[Chart courtesy of MarketWatch.com]

1. Moving the markets

An early rally turned into a beating with the major indexes heading south all session long. The culprit was identified as downright ugly manufacturing information that had stocks and bond yields plunging.

The ISM manufacturing report came in at its worst level since 2009, as the index dropped to 47.8 in September from a prior 49.1. Expectations were for a 50.2 number. Any reading below 50 signals contraction, while any reading above signals expansion.

To many analysts, this was simply confirmation of an ongoing global slowdown and the conviction that US-China trade talks don’t look like they could contribute anything worthwhile in the near term.

Some of the brokerage houses imploded today, at least their stock prices did, when Charles Schwab came out and announced that they will do away with the $4.95 trade fee and offer zero commission for most stocks, ETFs and options as of October 7. While that will benefit all of us, brokerage businesses are extremely competitive and other firms will have to follow suit.

Disclosure: I have used Charles Schwab & Co as my custodian for clients’ assets since 1990, and I receive no compensation or any benefits from them.

Not covered by MSM is the continuing saga of the overnight lending issues between banks, as the Fed had to step in again this morning to financially “rescue” some of the participants. Not much is known as to what caused this problem, but it smells like a hidden bailout to me.

Analyst Sven Henrich had this to say:

We’re in the middle of an existential crisis. We must be. That’s what central bank policies are telling us.

After all the ECB cut rates to the lowest ever with its balance sheet being at record highs and expanding.

The central bank of Australia today cut rates to their lowest levels ever.

These are policies of absolute panic crisis levels are they not?

The Fed is intervening in repo markets every single day barely able to keep the effective Fed funds rate at target. They’ve already cut rates twice and are already expanding their balance sheet.

Without these interventions markets and the economy would fall apart. That’s the message that is being sent.

In any other time in history all these policy actions and their levels would be regarded as commensurate with a great crisis unfolding.

ZH summed the day up this way:

The moves today were quite shocking: Dow futures dropped 500 points from their overnight highs, 30Y Yields crashed 13bps from overnight highs, the dollar tumbled 0.6% intraday, and gold spiked $30. Additionally, rate-cut odds for October jumped higher to 60%…

I am sure that the month of October will have more surprises in store.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

I mentioned last Friday that we would need a good trade headline to give stocks a boost. That is exactly what happened but not the way you think.

There was no news in US-China trade arena, so the Trump administration came out and played down or disputed reports that they were considering blocking Chinese companies from listing shares on US stock exchanges.

The net effect was that Friday’s dump after that announcement was reversed and equities pumped on this last day of September and maintained their positions above the unchanged line all the way into the close.

For the month, the major indexes ended up barely in the green, but the S&P 500 gained +1.74%, while for the quarter, all indexes were higher with SmallCaps having an ugly close. Still, my favorite low volatility ETF (SPLV) managed to come out ahead by posting a solid +2.06%.

Not doing so well were the FANG stocks, which fell for the third straight month in September and had their worst quarterly drop since Q4 2018. ZH noted that we heard some economically encouraging news in that September saw one of the biggest surges in economic surprise data since January 2009.

Still, we’re now looking straight in the jaws of October, which historically has been a month where anything is possible.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

The markets were trading in the red for most of the session, as the latest trade headlines pushed equities further south and then gave traders hope that optimism is warranted.

When things looked bleak at mid-day, Reuters managed to provide the algos with some ammo to drive the indexes out of the doldrums and back up to their respective unchanged lines using the following:

• CHINA’S WANG YI SAYS HOPES BOTH SIDES CAN TAKE ‘MORE ENTHUSIASTIC MEASURES,’ REDUCE PESSIMISTIC LANGUAGE AND ACTIONS IN TRADE DISPUTE – RTRS
• CHINA’S WANG YI SAYS ‘IF EVERYONE DOES THIS, TALKS WILL NOT ONLY RESUME, BUT WILL PROCEED AND YIELD RESULTS’

Despite that effort, the unchanged lines proved to be overhead resistance, and we sold off into the close, but with only modest losses.

Adding to the negative early sentiment was the Trump Administration confirming that it’s “unlikely to extend temporary wavers to supply Huawei.” That reinforced that the US-China trade deal is simply not getting closer to an agreement, even though other headlines attempt to prove that a deal is close.

Real Estate provided some optimism when Pending Home Sales rose 2.48% YoY, which was the biggest annual jump since April 2016, but it was simply not enough firepower to restore bullish momentum.

The overnight liquidity shortage, also known as the funding disaster, keeps getting worse with the Fed as lender of last report supplying some $60 billion in liquidity after yesterday’s $92 billion.

No one has really come out to explain the source of the problem and if it might be just a quarter ending issue. MSM does not report about it, but somewhere the financial plumbing in our system has sprung a leak.

One analyst posed the thoughts that have been on my mind as well:

• It’s great that the Fed is pumping liquidity into the system, however, why were the existing operations insufficient?
• As of today, the Fed had injected $105 billion in liquidity into the Repo market, but rates were still stubbornly high. Whatever changed last week to cause the funding spikes is clearly still a problem.

If this problem is not resolved quickly but spreads even further, equity markets will eventually be negatively affected.

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