Friday afternoon tomfoolery....

WH spox Carney : "we are obviously in a better place than we were a few days ago .... but there is not an agreement." @AFP

and.....

http://www.zerohedge.com/news/2013-10-11/now-republicans-cant-even-agree-how-obama-meeting-went

Now Republicans Can't Even Agree On How The Obama Meeting Went

Submitted by Tyler Durden on 10/11/2013 14:52 -0400

Of course, equity markets can only hear one thing (for fear of the consideration of Plan B) but as The Washington Post notes, the Senate Republicans can't agree on how their meeting with Obama went.

Good - Sen. Bon Corker: "I was pleasantly surprised, I think there's a gelling that's beginning to take place."
Bad - Sen. Susan Collins: "I don't want to give the impress that he endorsed it, but he indicated there were 'elements' with which he agreed."
Ugly - Sen John Cornyn: "...what could have been a productive conversation was instead another predictable lecture from the President that did not lay out a new path forward."

Summing it all up (and mixing metaphors) - it's a Goldilocks meeting for stocks.

and...

http://www.zerohedge.com/news/2013-10-11/republican-senators-emerge-meeting-obama-was-productive-no-deal-yet

Republican Senators Emerge: "Meeting With Obama Was Productive But No Deal Yet"

Submitted by Tyler Durden on 10/11/2013 13:52 -0400

White House

It would appear - in a similar vein to last night's White House exit - the stock market is a little disappointed that Democrats and Republicans did not come out holding hands. Instead, we get the usual maybe good, maybe bad statements:

SENATOR ORRIN HATCH SAYS OBAMA EXPRESSED CONCERNS OVER DURATION OF HOUSE REPUBLICAN DEBT LIMIT PLAN(well that's 'bad' news for a deal), but
*OBAMA DIDN'T REJECT MEDICAL DEVICE TAX REPEAL, HATCH SAYS (well that's good news for a deal)

For now the Dow is 30 points off its highs on this lack of news.

US Senate Republicans call meeting with Obama productive, but say no deal reached on debt-limit of government shutdown.

Big money moves and reactions - if everyhting is working out , why are the big boys dumping bills treasury bills ?

http://www.zerohedge.com/news/2013-10-11/primary-dealer-bill-holdings-plunge-2013-lows

Primary Dealer Bill Holdings Plunge To 2013 Lows

Submitted by Tyler Durden on 10/11/2013 15:41 -0400

Debt Ceiling

While one after another money market fund quietly announces they are liquidating "cash equivalent" Bill holdings, be they the mid/late October vintage or, now that a can kicking negotiation is in process, the Bills in close proximity to the Thanksgiving day 6 week extension period, over buck breaking concerns that the debt ceiling extension may be snagged due to political manoeuvering, someone was once again ahead of the curve. That someone are the 20 Primary Dealers, which as the NY Fed reports, sold out of the bulk of their Bill holdings in the last two weeks of September in the process taking their Bill holdings to the lowest in all of 2013. The last time Dealers sold off near-term Treasurys with such gusto: July 13 of 2011, just before the last debt ceiling extension fiasco, when Bill holdings dropped to a net negative ($10) billion position.

So if indeed the debt ceiling can kicking is set to become a periodic, 6-week exercise, will Dealers simply shun Bills going forward as an asset class due to "political" risk? And if so, what happens to Money Market funds, whose investment choices unlike those of the Dealers, are far more limited? If the answer is yes, then the already pronounced scarcity of "high quality collateral" is set to be slashed even more as an entire subset of Bills becomes increasingly "risky."

Source: NY Fed

and.....

http://www.zerohedge.com/news/2013-10-11/blackrock-joins-jpmorgan-and-fidelity-sells-all-october-and-novermber-t-bills

Blackrock Joins JPMorgan And Fidelity - Sells All October And November T-Bills

Submitted by Tyler Durden on 10/11/2013 11:40 -0400

Yesterday it was JPMorgan's money-market funds adjusting to their fiduciary duty andfollowing Fidelity's lead in getting out of any and all short-term non-risk-free Treasury Bills. Today, another massive money-market fund provider sells it all...

*BLK'S MONEY FUNDS HAVE NO ASSETS IN TREASURIES TIED TO DEFAULT
*BLACKROCK SAYS `ZERO EXPOSURE' TO DEBT MATURING IN LATE OCT.
*BLACKROCK SAYS NO HOLDINGS IN TREASURIES MATURING IN EARLY NOV.

It seems remarkable that all three of these funds would ignore the advice of blowhard bloggers who suggested this was nothing. But,as Barack Obama himself said yesterday, "Ultimately, what matters is: What do the people who are buying Treasury bills think?"It seems only the Fed (and PIMCO) is left.

“We continue to take prudent actions in preparation for all potential outcomes, despite our belief that Congress and the President will likely act to prevent a U.S. default,” Tara McDonnell, a spokeswoman for the New York-based company, said today in an e-mailed statement.

Ironic really considering Larry Fink's comments from earlier:

*FINK DOESN'T SEE U.S. DEFAULT HAPPENING

http://www.zerohedge.com/news/2013-10-11/house-republicans-far-ready-pass-clean-cr

House Republicans "Far From Ready" To Pass A Clean CR

Submitted by Tyler Durden on 10/11/2013 08:53 -0400

Budget Deficit

Equity Markets

Gross Domestic Product

ratings

Equity markets are holding their gains despite the bond-market's bid this morning (and weakness in Nov bills).. it seems the optimism is a little premature...

Source close to last night's talks tell me CR deal is not as close as many press reports; House Rs far from ready to move on a clean CR

8:47 AM - 11 Oct 2013

Everyone is pointing to national polls blaming the Repblicans and this there is pressure to act... do not forget "All politics is local"

Via BofAML,

Looking at the national polls, one would think that a deal is long overdue. A CBS News poll conducted on October 1 and 2 found that 72% of Americans disapproved of the strategy of shutting down the government to try to battle the Affordable Care Act and just 25% approved. Polls also show Republicans are getting hurt more than Democrats.

All politics is local
A bigger risk is that, in the end, the national polls may not matter. Gerrymandering has not only helped create a deeply divided Congress, it has made most seats in the House safe. Recall that currently the House is divided into 232 Republican, 200 Democrats and 3 unfilled seats. Before the shutdown, 175 Democratic seats and 211 Republican seats were “currently safe,” according to the Rothenberg Report. In other words, Republicans need just 7 additional seats out of 49 “lean” or “toss up” districts to reach the 218 majority. As Charlie Cook argues, it will take a “tsunami” year for Republicans to lose the House.1 He notes that in each of the four recent “tsunami” elections, the party of the President was the one pushed out of power in the House.

Cook also points out that the shelf life of negative poll ratings is short. Favorability ratings for both House Speaker Gingrich and President Clinton dropped dramatically during the 1995-6 shutdown, but had almost fully recovered a few months later. A shutdown right in front of the election may be politically dangerous, but one a year before may not.

The Iowa electronic market offers a less sanguine view of Republican prospects. The trading volumes in this market are very low, so the results should be interpreted with caution. Nonetheless, they are illustrative. Before the shutdown, the market was pricing in about a 20% probability of Republicans losing the House in the midterm elections. Since the shutdown that probability has been bouncing around 40%.

Who gets hurt?

So if incumbent politicians don’t get hurt, who does? There are several ironies to the government shutdown. First, the shutdown hits the wrong part of the budget. It is meant to be a way to stop the fast-approaching Affordable Care Act. However, the Affordable Care Act is a mandatory spending program and is not affected by the shutdown. More broadly, the shutdown hits discretionary spending, a part of the budget that has been cut repeatedly and is falling as a share of GDP. Rapidly growing entitlements are exempt.

The second irony is that the shutdown is a step backward in fixing the budget deficit. The House has voted unanimously to pay furloughed Federal workers retroactively. Once the shutdown is over, the Senate is likely to concur. As a result, the shutdown is effectively a multi-week paid vacation for many Federal employees, with no lasting reduction in government pay. At the same time, the process of closing and reopening the government adds several billion dollars to the deficit. Moreover, the longer the shutdown, the bigger the shock to confidence, spending and tax revenues.

Who really gets hurt? In essence, the shutdown is effectively putting Federal workers on a paid vacation so they cannot help individuals or firms that depend on “nonessential” government services. Hmmm.

http://www.politico.com/story/2013/10/john-boehner-offer-obama-debt-ceiling-98154.html?hp=l1

President Barack Obama may get the clean debt limit extension he’s been demanding, but it wouldn’t be a clean victory.

By adopting the House GOP plan to raise the debt ceiling, Obama would avoid a potentially crippling blow to the economy and, in the White House’s view, finally break Republicans of their habit of seeking concessions each time the debt ceiling needs to be raised.

But the downsides are significant. The federal government might not immediately reopen, there’s no guarantee Republicans would stop using the debt limit as leverage in the future and Obama could find himself in the same position once the temporary extension expires.

(PHOTOS: 25 great shutdown quotes)

And yet, Obama may have little choice but to accept House Speaker John Boehner’s offer because it delivers what the president wanted: a debt limit hike with no ideological strings attached.

“If a clean debt limit bill is passed, he would likely sign it,” White House press secretary Jay Carney said Thursday. “The key is they don’t get anything in exchange.”

The big question for the White House and Republicans in Congress is the definition of the word “clean.” It may be that the White House has to look at yesterday’s shirt — presentable, if not just-starched — as clean enough.

(PHOTOS: Shutdown’s little-known side effects)

The White House is holding out hope that Senate Majority Leader Harry Reid (D-Nev.) will be able to push a longer debt limit extension through his chamber with some Republican support, putting pressure on the House. Senate Minority Leader Mitch McConnell (R-Ky.) is also gauging support for a variety of possible add-ons to debt limit legislation, one of which — giving the administration more flexibility to determine where sequester cuts are made — might be seen as a win for the White House.

Several Senate Republicans have already expressed skepticism over the Boehner plan. Sen. Kelly Ayotte (R-N.H.) and Sen. Jeff Flake (R-Ariz.) said Congress needed to address both the government shutdown and the debt limit.

The emerging House GOP plan would come with some conditions, although not the kind of sweeping demands to defund or repeal Obamacare. Republicans would vote to lift the debt ceiling until Nov. 22 — just before Thanksgiving — while prohibiting the Treasury Department from using extraordinary measures to lift the borrowing limit.

(PHOTOS: 18 times the government has shut down)

Boehner said Republicans would also demand a formal House-Senate conference on larger budget issues, a process Senate Republicans have been blocking since their Democratic counterparts approved a budget resolution earlier this year.

“What we want to do is to offer the president today the ability to move a temporary increase in the debt ceiling, an agreement to go to conference on the budget, for his willingness to sit down and discuss with us a way forward to re-open the government, and to start to deal with America’s pressing problems,” Boehner said.

“It’s time for leadership,” he continued. “I would hope that the president would look at this as an opportunity and a good-faith effort on our part to move halfway — halfway to what he’s demanded in order to have these conversations begin.”

(PHOTOS: D.C. closes up shop)

Carney declined to take a position on the plan, noting that the White House hadn’t yet seen the specifics. But he also did not rule it out immediately.

“We haven’t seen a bill yet,” he said of Boehner’s as-yet-unwritten proposal. “We don’t know what he can pass.”

The major upside to Thursday’s developments is that Obama would dodge economic catastrophe — for a few weeks, at least. The government shutdown is bad, but a default on U.S. debt would be so much worse.

That’s why Obama would have a hard time justifying a veto of a relatively clean debt limit increase, even if it were only for the short term, White House officials said.

But the White House would declare progress — if not an outright victory — on Obama’s broader campaign to break the GOP of its debt-limit habit.

Obama has refused to negotiate around the debt limit since he agreed to do so in 2011, when his attempt to strike a grand bargain with Boehner fell short.

House Republicans backed away from a fight in January when they agreed to raise the debt limit without demanding an equal amount of spending cuts, as they had done for years. Instead, they required that lawmakers in both chambers approve a budget resolution.

“They did it without negotiation in January, they will have done it without negotiation now,” said Jason Furman, chairman of the Council of Economic Advisers. “That will have set a new paradigm.”

Just as Boehner’s plan was coming together on Capitol Hill, Furman was at a breakfast hosted by the Center for American Progress, questioning why Republicans would push ahead with a plan to raise the debt limit but not end the government shutdown.

“There is just no reason to do that,” Furman said. “Every day the shutdown goes on, the effects get worse. I don’t know why you’d want to deal with one of them and not deal with the other.”

Indeed, Reid and other Senate Democrats — who met with the president prior to Obama’s session with House Republicans — want the White House not to accept the GOP proposal unless they first agree to reopen the government, Democratic sources said.

Reid and Obama are also unsure whether Boehner can actually push his proposal through the House in the first place. They aren’t convinced hard-line conservatives and tea party aligned House Republicans won’t balk.

Carney said the decision of GOP leaders to bring just 18 House Republicans to a meeting at the White House Thursday would deprive the president of the opportunity to speak directly with the “subset of House Republicans” he portrayed as driving Boehner’s decision making.

“It might have been useful for him to hear from some of those other members, and for them to hear from him,” Carney said.

But if the House and Senate pass a brief debt-limit extension, it would be difficult for the president to veto legislation averting what he has said would be a catastrophic event for the American economy. Carney said Obama wants a longer extension and for House Republicans to re-open the government now.

In a Wednesday night meeting with the president, House Democrats shared stories with the president of the hardships their constituents face, and they made clear afterward that they are not willing to give up the fight for a higher spending level. Minority Leader Nancy Pelosi (D-Calif.) said Democrats would agree only to a short-term re-opening of the government, so that they could push for more money for government agencies.

The bottom line, Carney said, is that Republicans have adopted an “unsustainably bad proposition” in moving toward a debt-limit increase while keeping the government closed.

“What would the Republican rationale for that be?” he asked.

http://www.nakedcapitalism.com/2013/10/talks-over-debt-showdown-finally-underway-but-acrimony-republican-divisions-impede-dealmaking.html

FRIDAY, OCTOBER 11, 2013

Talks Over Debt Showdown Finally Underway, but Acrimony, Republican Divisions Impede Dealmaking

In the hostage negotiations otherwise known as the budget deal, the movement on Thursday, that of the Republicans meeting with Obama and offering the idea of a limited extension of the debt ceiling with some thin conditions attached, is indeed progress. But don’t confuse progress with much progress.

It was critical for the two sides to at least stop posturing and start haggling. But it looks as any way out of this mess is going to be tortured. We look to be about to go European, with looming deadlines producing the most minimal deal possible to fend off a train wreck. securities prices would perk up for a bit, but as he savvied up that these patch-ups had a pretty short life, the duration of Mr. Market’s happy reactions got shorter and shorter.

In the meeting at the White House today, Republicans pitched the skimpiest solution possible, that of extending the debt ceiling limit for six weeks, till right before Thanksgiving, while keeping the shutdown going. White House spokesmen ‘fessed up that if the Republicans made that proposal “clean”, as in with no strings attached, the President would likely reluctantly accept it. Even though I am highly confident that this Administration would not default on Treasuries even if the debt ceiling constraint kicked in (see Felix Salmon for one good technical discussion as to why), the further damage to the economy of further cuts to other spending and probable default on other obligations would still do a tremendous amount of damage.

But even this bare minimum deal is going to take some wrangling to get done, and despite the talk of wanting to get the debt ceiling suspended by early next week, there are a lot of cats to be herded, which means the odds are good of bumping up against or even going a smidge past the big scary October 17 date. For instance, Obama wants only a clean deal, but the Republicans are sure to attach strings. So how clean is clean enough? Politico muses:

Obama may have little choice but to accept House Speaker John Boehner’s offer because it delivers what the president wanted: a debt limit hike with no ideological strings attached.

“If a clean debt limit bill is passed, he would likely sign it,” White House press secretary Jay Carney said Thursday. “The key is they don’t get anything in exchange.”

The big question for the White House and Republicans in Congress is the definition of the word “clean.” It may be that the White House has to look at yesterday’s shirt — presentable, if not just-starched — as clean enough.

The New York Times indicated that the Democrats deemed one provision the Republicans want to include, like keeping Treasury secretary from using accounting devices to forestall default, as a non-starter.

But look at how little relief this stopgap deal provides. It’s only six weeks of relief. The government shutdown remains on, meaning the toll to the economy rises in the fourth quarter, which is critical for consumer spending. Retailers bought for the Christmas season on the assumption the economy was on a slow path of improvement. That was already kicked in the head by the shutdown, and six weeks is going to do even more damage. And that is as god as it might get.

The Tea Party is bloodied but still unbowed. Expect them to try to put a spanner in even the minimal “get us out of the debt ceiling train wreck” deal because they want Obamacare included in the negotiations, while the Republican leadership is trying to take that out of the equation, partly because Obama simply won’t accept anything other than the most token fixes, and that they regard the big possible prize as the Grand Bargain.

I hate to keep focusing on the same issue, but it bears repeating: Obama and Boehner could not reach a Grand Bargain in 2011. The negotiating dynamics are vastly worse. Both sides have started engaging in low-level personal attacks. Both sides are going into the six weeks of talks (if that indeed is what is agreed upon) tired. The Tea Party is more fixated than in 2011 on sabotaging Obamacare. Now if the result of getting past the debt ceiling cliffhanger shows them to have been sidelined, that would be big progress, but we are far from knowing that. So what happens if we have six weeks of drama and again no Big Budget Deal, but this time the debt ceiling as a sword of Damocles?

So brace yourself for at least six weeks of ugly drama. And no matter how it concludes, there’s no happy ending.

http://www.zerohedge.com/news/2013-10-11/stock-euphoria-persists-despite-obama-rejection-republican-proposal

Stock Euphoria Persists Despite Obama Rejection Of Republican Proposal

Submitted by Tyler Durden on 10/11/2013 06:55 -0400

Despite stock (not bond) euphoria yesterday that a DC debt ceiling deal was sealed leading to the second largest risk ramp of 2013, last night was spent diffusing the excitement as one after another politician talked back the success of a "non-deal" that Obama rejected, at least according to the NYT. As a result, with both retail sales data and the PPI not being released (and the only data of note the always leaked UMichigan consumer confidence) markets will again be at the behest of developments on Capitol Hill, with some talk from Republicans suggesting a deal as early as today could be possible in an effort to reopen government on Monday. It is entirely possible that talks could continue over the weekend though, which would ensure a gappy open to Asian markets on Monday.

Jim Reid recaps yesterday's DC confusion as follows: the celebrations were about to start in DC, but the champagne has been held on ice after a number of debt ceiling developments overnight. Following talks with House Republicans at the White House late yesterday, President Obama stopped short of accepting the Republican proposal for a short 6-week extension to the debt limit in exchange for wide-ranging negotiations on spending. Importantly though, Obama did not outright reject the Republican plan, and the talks between House Republicans and White House remain constructive according to various accounts. As House Budget Committee Chairman Paul Ryan put it, Obama “didn’t say yes, he didn’t say no”. The President told Republicans during the meeting that he wants any proposal to also include an agreement to reopen government. Representatives from both sides of politics are locked in talks as we type and there seems to be some hope that an agreement could come later today. The exact parameters of the Republican proposal are not clear, but it does appear that negotiations are centered on how far to extend the debt limit and how much funding they would provide the government when it opens, according to Republicans. Significantly, defunding Obamacare does not appear to be a condition of this short term agreement. Just as expected.

****

Overnight new bulletin from BBG and Ran

Late yesterday, President Obama rejected a proposal from politically besieged House Republican leaders to extend the nation’s borrowing authority for six weeks because it would not also reopen the government.
Fitch said it still expects an agreement to raise the US debt ceiling and that a default would only occur if US didn't honour interest/principal payment.
Treasury yields little changed, with 5Y and 7Y yields 3bps-5bps higher on the week; Obama and House Republican leaders moving toward an agreement to extend the nation’s borrowing authority even as they remained at odds over terms for ending the partial government shutdown.
Merkel and Germany’s Greens agreed to hold a second meeting aimed at a possible coalition after talks yesterday, raising the chance of an alliance and piling pressure on the Social Democrats
U.K. house prices rose to a record last month as easier access to credit drove first-time buyers back to the market, Acadametrics said
U.K. construction output declined in August as a drop in infrastructure, public work and maintenance offset a surge in homebuilding to its highest level for at least three years
China is poised to post its first slowdown in export growth in three months, a result that may understate the strength of demand after fake reports inflated figures in the year-earlier period
Westpac Banking Corp. agreed to buy Lloyds Banking Group Plc’s Australian assets as tighter capital rules following the 2008 financial crisis prompt European and U.S. lenders to retreat from the Asia-Pacific region
BofAML Corporate Master Index OAS narrows 1bps to 151bps as $6.05b priced yesterday; effective duration at 6.55 from 6.56, Markit IG narrows to 79bps from 83bps. High Yield Master II OAS narrows 6bps to 461bps, no deals yesterday; effective duration 4.33 from 4.34. CDX High Yield rose to 105.31 from 104.60; YTD range 101.03 (June 24), 107.37 (May 8, record high)
Sovereign yields mixed, peripheral spreads narrow. Nikkei rises 1.48%, leading Asian markets higher. European stocks, S&P 500 futures gain. WTI crude and gold lower, copper gains
Market participants await earnings from JP Morgan due at 1200BST (0600CDT) and also Wells Fargo at 1300BST (0700CDT).

******

US Headlines

- Late yesterday, President Obama rejected a proposal from politically besieged House Republican leaders to extend the nation’s borrowing authority for six weeks because it would not also reopen the government.

There were also comments from a Boehner spokesman that US Republican leaders offered White House proposal to temporarily extend debt limit, appoint budget negotiators and begin talks to reopen, adding that no final decisions have been made.

- Fitch said it still expects an agreement to raise the US debt ceiling and that a default would only occur if US didn't honour interest/principal payment. Fitch added it would cut US IDR to RD until default event cured and that the US is unlikely to return to AAA in short term and medium term if cut to RD.

JPMorgan have taken certain precautionary measures with respect to money market funds, favouring liquidity over holding short-term bills.

******

Finally, here is the remainder of Deutsche Bank's overnight summary

The latest opinion polls indicate that Republicans appear to be getting more of the blame for the standoff. An NBC/Wall Street Journal poll released on Thursday found approval of the Republican Party at 24 %, which is a record low. Democrats won the approval of 39% of the U.S. public. In addition to that, the two highest profile leaders of the GOP’s 'Defund Obamacare' effort, Ted Cruz and Mike Lee, have also suffered a sharp fall in popularity according to the latest Gallup poll.

The overnight headline that Obama had sent the Republican proposal back to the drawing board caused a short wobble in overnight markets. But sentiment has since bounced back with S&P 500 futures recovering from the early lows to post a .0.1% gain as we type. Asian equities are having a solid day led by the Nikkei (+1.3%), Hang Seng (+1.3%) and KOSPI (+1.1%). Regional credit markets are around 5-6bp tighter in both cash and CDS, while AUDUSD and USDJPY are both up +0.3%.

So a possible 6-week breathing space is undoubtedly a relief for markets if it happens but will be tempered by the fact that we may have a repeat nearer Thanksgiving. So its kicking the turkey down the road perhaps. We've always found it almost impossible to believe that the US will see a default because of these wranglings and would feel the same about where we might be in a few weeks time. So resolutions are always by far the most likely outcome but it doesn't mean there won't be fear and choppiness on the way. Perhaps 1am is the new midnight. So this remains an ongoing story but one that is increasingly looking likely to lead the Yellen Fed into 2014 without tapering.

On the topic of tapering, Joe LaVorgna wrote a piece overnight looking at some of Yellen's speeches this year and potential implications for Fed policy. The first thing to note is that while Yellen has notably “toughened” her inflation rhetoric over the past year, she is acutely focused on the long-term economic damage inflicted by extended periods of labor market slack. Second, she focuses on long-term unemployment and its associated risks, including skill atrophy and the potential for household credit problems. The ranks of individuals out of work for more than half a year has steadily declined since mid-2010, although it remains roughly double the average of the prior economic cycle. Regardless of which labor metric that the next Fed Chair is watching, all of these metrics remain well outside of the range which the “dovish core” of the FOMC would deem a substantial improvement in the labor market—the necessary precondition for ending QE. This may not happen by the December 17-18 Fed meeting, so the QE taper may not commence until Yellen’s first meeting as Chairman in March 2014.

Back to yesterday's markets, the hope of a deal pushed the S&P 500 to its second best day of the year (+2.18%) yesterday, only surpassed in 2013 by the January 2nd relief rally after the fiscal cliff resolution. So a theme is developing here. To give some perspective though, the sharp rally only puts us back to where we were last Wednesday. Elsewhere, the yield on the October 17th Treasury bill fell by 17bp to 0.308%. This is still at an elevated level compared to recent history, but much lower than Wednesday’s high of 0.478%. There remains a lot of focus on a number of dealers who have been cautious on accepting ultra-short dated T-bills as collateral for repo transactions. The Hong Kong Exchange has imposed a 3% haircut on treasures with maturities of less than one year in margin requirements for index futures and options, up from 1% previously. The haircut for Treasuries of longer maturities is not affected (Bloomberg).

10yr UST yields closed 2bp higher at 2.68% but the move higher was partly stalled by weaker than expected initial jobless claims data (374k vs 311k expected, affected by data quality issues and the Government shutdown). A solid result at yesterday’s 30yr UST auction also saw yields come in a touch. Speaking at the Economic Club of New York late yesterday, Draghi reiterated the Governing Council’s easing bias and said that the bias provides for further rate reductions should this summer’s volatility return. There was some brief weakness in EURUSD on the back of those comments (EURUSD ended at 1.352 yesterday), but has since rebounded to its current level of 1.354 in the overnight session (+0.15%).

Apart from the developments in Washington, today marks the start of the reporting season for the large US banks. First off the mark is JPMorgan who reports prior to the opening bell today. Bloomberg consensus is centreing around a $24bn and $1.29 print for Q3 revenues and EPS respectively, but as always the underlying trends will be closely scrutinised. Apart from ongoing legal settlement issues, one of the areas of scrutiny is JPMorgan’s mortgage business and the impact of recent rate rises there. The company recently warned of mortgage origination losses in the second half of this year. The other area of interest is fixed income trading revenues, where there is an expectation that the bulge bracket banks have struggled in Q3 due to the volatility in both EM and DM bond markets and a drop in client flow. Wells Fargo, a bellwhether for the mortage and housing sectors, reports shortly after JPMorgan and the focus there will be mostly on momentum in the mortgage business and the impact of cost cuts.

Turning to the day ahead, markets will again be at the behest of developments on Capitol Hill, with some talk from Republicans suggesting a deal as early as today could be possible in an effort to reopen government on Monday. It is entirely possible that talks could continue over the weekend though, which would ensure a gappy open to Asian markets on Monday. IMF and World Bank meetings continue today. On the data front, German/Spanish/Italian CPI is scheduled to be released today. In the US, the UofMichigan consumer report for October will provide an indication on whether confidence has been dented by the government shutdown. China reports September trade numbers tomorrow.

Catharsis Ours

Friday, October 11, 2013

Government shutdown news for Day 11 - October 11 , 2013 - outline for a kick the can deal surfaces but of course more drama , twists and turns like ahead before that nothing burger is even agreed upon ......