Most recent stuff from the Ass Clowns..... Is the President and Senate Democrats overplaying their hand or do they just understand their adversaries in the House GOP ?

http://www.zerohedge.com/news/2013-10-10/white-house-republican-meeting-inconclusive-continue-throughout-night

White House, Republican Meeting "Inconclusive", To Continue Throughout The Night

Submitted by Tyler Durden on 10/10/2013 19:53 -0400

In what can at best be described as a "fluid" situation, one in which according to initial press reports the White House and the GOP couldn't even compromise on what had actually been said, it seems that while both sides are eager to move on with the debt ceiling extension, the GOP is still hoping in trying to preserve some political capital, of which it will be left with virtually nil if it caves to every last demand by the democrats, namely "reopen the government and then we can negotiate" losing all leverage in the process. And a loss of all capital and leverage is precisely what the GOP will "achieve" according to Politico, which clarified that "House Republicans told Obama that they could reopen the federal government by early next week if the president and Senate Democrats agree to their debt-ceiling proposal" - a proposal which Obama has already said he would accept. In other words, full capitulation by Boehner appears imminent. Politico adds: "President Barack Obama and House Republicans clashed in a meeting Thursday afternoon over how soon the government can be reopened, even as the GOP offered to lift the debt limit for six weeks, according to sources familiar with the session. Aides will continue the discussion through the night to see if they could find common ground on how to move forward on the debt limit and government funding."

http://www.zerohedge.com/news/2013-10-10/white-house-and-republicans-issue-dueling-statements-market-limbo

White House And Republicans Issue Dueling Statements - Market In Limbo

Submitted by Tyler Durden on 10/10/2013 18:58 -0400

Debt Ceiling

President Obama

White House

It would appear that the two sides cannot even compromise of what was said the compromise talks.

*REPUBLICAN RYAN SAYS OBAMA `DIDN'T SAY YES, DIDN'T SAY NO'
*REPUBLICAN ROGERS SAYS OBAMA TOLD LAWMAKERS TO END SHUTDOWN
*WHITE HOUSE STATEMENT SAYS PRESIDENT SEES `PROGRESS' ON DEBT
*REPUBLICANS SAY NO FINAL DECISIONS MADE IN WHITE HOUSE MEETING
*DEBT TALKS TO CONTINUE INTO THE NIGHT: REPUBLICAN STATEMENT

White House Statement:

The President had a good meeting with members of the House Republican Leadership this evening; the meeting lasted approximately an hour and a half. The President, along with the Vice President, Treasury Secretary Lew, Denis McDonough and Rob Nabors listened to the Republicans present their proposal.

After a discussion about potential paths forward, no specific determination was made.The President looks forward to making continued progress with members on both sides of the aisle. The President’s goal remains to ensure we pay the bills we’ve incurred, reopen the government and get back to the business of growing the economy, creating jobs and strengthening the middle class.

Rep. Paul Ryan (R-Wisc.) told reporters after the White House meeting that talks would continue as well.

He rebuffed characterizations that President Obama had rejected the House proposal for a six-week extension of the debt ceiling.

“Well, he didn’t say yes. He didn’t say no,”Ryan said. “We’re continuing to negotiate this eventing,” Ryan said.

“The take away from the meeting was, our teams are going to be talking further tonight. We’ll have more discussion. We’ll come back to have more discussion. The president said he would go and consult with the administration folks. And hopefully we can see a way forward after that,” Cantor said.

Perhaps the best summary so far:

Bush says House Republicans "remain committed to good faith negotiations with the president." WH not using that "n" word.

6:52 PM - 10 Oct 2013

http://www.zerohedge.com/news/2013-10-10/stocks-collapse-after-obama-rejects-republican-proposal

Stocks Collapse After Obama Rejects Republican Proposal

Submitted by Tyler Durden on 10/10/2013 18:18 -0400

default

White House

S&P futures are now over 15 points off the day's highs, as it seems equity investors were hoping for a Cumbaya moment after the White House meeting today. However, as Bloomberg reports,

*BOEHNER LEAVES OBAMA MEETING WITHOUT SPEAKING TO REPORTERS
*REPUBLICANS LEAVE WHITE HOUSE WITHOUT MAKING STATEMENT
*OBAMA REJECTS REPUBLICAN PROPOSAL FOR SHORT-TERM PLAN: NYT

It would seem that Obama's "unconditional surrender or default" position has merely placed the pressure to act back on Boehner's shoulders.

Rep. Cantor offers some hope still -

Majority Leader Cantor: White House meeting useful, 'we expect further conversations tonight'

http://www.zerohedge.com/news/2013-10-10/senate-democrats-warn-debt-ceiling-extension-may-not-pass-unless-republicans-also-ag

Senate Democrats Warn Debt Ceiling Extension May Not Pass Unless Republicans Also Agree To Reopen Government

Submitted by Tyler Durden on 10/10/2013 12:35 -0400

Debt Ceiling

White House

As the White House statement suggested earlier, the GOP gambit for a "clean" 6-week debt limit extension, already accepted as a given by the market, may not be able to passunless the Republicans fold some more,according to the latest news out of The Hill which reports that "Senate Democrats could reject a House GOP proposal to extend the nation’s debt ceiling by a few weeks, saying any short-term debt-limit increase should also reopen the government." This step was to be expected: the House Republicans are once again in disarray and this is the perfect time to demand even more concessions. However, with their political credibility, and capital, already at record lows, will the republicans agree to not only fold on the debt ceiling, albeit temporarily, but also passing a Continuing Resolution - which as a reminder was the source of contention all along?

White House Responds To Boehner: "Congress Needs To Pass A Clean Debt Limit Increase"

Submitted by Tyler Durden on 10/10/2013 12:09 -0400

default

White House

Below is the full White House statement released in reaction to House Republican proposal to extend debt limit by 6 weeks, to Nov. 22.

"The President has made clear that he will not pay a ransom for Congress doing its job and paying our bills. It is better for economic certainty for Congress to take the threat of default off the table for as long as possible, which is why we support the Senate Democrats’ efforts to raise the debt limit for a year with no extraneous political strings attached. The President also believes that the Republican Leadership in the House should allow for an up or down vote on the clean continuing resolution passed by the Senate that would pass with a bipartisan majority to reopen the government. Once Republicans in Congress act to remove the threat of default and end this harmful government shutdown, the President will be willing to negotiate on a broader budget agreement to create jobs, grow the economy, and put our fiscal house in order. While we are willing to look at any proposal Congress puts forward to end these manufactured crises, we will not allow a faction of the Republicans in the House to hold the economy hostage to its extraneous and extreme political demands. Congress needs to pass a clean debt limit increase and a funding bill to reopen the government."

So... Obama agrees to a six-week can kicking? The answer is not exactly clear:

Dem leaders knew Boehner would do this, but they're not yet ready to nod along, will demand CR if Boehner wants backing

12:04 PM - 10 Oct 2013

In interview w/me at #UTCNJCCPoll, Gene Sperling says #Obama would sign clean extension of #debtceiling that does not address #shutdown

11:59 AM - 10 Oct 2013

Debt Ceiling Can Kicking: Where We Stand Now

Submitted by Tyler Durden on 10/10/2013 11:51 -0400

Here's where we stand...

The morning began with Treasury Secretary doom-and-gloom...

Jack Lew explained the world as we know it will end if the US hits the debt-limit and is forced to miss a Treasury payment

And then the rumors of a "proposal" were confirmed...

In The House:

House Republicans will offer the White House a proposal:

Short-term limit increase, if accepted, will have no add-ons or conditions

Increase will allow time for continued negotiations over spending, debt

Under the plan, the Treasury Department wouldn’t be able to use so-called extraordinary measures to further extend borrowing authority, creating a hard six-week limit, said two aides requesting anonymity to discuss the proposal.

Summed up - the Republicans want to shift the debate back to spending issues without losing too much face

First votes will occur Monday, Oct. 14, at 6:30pm

*BOEHNER SAYS DEMOCRATS `DON'T WANT TO TALK'

*BOEHNER SAYS HOUSE REPUBLICANS TO OFFER CONFERENCE ON BUDGET

*BOEHNER SAYS HOUSE REPUBLICANS TO OFFER WAY FORWARD

*BOEHNER SAYS HE HOPES OBAMA WILL SEE DEAL AS GOOD-FAITH EFFORT

*BOEHNER SAYS REPUBLICANS MOVING HALFWAY TO OBAMA'S DEMANDS

*BOEHNER SAYS NOTHING ON TABLE, OFF TABLE

*BOEHNER SAYS REPUBLICANS TO TALK WITH OBAMA ABOUT POSSIBLE CR

The White House Responds:

*WHITE HOUSE SAYS WON'T NEGOTGIATE UNTIL GOVERNMENT REOPENED

*WHITE HOUSE SAYS CONGRESS NEEDS TO OPEN GOVT, RAISE DEBT LIMIT

Meanwhile, In The Senate...

*REID MOVES TO PROCEED TO BILL TO LIFT DEBT LIMIT THROUGH 2014

*REID SAYS SENATE WILL TAKE TEST VOTE SATURDAY ON DEBT MEASURE

*MCCONNELL SAYS REID'S PROPOSAL `JUST WON'T FLY'

*MCCONNELL SAYS OBAMA HAS TO NEGOTIATE ON DEBT LIMIT

With all that, the ball is now in Obama's court where we expect an announcement from the White House shortly that he will accept the proposal grudgingly as a confirmation that he was "willing to negotiate all along" when in reality as we explained yesterday as part of the Paul Ryan "fig leaf" plan in which the core underlying issue is swept under the rug:

"yet another episode of can kicking, one which resolves the near-term stress points and pushes all the hard decisions to the future. As for the key issue on the table, Obamacare, it will be quietly, pardon the pun, tabled. Which, just as Bank of America said, is the compromise option. As long as the ACA is a topic of discussion no agreement can be achieved. Which is why we tend to agree: ultimately this will probably be the loophole used by Boehner and the republicans to fold once more.

Q.E.D.

but consider,,,,,,

http://www.zerohedge.com/news/2013-10-10/jp-morgan-joins-fidelity-shoring-money-market-liquidity-light-possible-us-government

JP Morgan Money Market Funds Join Fidelity, Sell Bills "In Light Of Possible U.S. Government Default"

Submitted by Tyler Durden on 10/10/2013 16:48 -0400

Yesterday, it was Fidelity who in conducting its fiduciary duty, announced it was getting out of any and all near-term risky Bill insturments, namely those that mature just around the time of a possible technical debt default. Today, while the stock market was soaring on hope that a Washington debt ceiling deal was imminent, it was another firm that was quietly doing the opposite, and was taking "action in light of a possible US government default), and as highlighted earlier when we showed the ongoing divergence between stocks and Bills, was quietly "boosting" liquidity (i.e. selling short-term securities) in order to avoid breaking the buck (which as we also learned yesterday had been breached by not only the Reserve fund but by 28 other heretofore unknown money market funds). The firm:JPMorgan.

From JPMorgan's Investment Management (JPMIM) group:

J.P. Morgan takes action in light of possible U.S. Government default

Although J.P. Morgan Investment Management Inc (JPMIM) continues to believe that the probability of a U.S. Government default is low, it has taken certain precautionary measures with respect to the money markets (the “Funds”)

These actions were taken in an attempt to manage the Funds in line with their objectives to seek to maintain a net asset value of $1.00 per share.

· As of October 9, 2013, the funds did not own any securities issued by the U.S. Treasury that mature or have scheduled coupon payments between October 16, 2013 and November 6, 2013.

· In addition, JPMIM has increased liquidity positions in the Funds

And now we know who was on the other end of today's equity-debt disconnect.

Full release here.

and......

http://www.zerohedge.com/news/2013-10-10/bonds-aint-buying-it

Bonds Ain't Buying It

Submitted by Tyler Durden on 10/10/2013 14:16 -0400

Bond

White House

While the S&P 500 remains stuck at the pre-Shutdown levels, bond markets are behaving differently. Long-dated bonds, benefiting from the ebullient auction are well bid (not what one would expect given the equity surge) and short-term bills (the ultimate indicator of stress) have actually deteriorated dramatically since the White House statement. So what do bond markets know that stocks don't?

Chart: Bloomberg

From earlier.......

Market reactions to proposed can kick noted below....

Stocks And USD Surge On Regurgitated House Republicans "Clean" 6-Week Debt-Limit "Can-Kicking" Bill

Submitted by Tyler Durden on 10/10/2013 - 09:05

Finally, it appears that the resolution to the debt ceiling, now due to hit in one week, will be a 6 week can kicking to late November, early December so the whole thing can repeat again, while the government probably potentially shut throughout:

*HOUSE REPUBLICANS SAID CONSIDERING CLEAN 6-WEEK DEBT-LIMIT BILL
*REPUBLICAN LEADERS TO PRESENT PROPOSAL TO MEMBERS TODAY
*U.S. GOVERNMENT WOULD REMAIN CLOSED UNDER HOUSE PROPOSAL

The USD and Treasury Yield are soaring, US equities are waking up slowly to the news but T-Bills remain unimpressed for now. This is not new news as we reported last night, and bear in mind this was originally reported on October 5th.

Overnight Repo Rate Soars As Bill Contagion Now Raging In Shadow Markets

Submitted by Tyler Durden on 10/10/2013 09:11 -0400

Now that the long overdue (and predicted) contagion from the cash market has hit repo, things are going from bad to horrifying. Following overnight news that HK is hiking haircuts on Bill collateral, and with increasingly more counterparties now segregating what collateral is eligible, if not shutting down the bill market outright, suddenly the universe of eligible repo market securities has imploded. It also means the overnight repo rate, as we said on Monday would happen, is exploding. Moments ago ICAP reported, via SMRA, that the general collateral overnight rate has nearly doubled from 0.15% to 0.27% and rising.

To wit from Stone McCarthy:

The overnight GC rate has been surging due to the debt ceiling risks, and that continued this morning as the rate surged to 0.27%. That is the highest the early morning GC rate has been since April 12th. Fed funds opened at 0.10% for the second consecutive session. Prior to yesterday, it had traded at 0.09% early every morning since September 9th except September 30th ahead of quarter-end. Yesterday's Fed funds effective rate was 0.09%. It was 0.06% for quarter-end, but outside of that it has held between 0.07% and 0.09% since June 18th.

And while the bond market is batting down the hatches and preparing for the worst, stocks are once again soaring on regurgitated non-news from 5 days ago.

Meanwhile T-Bill yields escalate:

Bonds Start Pricing In 6-Week "Can Kicking" As Nov/Dec Bills Sell Off

Submitted by Tyler Durden on 10/10/2013 09:25 -0400

As investors "celebrate" a potential can-kicking "resolution" - the T-Bill market is pricing in a recurrence of the catastrophe in just 6 weeks.While the shortest-dated bills are rallying, the End-November to mid-December bills are selling off dramatically... the 12/05/13 Bills are now +8bps to 12bps.

http://www.zerohedge.com/news/2013-10-10/hong-kong-raises-haircut-treasury-bill-collateral-over-debt-default-dears

Hong Kong Raises Haircut On Treasury Bill Collateral Over Debt Default Fears

Submitted by Tyler Durden on 10/10/2013 07:44 -0400

While there is hope that DC will engage in its favorite, can-kicking activity any minute and if not resolve then at least push back the funding and debt ceiling stalemate by a few weeks, the reality is that without a deal in seven days, there may be no cash to pay down maturing Bills starting with the October 17 issue whose yield soared to nearly 50 bps yesterday. The reason for the capitulation as was revealed yesterday, is that various money market funds such as Fidelity's have been selling all paper around the X-Date. This morning the contagion surrounding the use of Bills as collateral has crossed the Pacific, following news that the "Hong Kong’s futures and options market operator will require traders to put up more collateral when using some Treasury bills to back their positions, citing concern that the U.S. is at risk of a default." In other words, as we forecast on Monday, the debt-ceiling confusion in cash-land has now openly engulfed the repo market, which only makes the stakes of a debt deal that much higher. Because if the repo, $2.5 trillion money market, and subsequently, the entire $80 or so trillion custodian market freeze up, what happens next will make Lehman seem like a quiet walk in the park.

Bloomberg has more:

The “haircut” will rise to 3 percent from 1 percent today for Treasuries with maturities of less than one year in margin requirements for index futures and options, Hong Kong Exchanges & Clearing Ltd. said in a circular. The exchange increased margin requirements for H-share and Mini H-share index futures by about 15 percent, it said in an e-mail.

The decision illustrates how the impasse in Washington over raising the U.S. debt ceiling is starting to ripple through global financial markets. The move comes ahead of a three-day holiday in the city and after China and Japan, the biggest foreign creditors of the U.S., urged action to head off the risk of a default.

“It’s possible there could be a U.S. debt default,” Lorraine Chan, a spokeswoman for Hong Kong Exchanges said by telephone. She said that the extra measures don’t indicate an expectation of a default, adding that “we’ve been closely monitoring the operations of our clearinghouses and markets and as always we will take appropriate risk-management measures.”

In Hong Kong, investors using short-dated Treasuries to back up their trades will need to put up additional collateral to make up the shortfall caused by the new rules. The city hosts the third-largest stock index futures and options market in Asia by value of trades for the year through Aug. 31, according to data compiled by the World Federation of Exchanges.

“It’s understandable that the HKEX would raise the haircut,” said Steven Leung, director of institutional sales at UOB-Kay Hian Holdings Ltd. (UOBK) in Hong Kong. “It’s reasonable for them to take the precaution.”

Haircuts for treasuries with longer maturities aren’t affected, according to the circular. Chan declined to comment on the likelihood of a U.S. default.

We are confident that Hong Kong, just like everyone else, will be watching Jack Lew's fire and brimstone presentation at 8:30 am this morning, explicitly listing all the apocalyptic events that would occur should the US boldly go where no other insolvent America has gone before, and cross the X-Date, while a few hundred trillion in obligations rely on the USD's explicit reserve currency status. It should make for an amusing presentation.

And back to the Ass Clowns ......

THURSDAY, OCTOBER 10, 2013

Obama, Republican Leadership Groping to Break Shutdown Impasse, Revive Grand Bargain-Type Deal

The two sides in the budget staredown have finally agreed to talk. Obama, after meeting with Democrats on Wednesday, will confer with House Republicans on Thursday to see if they can resolve the impasse over the Federal budget and avoid hitting the debt ceiling on October 17. Note that despite the fixation on that date, the US would move in steps into an intensified crunch. The expectation is that the first phase would be shutting down more government operations to conserve cash. The acute danger date is around October 31-November 1, when the US faces big bond and Social Security payments.

But while the official meeting, and the fact that the two sides are also talking behind the scenes, represents progress, don’t labor under any delusions. Obama is looking for a stopgap deal that will keep pressure on in the hope that he can cinch his long-sought ~~Grand Bargain~~ Great Betrayal. Remember, Obama was disappointed that the sequester didn’t inflict enough pain to force Democrats and Republicans to the negotiating table. Don’t be fooled that Obama is unhappy that most House Republicans would reject a one year extension of the debt ceiling and continuing resolution. Both he and the corporate Republicans are looking to steer things back to where they’d hoped they’d be before the Tea Party went off the reservation.

But just because the two sides are talking does not necessarily mean that negotiations will move rapidly. One indicator of the lack of mutual understanding is that Obama wanted to meet with all the House Republicans. The leadership instead is sending 20 representatives to the session. Obama is clearly unduly impressed with his powers of persuasion. Many of the Tea Partiers have a visceral antipathy for him. The Republicans did him a big favor by keeping the hotheads out of the room.

Nevertheless, efforts to broker a deal are already underway. For instance, per Politico:

After taking a back-seat role in this fall’s fiscal battles, Senate Minority Leader Mitch McConnell and fellow Republican senators are quietly seeing whether they can break the political impasse between House Republicans and Senate Democrats.

Behind the scenes, the Kentucky Republican is gauging support within the Senate GOP Conference to temporarily raise the debt ceiling and reopen the government in return for a handful of policy proposals. Among the ideas under serious consideration are a repeal of medical device tax in the health care law, a plan to verify that those seeking subsidies under Obamacare prove their income level and a proposal to grant additional flexibility to federal agencies to implement sequestration cuts…

Those proposals could be paired with a two-month increase of the national debt ceiling and a six-month continuing resolution to reopen the government at a $986-billion funding level that both parties have agreed to, under one package discussed among McConnell and GOP senators on Wednesday, sources said. McConnell is not endorsing the proposal, aides stressed, but is simply taking the temperature of his caucus.

Politico adds that some of these provisions are also part of an outline being floated by Susan Collins of Maine. But notice the state of play: the Republicans are struggling to find terms that will appeal to at least some of the out-for-blood Tea Party types.

One part that is still opaque is how many votes Boehner thinks he needs for him to decide to table a resolution. Remember, now, it’s clear from public statements of members of his own party that he already has about 20 votes in favor a clean continuing resolution, which with House Democrats is already enough to assure passage. That also means he’d have at least that many for an extension of the debt ceiling. What is not clear is how many additional votes he thinks he needs to prevent de-legitimation within his own party and what has to be in a deal to entice them.

The party leadership would clearly like to get Obamacare out of the equation; the Financial Times notes that a Wall Street Journal op ed by chairman of the House budget committee Paul Ryan pointedly omitted it. And the idea of income verification for low income people to get subsidies is a nasty way to try to force them out of the program (which means paying the opt out charges) by increasing the bureaucratic hurdles considerably (of course, the Administration could do what it should have done, which is rely on IRS data, but that would not mean integrating another database into an already failing IT implementation).

And remember, once the Republicans figure out what concessions it would take to peel some Tea Partiers loose to agree to buy time to negotiate a bigger deal, that still doesn’t mean the Democrats will agree to that.

Having said the foregoing, there are several things that will likely start putting more pressure on the participants. One is that the Republicans are taking a big hit in the polls (but remember, that does not necessarily mean the particular House Republicans holdouts are facing pain in their districts). Second is that the real economy damage is almost certainly compounding, and even the hard core Tea Partiers will start having important constituents that are suffering. Third is that as we start getting closer to October 17 with no deal, Mr. Marker and the business press will go into hysterics, which will focus the mind of the pols.

But even if the two sides steer out of this nosedive early next week (unlikely but possible) or later, what they will have signed up for is a European-style kick the can down the road solution. I suspect even getting to an interim solution will be hard. And as I keep stressing, Obama and Boehner, in a much more favorable negotiating environment in 2011, were not able to come to a budget deal, even when both sides really really wanted the prize of the Great Betrayal. I’d love to be wrong, but this budget drama looks to be about to become a bad serial novel.

http://hotair.com/archives/2013/10/10/cbs-obamacare-launch-nothing-short-of-disastrous/

CBS: ObamaCare launch “nothing short of disastrous”

POSTED AT 8:41 AM ON OCTOBER 10, 2013 BY ED MORRISSEY

Yesterday, Jan Crawford told CBS This Morning that the launch of the ObamaCare exchanges have been “nothing short of disastrous,” but it’s worth noting a day later. Why? Despite the efforts to take down and revamp the Healthcare.gov website, nothing has changed — not the performance, not the promises, and not the administration’s refusal to release any of the stats on enrollees on Day 10 (via Ace):

House Republicans reminded IRS ObamaCare chief Sarah Ingram Hall during a hearing later yesterday on ObamaCare implementation that they wanted a delay all along, while Hall insisted that everything was hunky-dory on her end:

House Republicans said Wednesday that chaos in the first nine days of open enrollment under President Obama’s health care law would justify a delay in major provisions of the law, including tax penalties for people who go without insurance in 2014.

The comments came at a hearing of a House committee, where a senior official of the Internal Revenue Service said that its work on the new insurance marketplaces was ”going fine,” just as planned. …

”Obamacare’s first week has been a mess,” said the committee chairman, Representative Darrell Issa, Republican of California. ”This law is not ready for prime time.”

Representative John J. Duncan Jr., Republican of Tennessee, said, ”This is the most messed-up, convoluted, confusing law that’s ever been passed.”

The Obama administration has had three and a half years to work on the law, Mr. Duncan said, so ”it is ridiculous, and kind of sad,” that the government was so poorly prepared for the rollout of the program this week.

What does Hall mean “as planned”? The original plan — and the one in statutory law — required the IRS to do instant income verification to ensure against fraud in subsidy payments. That got postponed at least a year by a White House edict, which Republicans rightly claim as improper. The only part of the plan that the IRS still has in action is their power to fine people who don’t carry health insurance, which is hardly a difficult task after more than three years. It’s a checkbox with an information box attached to it on a tax form, with minimal data entry needed to support it — and none at all for electronic filers.

Note: Give the New York Times some credit for reporting this, though. Only fourteen newspapers this morning have any stories at all on the ObamaCare exchange, and most of those have to do with the shutdown talks ongoing in Congress.

http://www.zerohedge.com/news/2013-10-10/futures-storm-higher-hopes-can-will-shortly-be-kicked-once-more

Futures Storm Higher On Hopes Can Will Shortly Be Kicked Once More

Submitted by Tyler Durden on 10/10/2013 07:03 -0400

As reported previously, the latest meme surrounding the D.C. impasse is that Obama is suddenly willing to compromise on a short-term, supposedly six-week funding and debt ceiling extension, on the verge of his latest talks with republicans at the White House scheduled for this morning, as previously floated by the GOP. Throw some additional headlines such as "Ryan steps up to shape a deal" (in line with what we predicted yesterday) and "The ice breaks; fiscal talks set", by The Hill, and "GOP quietly backing away from Obamacare" from Politico, and one can see why futures are in breakneck soaring mode this morning, driven as usual by the two main JPY cross (USD and AUD), the first of which is less than 100 pips now away from being Stolpered out.

Confirming this view, in recapping the events in DC, DB's Jim Reid says there has been growing optimism over the last 12 hours that we may get a deal which will see a short-term increase in the debt ceiling. House Republicans haven’t yet decided how long an extension they would support and whether it will include any policy conditions. However Republican Paul Ryan, chairman of the House Budget Committee, outlined a plan yesterday to fellow conservatives to extend the debt limit for 4-6 weeks, paired with a framework for broader deficit-reduction talks. The greater the spending reduction the talks produced, the longer the next extension of the debt ceiling would be under Mr. Ryan's plan (WSJ). House Republicans are scheduled to meet at 10am today (local time) to discuss the proposals further and a small team of negotiators are due to meet with the president as well. The White House said the session isn't designed to be a negotiation, but the meeting may allow House Republicans to say they had a policy conversation with the president, which they have been saying is a condition of resolving the stalemate.

In the Senate, Democrats are reportedly open to a short term increase in the debt ceiling, but on the condition that any subsequent debt limit increase wouldn’t require agreement on healthcare policy, namely Obamacare. One can’t help thinking that a short-term agreement would only be a mildly constructive outcome, placing markets in limbo for several more weeks. Meanwhile the latest Gallup poll suggests that Democrats may be gaining the upper hand in the public relations game. The poll found that the favourability of the Republican Party has fallen to 28% (from 38% in September), which is the lowest reading since late 1998 when the Republicans voted to impeach Bill Clinton. The rating for Democrats stands at 43%, down a few points on the month.

So will a compromise deal finally emerge 7 days ahead of the first X-Date, or will a last minute snag once again derail the (non)-negotiations? We will know quite soon.

Market Re-Cap

In Early European trade equities are seen up across the board following positive sentiment stemming from reports from a congressional aide in the US that House Republican leaders are said to weigh a short-term debt measures and Democrats from the Senate are reportedly open to the idea of a short-term debt-cap bill. In terms of the best performing indices for the session the IBEX 35 and FTSE MIB lead the way with financials being the best performing sector amid the positive tone.

Looking ahead for the rest of the session there is the announcement of the BoE rate decision and APF Target, from the US we have release of US Initial Jobless and Continuing Claims and a US 30yr bond auction. Do note that due to the shutdown both import price data and the monthly budget statement have been postponed. We also have speeches from the ECB’s Draghi, the BOJ’s Kuroda, Fed’s Bullard, Tarullo and Williams

Overnight bulletin from Bloomberg and RanSquawk

Late yesterday it was reported that House Republican leaders said to weigh a short-term debt measure while Senate Democrats are said to be open to a short-term debt-cap bill, according to a Congressional aide.
USD outperforms most G-10 currencies as Republicans and Democrats showed openness to embracing a short-term deal to avoid default; GBP/USD stays offered before BOE rate decision/asset purchase target at 7:00am New York time; preview here
The US Treasury and Fed are creating contingency plans should the US enter default, according to sources.
Treasury Sec. Jack Lew testifies at 8am before Senate Finance Committee on debt limit
Germany’s Greens are approaching today’s meeting with Chancellor Angela Merkel and her bloc looking for an excuse to abandon talks before they’ve begun
Norwegian krone falls after Sept. inflation unexpectedly decelerates to 1.7% y/y vs median est. 2.2%; SEK slid against most G-10 counterparts after Sept. CPI and August industrial production also fell sort of estimates est.
Draghi says critics of EUR underestimated region’s political commitment to the single currency; majority of economists in survey say next monetary policy move will be to unveil new liquidity measures rather than cut rates
ECB and PBOC agree to establish a bilateral currency swap line, valid for 3 years with a maximum size of 350b yuan and EU45b
Aussie fell after Australia Sept. employment change disappointed, 9.1K vs est. 15K; AUD/USD reached session low 0.9389 amid leverage accounts sell orders triggering stops, bounces during European session
Japanese investors sold net JPY2.2t in overseas bonds in the week through Oct. 4, most since April 2001
KRW rose against all major counterparts after South Korea’s central bank left its benchmark rate unchanged, as expected cut 2014 growth forecast to 3.8% from 4%; benchmark rate unchanged, as expected
BoE October rate decision due at 1200BST/0600CDT, all analysts surveyed expect the Bank of England to keep the bank rate unchanged at 0.50% and the Asset Purchase Facility unchanged at GBP 375bln.

Asian Headlines

Chinese Premier Li said GDP expected to stay above 7.5% in first 3 quarters. Premier Li also said China is ready to explore signing ASEAN cooperation treaty.

IMF's Shinohara said it is difficult for the BoJ to achieve inflation target by 2015 and that Abenomics should boost JPY's value if successful.

EU & UK Headlines

Even though Eurodollar and Euribor curve have bull flattened in reaction to reports late yesterday that House Republican leaders said to weigh a short-term debt measure while Senate Democrats are said to be open to a short-term debt-cap bill, yields on US 3-Month T-Bills remained elevated.

Nevertheless, other credit market indicators such as USD FRA/OIS rate, signal that despite elevated yields, funding markets continue to operate normally.

French Industrial Production (Aug) M/M 0.2% vs. Exp. 0.6% (Prev. -0.6%)
French Manufacturing Production (Aug) M/M 0.3% vs. Exp. 0.6% (Prev. -0.7%, Rev. to -0.8%)

ECB's Draghi said US critics are wrong to predict Euro bond will fail and that critics underestimated Europe's commitment to the union.

US Headlines

As a reminder, late yesterday it was reported that House Republican leaders said to weigh a short-term debt measure while Senate Democrats are said to be open to a short-term debt-cap bill, according to a Congressional aide. The aide added that there was no decision on attaching conditions and Senate Democrats are said to not want budget deal as a condition.

The US Treasury and Fed are creating contingency plans should the US enter default, according to sources.

Officials are examining what options may be available to calm financial markets should a debt payment be missed.

Of note, Fidelity Investments, the largest manager of money market funds in the US, has said it no longer holds any debt that matures around the debt ceiling deadline.

Japan's Kokusai Asset says not expecting US Treasuries to default, haven't sold US bonds in its USD 14bln fund This morning it was reported that Hong Kong raised haircut on US T-Bills for margin cover.

Equities

Stocks traded higher in Europe, with tech and financials leading the move higher, as credit spreads tightened amid optimism that lawmakers in the US will finally break the stalemate to end the government shutdown.

The resurgence in risk appetite saw the Spanish IBEX-35 and Italian FTSE-MIB outperform their European counterparts, with smaller banking stocks posting gains of around 4%. Of note, after coming under selling pressure over the past couple of days following an announcement that it plans to cut 14% of its total workforce, which in turn prompted government officials to voice their concerns, Alcatel Lucent shares rebounded sharply and gained 3.5% amid touted bargain hunting.

After the closing bell on Wall Street yesterday, Chevron said that Q3 earnings expected to be lower than Q2. Co. shares down 1.6% in after-market hours.

Despite the fact that default risk as indicated that 5y CDS rates declined in reaction to reports that US House of Representatives Republicans are considering signing on to a short-term increase in the government's borrowing authority to buy time for negotiations on broader policy measures, USTs remained under pressure, in turn supporting USD/JPY (interest rate differential flows) which matched October 3rd highs.Broad based EUR strength, which also saw EUR/GBP top the 21DMA line, ensured that even though GBP OIS rates traded higher ahead of the BoE policy rate announcement due at 1200BST/0600CDT, GBP/USD is seen little changed and in close to an intraday option expiry level at 1.5950.

The Brazilian Central Bank hiked the SELIC Rate to 9.50% from 9.00%, alongside expectations.

Commodities

Gold sales under the Central Bank Gold Agreement in the year to Sept. 26 were the lowest of any year since the first version of the pact came into force in 1999, data from the World Gold Council showed.

India's commerce ministry said gold imports by India tumbled last month after the world's biggest user restricted shipments and increased taxes.

Chinese September oil imports are likely to show an increase as refineries return to production after maintenance.

Chevron warns on Q3 earnings after refining earnings drop with the average output for July and August at 651,000bpd vs. 659,000 in Q2.

Freeport sees 2014 copper sales up nearly 10%.

Libya PM Al Zaidan has been taken by armed men from a revolutionary group, according to officials. However, reports made later by Libyan officials said that the PM is in good health and is being treated.

* * *

Deutsche's Jim Reid concludes the overnight recap

The initial reaction to the FOMC’s September meeting minutes suggested that markets had taken it to be a little more hawkish than expected. Indeed, in the moments immediately following the release, T-notes moved a few ticks lower, the USD index spiked 0.2% and gold fell about 0.4%. This was perhaps a kneejerk reaction to the text that said most participants judged that it would be appropriate to begin reducing the pace of asset purchases this year and to conclude QE in the middle of 2014. This hawkish interpretation was quickly pared back though, with some pointing to the more dovish elements of the minutes including signs that the Fed was concerned about the increase in rates on housing and its view of the “considerable risks surrounding fiscal policy”. On the flip side there were also some concerns that a delay in tapering could have significant implications for the effectiveness of Committee communications and commitment to forward guidance. Other than that, they confirmed to some extent that the September taper/no taper call was relatively close, but added little else. And it’s fair to say that the events in Washington of late have superseded the relevance of these minutes to some extent.

A big focus today will be on Treasury Secretary Jack Lew’s appearance before the Senate Finance Committee at 8.30am (ET). DB’s Joe LaVorgna notes that Lew’s initial October 17th Debt Ceiling date is a “soft” deadline. He argues it’s conceivable the Treasury could get to the end of the month before requiring a debt ceiling increase, however it wouldn’t be able to operate past October 31st because the Treasury needs to make a large (estimated at $24bn) Social Security payment on November 1st. The discussion will also likely cover what strategies the Treasury might employ to avoid a technical default if these “harder” dates are overrun. Overall we would expect his testimony to balance forcing politicians into a compromise while trying not to give the markets too many jitters that may be counterproductive medium-term. A difficult balance as we might need more of a market fright to accelerate us towards a long or short-term budget agreement.

Recapping the events in DC, there has been growing optimism over the last 12 hours that we may get a deal which will see a short-term increase in the debt ceiling. House Republicans haven’t yet decided how long an extension they would support and whether it will include any policy conditions. However Republican Paul Ryan, chairman of the House Budget Committee, outlined a plan yesterday to fellow conservatives to extend the debt limit for 4-6 weeks, paired with a framework for broader deficit-reduction talks. The greater the spending reduction the talks produced, the longer the next extension of the debt ceiling would be under Mr. Ryan's plan (WSJ). House Republicans are scheduled to meet at 10am today (local time) to discuss the proposals further and a small team of negotiators are due to meet with the president as well. The White House said the session isn't designed to be a negotiation, but the meeting may allow House Republicans to say they had a policy conversation with the president, which they have been saying is a condition of resolving the stalemate.

Asian markets initially traded firmer on the back of the short term compromise debt limit extension reports. That sentiment has also helped the S&P 500 futures gain 0.4% this morning (to 1656). Sentiment is mixed across the region though with the Hang Seng (-0.8%) and Hang Seng China Enterprises index (- 1.1%) seeing sharp drops in morning trading. There has been market chatter of a small number of large sell orders on Hang Seng futures driving markets lower. Against this backdrop, the TOPIX is firmer (+0.7%) after machine order numbers for August were better than expected (5.4% MoM vs 2.5% expected).

USDJPY is up 0.4% to 97.8. Asian credit spreads are unchanged to a touch tighter overnight following an impressive week so far of primary issuance. Elsewhere as we type there are unconfirmed reports that the Libyan PM has been taken by armed men which is causing a slight spike in Brent (+0.2%). Pockets of market stress remain in the short term money market and there’s been a lot of focus on the T-bill maturing on October 17th (i.e. the date in which Treasury Lew says that the US will hit the debt ceiling). The October 17th bill increased in yield by 20bp yesterday to just under 0.5% and this wasn’t helped by reports that the largest money market fund manager in the US no longer holds any T-bills that mature in late October or early November (Associated Press). The FT added weight to those concerns saying that one or two repo dealers are now avoiding certain T-bills maturing in the next month as collateral for transactions.

In the longer end of the curve, 10yr yields added 3bp to 2.66% with yields trending upwards in the latter half of the US session as equities gained momentum. Indeed, the S&P 500 rebounded from an early low of -0.55% to close at +0.06% for the day. There was very little on the data front except for German industrial production which rose by 1.4% mom in August (consensus +1.0%), reversing the 1.1% decline in July. UK industrial production fell 1.1% in July vs expectations of +0.4%. While the US data blackout accumulates, an ex-Commissioner for the Bureau of Labor Statistics warned yesterday that the integrity of employment data could be compromised the longer the shutdown drags on. Workers at the Census Bureau this month would normally begin canvassing households, starting on Oct. 13, to ask people if they were employed during the previous week. The ex-commissioner commented that “If you collect the information too late, you know the information is not going to be reliable”.

Looking at the day ahead, US Treasury Secretary Jack Lew will testify before the Senate Finance Committee on the debt limit at 8.30 am local time, or around 1.30pm London. The discourse between the White House and House Republicans will be closely watched today for any sign that they are heading to a short term compromise, or otherwise. French and Italian production numbers for August are the main data releases today in Europe. Across the Atlantic initial jobless claims will be released today.

Catharsis Ours

Thursday, October 10, 2013

White House, Republican Meeting "Inconclusive", To Continue Throughout The Night

White House And Republicans Issue Dueling Statements - Market In Limbo

Stocks Collapse After Obama Rejects Republican Proposal

Senate Democrats Warn Debt Ceiling Extension May Not Pass Unless Republicans Also Agree To Reopen Government

White House Responds To Boehner: "Congress Needs To Pass A Clean Debt Limit Increase"

Debt Ceiling Can Kicking: Where We Stand Now

JP Morgan Money Market Funds Join Fidelity, Sell Bills "In Light Of Possible U.S. Government Default"

Bonds Ain't Buying It

Stocks And USD Surge On Regurgitated House Republicans "Clean" 6-Week Debt-Limit "Can-Kicking" Bill

Overnight Repo Rate Soars As Bill Contagion Now Raging In Shadow Markets

Bonds Start Pricing In 6-Week "Can Kicking" As Nov/Dec Bills Sell Off

Hong Kong Raises Haircut On Treasury Bill Collateral Over Debt Default Fears

THURSDAY, OCTOBER 10, 2013

CBS: ObamaCare launch “nothing short of disastrous”

POSTED AT 8:41 AM ON OCTOBER 10, 2013 BY ED MORRISSEY

Futures Storm Higher On Hopes Can Will Shortly Be Kicked Once More

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