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Overnight

Economic Indicators Released Friday

Things are looking bleak in Australia where investors (read mortgage holders) are astonished that the the next interest rate move may well be up. That's what interest rate futures are telling us. Certainly PPI on Friday, after a horror CPI print during the week, is telling us that.

Elsewhere China reports were slightly negative as was another negative Canadian GDP.

In the US, the Administration is pushing the FED to the brink, and the FED is not helping itself.

All all sorts of speculation is breaking out.

Partly fuelled by Powell, is there is a liquidity crisis in the US? 

That may well  turn out to be true, but a clear understanding of the plumbing of the financial system is needed to make a good judgement.

Let's clear up a few technical points being discussed on social media at the moment.

Bank reserves have been dropping.

What Are Bank Reserves?

Bank reserves, crucial to financial stability, are the minimum cash reserves institutions must maintain to meet central bank mandates. Held either in vaults or at the central bank, these reserves ensure banks can manage unexpected withdrawals and play a vital role in both economic stability and monetary policy. Investopedia

If bank reserves are dropping, banks aren't lending so much and don't need as much reserves. 

Standing Repo Drawdowns 

The securities repo facility at the FED is where banks can borrow cash against collateral, usually US treasuries. Currently SOFR, the cost of borrowing against collateral between banks, is higher than the FED Funds rate i.e. it's cheaper for banks to borrow via REPO.

US Treasury General Account

Up to nearly 1 trillion dollars in the account at the moment. I agree with the conspiracy theorists that Treasury is trying to take over liquidity management from the FED. But with the Government shut, Treasury has no bills to pay and tax revenue continues to come in. It'll be really interesting to see how much gets drawn down to catch up with the bills.

Oh yes, and a US/China trade deal.

Equities managed to go down but closed higher.

Breaking

Dallas Fed President Lorie Logan: “I did not see a need to cut rates this week.” [Dallas FED]

Fed's Waller calls for December rate cut, as hawks press for policy pause [Reuters]

Precious Metals / Commodities

Gold closed at 4,000 on Friday but could well see another leg down. The world wants to back up the truck at 3,500 so it probably won't get that low. On the monthly chart, price is overextended and 3,750 would be a nice pullback.

There's a lot of commentary around China's removal of a tax incentive for Gold ownership.

GOLD/USD Monthly

Ditto Silver, price went way too high and so we have had a small pullback. Anybody that thinks the drop was big, hasn't seen the end of a bow-off top before. Nowhere close.

SILVER/USD Monthly

More supply coming from OPEC and price looks to be approaching a gap down. Geopolitics will keep it interesting but the backdrop of a slowing US economy and the continuing slowing of the Chinese economy, will keep prices lower. 

SPOT BRENT Monthly

Bitcoin (& Crypto)

For the bulls in the last 2 months of the BTC cycle, price is a thousand cuts per day. Zooming out we're moving more in steps up with long waits in between rapid price increases.

BITCOIN/USD Monthly

CRE / Banks / CLOs 

More CRE haircuts, more auto bankruptcies and more credit card delinquencies. What's going on with the plumbing of the financial system may well be banks beginning to wash out the bad debt. They've kicked the can along the road for long enough.