53.6	-1.64%
Oil (WTI)	44.41	0.3	0.59%
LIBOR	0.332	-0.001	-0.30%
US Dollar Index (DXY)	95.94	-0.072	-0.07%
10 Year Govt Bond Yield	2.20%	0.00%
Current Coupon Ginnie Mae TBA	104.1	-0.1
Current Coupon Fannie Mae TBA	103.9	-0.1
BankRate 30 Year Fixed Rate Mortgage	3.85

Stocks are lower this morning as emerging markets fall. Bonds and MBS are flat. Overnight, China intervened in the f/x markets to support the yuan. China's surprise devaluation in August was the catalyst for this whole sell-off. 

Remember, when you read the words "Chinese supporting the yuan" think one thing: Treasury sales and increasing interest rate. The Chinese support the yuan by selling dollars, and the way they sell dollars is by selling Treasuries. 

Brazil was downgraded to junk by S&P yesterday. This is part of the reason why emerging markets are heavy this morning. This move was expected eventually, however the speed in which it happened was surprising. Does this put a bid under Treasuries? Nope. 

Import prices fell 1.8% in August and are down 11.4% year over year. A strong dollar is depressing commodity prices and making imports more cost competitive. 

Initial Jobless Claims came in at 275k, a drop from 281k the week before. People who have jobs are generally keeping them. 

The Bloomberg Consumer Comfort Index was flat at 41.4 last week. 2/3 have a negative view of the economy. while 55% have a positive view of their own personal financial situation. 

Wholesale inventories fell 0.1% in July, while wholesale sales fell 0.3%. The inventory to sales ratio, which can be considered a leading indicator for a recession is at 1.3x, an elevated reading. This would signal a recession is a possibility. 

The current continuing resolution to keep the government open expires at the end of the month. Government shutdown talk will undoubtedly escalate as the two sides posture over funding Planned Parenthood. 

To its proponents, Keynsianism cannot fail, it can only be failed. Dr. Cowbell is worried that Abenomics will fail in Japan. Of course Japan has followed the Keynsian playbook to the letter for 25 years and has had no growth and a debt to gdp ratio of 2.2x to show for it. Whenever you hear people saying: we need to spend big on infrastructure to put people to work and get the economy going again, remember they are basically putting the old New Deal / Japanese wine in a new bottle.