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News & Views: Tuesday, September 30

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What you need to know for today's trading day.

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This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time.

Jordan Says SNB's Arsenal Includes Negative Interest Rates (Bloomberg)

Hong Kong protesters stockpile supplies, fear fresh police advance (Reuters)

Strong dollar, rising volatility mark third-quarter markets. Same again in fourth quarter? (Reuters)

Bill Gross Gets 'New Neutral' Endorsement on First Day at Janus (Bloomberg)

EBay to Spin Off PayPal Business (WSJ)

Views
Some of the affected assets in China and Hong Kong are snapping back this morning. On a risk-adjusted basis, the Chinese Yuan and Taiwanese dollar have retraced half of their losses from yesterday in the overnight session. The CNY is showing the largest positive risk-adjusted return across all assets as well. The Hong Kong dollar is making a small turn to the upside, but it's only a fraction of the 0.22% losses from the last three days (the equivalent of four standard deviations, an enormous sustained move). This is a minor positive for risk assets overnight, yet the Hong Kong Hang Seng index remains under pressure and sported the worst equity performance.

Many of the equity and credit measures that weakened significantly yesterday are snapping back this morning. Those include US and EU CDX indices, European stocks, US stocks, and Russian stocks. The border conflict between Turkey and Syria remains on simmer for the moment as the former contemplates military action against Islamic State.

The major positive for risk assets this morning comes from the weakness in the Euro. Earlier this morning, preliminary September price data for the eurozone fell to a year-over-year rate of 0.3%, as expected, from 0.4% in the month prior. The drop was mostly due to the significant drop in energy prices, the worst sustained drop in five years. The more significant datapoint is the core reading, which fell to 0.7% (versus 0.9% expected), and is causing the negative price adjustment - and most likely causing some indigestion for ECB policymakers. The response from the marketplace has been to incrase the volume on the rhetoric calling for a larger size to the ABS program at this week's meeting. The ECB will meet on Thursday and it is now expected that the central bank will enlarge the scope of its asset purchase program in some form - they are tapped out on rate cuts. They will most likely not roll out public asset purchases yet - that's their trump card that they're going to keep face down on the table. By offering TLTRO's at near-zero rates to only be used for loans, they are incentivizing banks to make loans because through their ABS purchase program, they are simply buying back the securitized loans on the other side - at its core a central bank sponsored loan.

Interestingly, as Bloomberg economist Niraj Shah points out this morning, over the last nine straight releases of Eurozone preliminary CPI, the Euro has strengthed irregardless of whether the report was better or worse than expected.

The Swiss franc is showing the second largest negative risk-adjusted return in currencies overnight if pegged against the dollar. Yesterday evening, Swiss National Bank President Jordan said that the central bank would use negative interest rates and any other supplementary steps to ensure its price stability mandate and defend its 1.20 EURCHF cap. Although the CHF has weakened against the dollar, it remains near that cap when pegged against the Euro, thanks to a further 3% decline in the currency of its neighbors. Thus it will likely need to call on those supplementary measures in due time.

Overnight Data:
- Eurozone CPI YoY (Sep advance) down to 0.3% vs 0.3% expected, prior 0.4%
- Eurozone core CPI YoY down to 0.7% vs 0.9% exp, prior 0.9%
- German unemployment rate (Sep) unchanged at 6.7% vs 6.7% exp
-- change up 12K vs -2K exp, prior 3K
- German retail sales MoM (Aug) up 2.5% vs 0.5% exp, prior -1.1%
- Japan jobless rate (Aug) down to 3.5% vs 3.8% exp, prior 3.8%
- Japan retail sales MoM (Aug) up 1.9% vs 0.5% exp, prior -0.5%
- Japan industrial production MoM (Aug prelim) down -1.5% vs 0.2% exp, prior 0.4%
- UK GDP (2Q final) QoQ up to 0.9% vs 0.8% exp, prelim 0.8%

US Economics (Time Zone: EST)

09:00 ISM Milwaukee (Sep) - expected 61.0, prior 59.63
09:00 S&P/Case Shiller 20-City Home Price MoM (Jul) - exp 0.00%, prior -0.20%
09:00 S&P/CS YoY - exp 7.40%, prior 8.10%
09:45 Chicago PMI (Sep) - exp 62.0, prior 64.3
10:00 Consumer Confidence Index (Sep) - exp 92.5, prior 92.4
11:30 Treasury to sell 4-week bills

Fedspeak

10:45am Powell (moderate, board) speaks in Washington

Earnings

Before:
Walgreen (WAG)

Twitter: @MichaelSedacca

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No positions in stocks mentioned.

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