By Laura Curtis
Pressure is mounting on the Federal Reserve to take more aggressive steps to address stress in U.S. funding markets as swap spreads tumbled to record lows Thursday. The New York Fed is planning a fourth temporary liquidity injection Friday, and the moves have helped to allay concern after repo rates soared to 10% Tuesday. Still, the dollar-funding squeeze could get worse with the end of the quarter approaching, raising the possibility that liquidity-providing banks will retreat to close their books and meet capital needs. Meanwhile, another round of Treasury auctions next week could leave markets short an additional $45 billion in cash. Over in China, analysts called for stronger easing signals after the People’s Bank of China only slightly lowered the one-year reference rate for bank loans, a new gauge of borrowing costs.
The pound jumped to its highest level against the dollar in two months after European Commission President Jean-Claude Juncker said a deal on Brexit is possible before Oct. 31. But the pound’s buoyancy may be short-lived. Irish Foreign Minister Simon Coveney said Britain’s Brexit proposals lack credibility so far, and a deal is “not close.” But fear not. Deal or no, the Port of Dover is “100% ready” to cope with any disruption caused by Brexit, according to its CEO. Meanwhile, the U.K. Supreme Court is set to issue a verdict early next week after it spent three days listening to testimony about the lawfulness of Prime Minister Boris Johnson’s suspension of Parliament.
Mitsubishi Corp. said a rogue oil trader lost the company $320 million in unsanctioned derivatives deals since January, disguising them to “look like hedge transactions.” The employee hired to handle the Singapore unit’s oil trade with China has been fired and reported to the police. There’s some bad news from Rolls-Royce, too, as the company said Friday it’ll take until the second quarter of next year to fix problems with its Trent 1000 aircraft engine. The engine’s design glitches are affecting carriers including Norwegian Air Shuttle by keeping certain Boeing Co. 787 Dreamliners on the ground and have cost Rolls-Royce about $1.7 billion in charges since 2016.
Overnight, the MSCI Asia Pacific Index gained 0.4%, while Japan’s Topix index closed little changed. Stocks in India surged after the country cut its corporate tax rate. In Europe, the Stoxx 600 Index was 0.3% higher at 6:09 a.m. Eastern Time, with retailers the best performers on the gauge. S&P 500 futures pointed to a higher open, the 10-year Treasury yield was at 1.777% and gold was trading above $1,500 an ounce.
Friday is quadruple witching day for U.S. markets, when the quarterly expiration of futures and options on indexes and stocks occurs on the same day, meaning surges in volatility and trading can follow. A Chinese delegation is meeting with U.S. counterparts for a second day ahead of a visit to America’s farm belt next week.