Oil and repo
Sept 17, 2019
–Two surges yesterday: WTI crude up 15% in the aftermath of drone attacks on Saudi oil infrastructure, and the overnight repo rate soared to 3.68%, a jump of 140 bps. The latter was reportedly due to a corporate tax date, as companies withdraw funds from the banking system to make payments, and due to upcoming treasury supply. The most immediate reflection in futures was a decline in FFV9 to 9809 where it settled, down 1.5 on the day. The October 3-month serial eurodollar contract settled 9785, down 2.5 and traded 9782 overnight. 1-month SOFR contracts fell the most with Sept and Oct -3.5 bps to 9786 and 9800.5 respectively. An article on BBG noted that there were issues with the secured funding markets; the question is whether this is a temporary blip or something likely to fester. With the Fed expected to cut by 25 tomorrow (and perhaps provide another tweak to IOER), at its low, EDV9 was 3.5 bps below yesterday’s settle in EDU9 (9785.49). Of course, EDV covers the turn, but since Dec 31 is a Tuesday, the turn is short.
–FFV9 to FFJ0, a period which encompasses 4 FOMC meetings, declined 7.5 bps to -44.0 (9809 and 9853.5). So, ignoring near-term funding issues, I suppose the market is still projecting nearly 2 eases over that time frame.
–Stocks essentially ignored the news going into Friday’s quarterly option expiration. SPX fell just over 9 points, 30 bps. Did they unleash the plunge protection team with stocks near all time highs? Are they easing with unemployment near all time lows? Might as well use the strategic petroleum reserve to tamp down the price of oil as well.
