Articles from the Experts

The Federal Reserve is expected to conclude its December meeting on Wednesday afternoon by signaling it’s in no hurry to do anything to change its neutral stand on interest rates.

But Fed Chairman Jerome Powell is likely to promise the central bank will do whatever is necessary to keep liquidity high and overnight lending rates steady at the end of the year, a time when the short-term lending market is typically under the most pressure.

The Fed releases its post-meeting statement at 2 p.m. ET Wednesday, and it is not expected to make significant changes in its statement from its previous meeting. It will, however, release its interest rate forecast and latest economic projections at the same time, and it could show some improvement particularly after November’s increase in payrolls of 266,000.

Powell then speaks at 2:30 p.m., and he could be asked about the short-term lending market.

Cash crunch

“I think what I’m going to be looking for most carefully are probably changes in the forecast. Some of the numbers have been quite good,” said Drew Matus, chief market strategist at MetLife Investment Management. Matus said he expects the Fed to stay on hold for another year, so he sees no change in its messaging. “They’ll probably drop the rate for unemployment. We’re seeing them coming down and we’re not seeing a pickup in inflation.”

One of the hotter topics around the Fed has been the repo market. The Fed is conducting overnight and longer-term operations to keep the market operating smoothly. It is also conducting a quantitative easing-like operation to increase its holdings in Treasury bills, boosting the size of its balance sheet and adding to liquidity.

“They’ve been pretty flexible so far and [I] don’t see why that would change. I think a simple ‘whatever it takes’ tomorrow will be all he’ll really need to say about the issue,” J.P. Morgan chief U.S. economist Michael Feroli said in an email.

Economic forecasts

Feroli expects the Fed to repeat that uncertainties remain. Powell has been clear that trade issues are a potential negative and the world awaits Sunday’s deadline President Donald Trump set on potential new tariffs for China if there is no trade deal. “The Fed will monitor the data and assess the “appropriate path” of the funds rate; in other words, it will continue to convey no policy bias. We don’t expect any dissents,” Feroli said in a note.

The Fed could adjust its forecast for the fed funds rate when it releases its forecast, presented in a chart called the dot plot. The dot plot contains all the interest rate forecasts of Fed officials. The Fed cut rates for the third and final time in October, dropping the fed funds target range to 1.50% to 1.75%.

“We expect the median dot for 2020 will be lowered to the mid-point of the current target range, 1.625%. While there will likely still be some dots looking for a hike or two next year, we suspect the large majority of the Committee will be comfortable projecting no change for policy rates in the year ahead,” Feroli said.

Market pros have been waiting to hear what the Fed will say on the short-term lending market. Repo is a corner of the financial markets that is obscure to most people, but it has been in the spotlight since an unusual spike in rates in September.

It is extremely important since it is where institutions go when they need short-term cash. They typically exchange some collateral, like Treasurys or mortgage securities, for a short-term loan. It is considered the plumbing of Wall Street, and the worry is if it doesn’t work or if it shows stress, then it could lead to real trouble in the financial system.

Matus doesn’t expect the Fed to make any proclamations about the repo market Wednesday. “They’ll certainly be asked about it in the press conference,” Matus said. “He’s going to have some sort of answer. Whether this is sufficient to make people happy is a whole other question. I don’t think they want to put in place a solution that they’re not even sure they need on a permanent basis.”

He said open market operations appear to have the problem solved for now. “I think they’re not even really sure what’s happening. They made some changes to try to be more positive, to try to take some of the pressure off the market,” Matus said. “It’s not ‘if it’s not broken, don’t fix it.’ It’s more like ‘if you don’t know why it’s broken, don’t fix it.’”

The repo market faces pressures at quarter-end, since banks are under pressure to make their balance sheets appear safe, and even more so at year-end for regulatory purposes. That means they don’t want to show a tremendous amount of short-term liabilities on their balance sheets at quarter-end. Interest rates in the repo market have been slowly rising, as the year-end gets closer.

“If you want to lock up funding over year-end for December 31 to January 2, you would pay 4.20% for Treasury general collateral,” said Michael Schumacher, Wells Fargo director of rates strategy. “That price two weeks ago was 3%. It’s actually been moving up gradually. It seems to be ticking up fairly steadily.” He said last year that the rate rose as high as 5%, so that would be possible.

Schumacher said it would not be surprising to see the Fed add more funding to the market temporarily.

The rate spikes in September have been blamed on everything from corporations seeking short-term funds to pay taxes to changes in banking rules that hindered lending.

Major banks that are the primary dealers are the only institutions that can use the Fed facility, and they then would be lenders to other institutions that need capital. But they could also serve as a bottleneck since they are not required to report how the short-term funds are being used

Source: https://www.cnbc.com/2019/12/10/fed-is-expected-to-hold-rates-steady-vow-to-keep-short-term-markets-stable.html

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U.S. markets were sluggish to start the week after trading in tight ranges and on both sides of the ledger while settling slightly lower for the session. The cautious action comes ahead of a week full of potentially market-moving events, including the FOMC meeting midweek, an overseas ECB meeting and the UK election.

Also looming is the December 15th deadline for additional U.S. tariffs on Chinese goods along with a possible USMCA deal. Meanwhile, volatility was slightly elevated as the spike towards near-term resistance levels is signaling continued nervousness in the market over the near-term.

The Dow declined 0.4% after trading to a late day low of 27,906. Prior and upper support at 28,000-27,800 was breached and failed to hold with a close below the latter signaling additional risk towards 27,600-27,400.

The Nasdaq was also off 0.4% following the pullback to 8,619 while trading in a 59-point range. New and upper support at 8,650-8,600 was breached and failed to hold with a close below the former getting 8,500-8,450 back in focus.

The S&P 500 fell 0.3% after closing on the session low of 3,135 and trading in a 13-point range. Near-term and upper support at 3,125-3,100 easily held with a move below the latter being a renewed bearish signal with downside potential towards 3,075-3,050 and the 50-day moving average.

The Russell 2000 also dropped 0.3% and closed on its session low of 1,629. Current and upper support at 1,630-1,615 was breached and failed to hold with a close below the latter signaling a further backtest towards the 1,600 level.

Consumer Discretionary, Consumer Staples and Real Estate were the only sectors that showed strength after rising 0.1%. Healthcare was the leading sector laggard after falling 0.7% while Technology was lower by 0.5%.

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Here are the most important things to know about Tuesday before you hit the door.

1. Fed meeting begins

Federal Reserve’s Federal Open Market Committee starts its two-day policy meeting on Tuesday. Markets widely expect the central bank to hold interest rates steady at the conclusion of the meeting Wednesday after cutting rates for three straight times this year.

“The dot plot and Chair Powell’s press conference should suggest that policy will remain on hold for the foreseeable future (although the Fed will ease if conditions warrant),” Scott Brown, chief economist at Raymond James, said in a note on Monday.

As revealed in the minutes from its October policy meeting, “most” FOMC members saw the cuts this year as enough “to support the outlook of moderate growth, a strong labor market, and inflation” near its 2% target.

2. A North American trade deal?

While the U.S. and China face a Dec. 15 deadline in the form new tariffs as they seek to reach a phase one agreement, the Trump administration marched closer to a trade deal with Mexico and Canada.

House Democrats and the Trump administration are near a deal to replace the United States-Mexico-Canada Agreement after more than a year of deliberations, sources told CNBC.

If the White House sends ratifying legislation to Congress by Dec. 15 to kick off the approval process, the Democratic-held House could vote on ratifying the USMCA by Dec. 18, sources told CNBC. The USMCA vote could come in the immediate aftermath of a vote on articles of impeachment against President Donald Trump, sources said.

3. Small business optimism, productivity

We’ll get a read of small-business owners’ confidence in the U.S. economy. The National Federation of Independent Business will release its latest Small Business Optimism Index for November on Tuesday.

Economists polled by Dow Jones expect the index to climb 0.4 point to 102.8. Small-business activity in the U.S. accounts for nearly half of private-sector jobs.

Investors will digest other economic data on Tuesday including non-farm productivity and unit labor costs.

Major events (all times ET):

10:00 a.m. SEC chairman Jay Clayton testifies to U.S. Senate committee

11:00 a.m. NFIB Business Optimism Index Nov.

1:30 p.m. Labor Costs Revised Q3

1:30 p.m. Productivity Revised Q3

Earnings (all times ET):

AutoZone (before the bell)

HD Supply Holdings (before the bell)

Designer Bands (before the bell)

GameStop (after the bell)

Dave & Buster’s (after the bell)

Source: https://www.cnbc.com/2019/12/09/market-outlook-for-tuesday-fed-meeting-a-usmca-trade-deal-econ-data.html

I hope this article is helpful in your trading strategy.

PG&E Corp. has reached a settlement with victims of the wildfires that pushed California’s largest utility into bankruptcy, agreeing to pay them $13.5 billion in damages.

The pact removes a significant obstacle to PG&E’s emergence from chapter 11 protection and includes reforms meant to address criticism that the company enriched shareholders while leaving customers exposed to danger from aged, unsafe equipment, the Wall Street Journal reported.

PG&E PCG, -1.33%  bowed to demands for more money for fire victims and gave in to pressure from California Gov. Gavin Newsom to improve its corporate governance and implement stricter safety protocols. The governor’s office couldn’t immediately reached for comment about Friday’s development.

“There have been many calls for PG&E to change in recent years. PG&E’s leadership team has heard those calls for change, and we realize we need to do even more to be a different company now and in the future,” Chief Executive Bill Johnson said.

Robert Julian, lawyer for the fire victims, said that the settlement is an admission by PG&E that victims’ losses exceeded $13.5 billion and that the company is responsible for those losses.

The settlement with fire victims averts fights in two courts over how much the company must pay people who lost loved ones, homes and property to blazes that swept its service territory in recent years. State fire investigators determined that California’s deadliest and most destructive blaze, the Camp Fire, was ignited when a wire snapped free of a PG&E transmission line. The 2018 blaze killed 85 and destroyed the town of Paradise.

The deal is a win for the company, which has been wooing fire victims away from a rival chapter 11 plan proposed by bondholders led by Elliott Management Corp. PG&E is matching the bondholder offer and improving on its original offer of $8.4 billion in order to enlist support for its plan from fire victims.

Under the settlement, PG&E will pay half of the $13.5 billion in cash and half in stock, an important concession to fire victims who were concerned the utility’s stock could be a risky bet. The agreement grew out of talks between the company and lawyers for fire victims, as court fights loomed.

Lawyers for thousands of people affected by the fires have been preparing to show that PG&E is legally liable for blazes linked to its equipment. The utility was scheduled to face a jury in state court in a case that sought to hold it accountable for the Tubbs fire in 2017 that killed 22 and burned thousands of acres, mainly in Sonoma and Napa counties. Meanwhile, a federal judge in San Francisco was getting ready to hear from experts and witnesses about PG&E’s liabilities for a series of fires.

The settlement would halt those trials and ease PG&E toward a bankruptcy exit in time to qualify for a statewide fund designed to cushion California’s utilities against the rising risk of fires.

Source: https://www.marketwatch.com/story/pge-agrees-to-pay-135-billion-in-settlement-to-victims-of-california-wildfires-2019-12-07?siteid=rss&rss=1

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