Range bound

spoos

Above is chart of Pit Spoos. Over the last 2 trading weeks they have been contained to a 16 handle range.They cannot trade above 2169   or below 2153,regardless  of what economic number has been released or central bank meeting or earnings.It is stuck.Summer doldrums? quite possibly  or it is just waiting for payroll Number to see what impact it may have on  Fed  rate hike probabilities.Either way it stinks  for trading.

ugly GDP

GDP missed expectations by a large amount 3 standard deviations.Consumer spending  was a touch below  consensus  but still a solid increase of 4.2%.This likely will cushion some of the blow  from Weak GDP.The areas where GDP   was disappointing was a big drop in Inventories( this  most likely to be revised at next release) Government spending was down .9,first drop in 5 quarters.Nonresidential Fixed investment   ,Business spending , was down  again for the  3rd consecutive quarter.An ugly number

Dollar Reacted as you would expect  and bonds have caught a bid.Spoos dipped  but really don’t seem to care.Consumer spending  Buffering the blow from Lower GDP it seems.Looks like the consumer will have to carry the load again

ECB Coeure talking rates

Alerts History
* 28-Jul-2016 01:01:31 PM – ECB’S COEURE SAYS CENTRAL BANKERS SHOULD HOWEVER BE MINDFUL OF A POTENTIAL “ECONOMIC LOWER BOUND”, AT WHICH THE DETRIMENTAL EFFECTS OF LOW RATES ON THE BANKING SECTOR OUTWEIGH THEIR BENEFITS
* 28-Jul-2016 01:01:55 PM – ECB’S COEURE SAYS THERE CAN BE CUMULATIVE EFFECTS ON FINANCIAL INTERMEDIATION AND FINANCIAL STABILITY IF RATES REMAIN VERY LOW FOR A VERY LONG TIME
* 28-Jul-2016 01:02:24 PM – ECB’S COEURE SAYS THE ECB’S MONETARY POLICY MEASURES, INCLUDING THE DEPOSIT FACILITY RATE SET AT ITS CURRENT NEGATIVE LEVEL, ARE PROVING TO BE EFFECTIVE IN LIFTING INFLATION TOWARDS ITS MEDIUM-TERM OBJECTIVE
* 28-Jul-2016 01:03:11 PM – ECB’S COEURE SAYS IT IS DIFFICULT TO KNOW HOW LONG THESE LOW INTEREST RATES WILL PERSIST, BUT IT SEEMS POSSIBLE THAT THEY WILL BE LOW FOR QUITE SOME TIME.

 

 

BOJ headlines

Alerts History
* 28-Jul-2016 12:46:44 PM – BOJ, UNDER PRESSURE FROM JAPAN GOVERNMENT, CONSIDERING SPECIFIC EASING STEPS FOR FRIDAY DECISION – SOURCES
* 28-Jul-2016 12:46:44 PM – JAPAN MOF HAS PREPARED DRAFT STATEMENT TO RELEASE IN EVENT BOJ EASES POLICY – SOURCES

Under govt pressure, BOJ mulling specific steps for easing-sources – Reuters News

28-Jul-2016 12:51:23 PM

TOKYO, July 29 (Reuters) – The Bank of Japan, under pressure
from the government, is considering specific steps for expanding
monetary stimulus on Friday to address signs of weakness in
inflation, people familiar with its thinking said.
By timing its action with the government’s big fiscal
spending package, the central bank would aim to maximise the
boost of its measures on the world’s third-biggest economy,
struggling to escape decades of deflation, the sources said.
The Ministry of Finance is lobbying hard for the BOJ to ease
policy further and has prepared a statement it will publish in
case the central bank eases.
“We welcome the BOJ’s decision and will deploy all necessary
policy steps including a scheduled big stimulus package,” says a
draft statement seen by Reuters.

(Reporting by Leika Kihara, Minami Funakoshi, Takaya Yamaguchi
and Sumio Ito; Editing by William Mallard)
((leika.kihara@thomsonreuters.com; +813-6441-1828; Reuters
Messaging: leika.kihara.reuters.com@reuters.net))

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sentiment Sour

Oil and weak biotech stocks weighing on Sentiment .Oil related stocks down .5% and IBB    -.7% Spoos lower by a couple of  handles.The front month  price of  CL is approaching the 200 D MA(40.73) this is measured on a continuation chart so it packs a little more punch than focusing on a certain months 200d MA.Just nothing bullish to say about oil.Offsetting the weakness in Biotech is FANG stocks which are all higher this morning.Trend in Risk is lower.

Waiting on 7 year auction results later this afternoon. This quite possibly hindering any type of up move in treasuries due to weak oil prices.Bank Of Japan tonight also may be keeping some players on the sidelines.No clear direction for bonds  unless sideways is one.

Nat gas storage report missed expectations by 2 standard deviations to downside ,coming out at 17 vs  f/c of 26.This is a surprisingly small build during the month of July ,nat gas sits higher by 174 ticks.

With Summer vacations in full swing ,Summer  markets need some type of event risk to move out of sideways ranges.next friday  payrolls and August 26th yellen  speech are next on the calendar.

Guess the chart

 

  This is a daily chart of closing prices for a commodity. It has been on an incredible run higher since mid June.This is a Chart of palladium,which is up 27% over the last month.Shortage of this precious metal  and also a nice haven in times of distress are the main cause for run up.pall

Fed preview

    No change in rates  and very few changes expected  within the statement. The Fed I believe  won’t commit to a September hike due to the amount of data that will be released before they meet again.2 payroll and cpi reports before next meeting. Too much risk in committing to something  with so many variables to that prediction.Also Fed has plenty of Pie in its face as its past predictions have proven unreliable.

They most likely will upgrade labor market assessment,Hint at steady growth  but still  have worries about  Inflation meeting goals.Maybe a touch hawkish statement and no firm commitment to September or even December hike.

  • A  subtle signal that rate hikes are closer to becoming reality  A dissenter at today’s meeting,most likely Esther george.

  • A strong Signal for September Rate Hike the fed re- introduces a balance of Risk Statement hinting at risks to upside( highly unlikely)

  • A dovish Sign No change to labor market sentiment,And household spending declining

The first paragraph of the June statement below discusses economic outlook.The red text is where we could see Changes.

  Information received since the Federal Open Market Committee met in April indicates that the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up. Although the unemployment rate has declined, job gains have diminished. Growth in household spending has strengthened. Since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened, but business fixed investment has been soft. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

Watch dollar for immediate reaction and then I will update any changes   In the fed probability for a rate move.

Current probabilities for fed move:

fed prob

Bonds

  Buy’Em up the motto for today in Fixed income complex. Gilts +100 ticks,European 10 year bond yields see France -6Bps,Germany -5,italy -3 Bps.Poor Retail sales For July Out OF UK shows first glimpse of post Brexit Demand and thus a stong case for lower rates.Japan’s new fiscal measures announced overnight increases pressure on BOJ to provide more stimulus at tomorrow’s meeting.

    Lastly ECB  will eventually provide more stimulus as well.All of this adds up to more Demand for Bonds or Fixed Income instruments.Just to mention again central banks are providing   $180B per month in QE  and expected to add more! Throw in the Sub Par Durable goods numbers today and lower oil prices  you have a nice mix  For the Bond bulls.