Vice chairman Fischer appeared om CNBC and clarified chair Yellen’s comments He Said” Yellen’s speech Consistent with a September rate hike” Also Next Jobs report “Will weigh on rate hike decision.” Dollar higher,yen through support,yield curve flattens as Short end prices show a greater chance of September hike.Five years -7 ticks ultras -4! readjustment for sure. Higher dollar weighing on all Commodities with the exception of Oil as Rumors of a Yemeni missile having struck a Saudi oil installation keeps it bid.Stocks saw biggest sell program of the Month,based on Tick Data per BB and traded into a gap from early August.The move higher in dollar has shaken the markets out of the doldrums at least for a few hours.
In the Energy space The Tropical wave located near the bahamas is still providing worries.Model guidance shows possible track running into the gulf.All forecasts for now bu tit may keep a bid in the oil through the close.
Janet yellen’s first comments to hit wire were that Rate-Hike has Strengthened in recent months and that Fed is close to achieving goals on employment and Inflation.Dollar Rallied hard but as More comments filtered in Dollar turned lower.This is a problem with the News wires as they decide which headlines to put out first ,in this case a hawkish one.Yellen went on to repeat that Fed still data Dependent and she mentioned that it is getting harder to predict the path of Fed funds rate .This offset the initial hawkish move.The Content of Yellen speech based on her title was talking about tools the Fed has at its disposal so of course she would talk about QE,Forward guidance and the Like.This is not meant to be taken as fed leaning towards using these tools anytime soon,it is part of her Speech.There were only 3 paragraphs set aside for the Economy so not an extensive Discussion of current state of Affairs.Yellen did repeat what Vice Chair Fischer said last week that fed is “Closer to reaching goals on inflation and Employment”Closer is not a definitive answer to when rates will move higher.
Initially hawkish Yellen but upon Further review she didn’t mention anything new about the Economy still data Dependent and will make decisions based on Data.next weeks Unemployment report looms large as always! Little change in rate hike probabilities vs. pre Speech.
Out to the woodshed we go with soybeans they closed lower by 3%. Support has given and longs liquidating .The pro farmer tour of Crops have not reported anything Bullish for Soybeans.Crops looking real good .Not only have soybeans toppled But Soymeal as well it closed down 2.5% and Soyoil less bad only down 1%. The net longs in Soybeans have been liquidating and this probably won’t stop as Weather concerns abate and Support has broken.Aggregate soybean volatility was higher by 9.5% today,but the move lower was more orderly than Chaotic.
Corn finds itself lower as well .The pro farmer tour did offer some words of caution regarding Size of Corn Crop but it shouldn’t cause a bullish move. Crop will still be a record.
Overnight Currency vol. is closer to lows then highs,Indicating little worry that Yellen will rock the boat.The 25 Delta Risk Reversals Show less negative pricing since yesterday in GBP Indicating more calls then puts being bought ..Similar scenario In Yen more upside being bought then downside,the Euro is the opposite as the skew moves More negative and pricing in More of a downside move then upside.
US GOVTS: Flattener unwinds pre Yellen event risk, 5s/30s back in range – IFR News
25-Aug-2016 09:43:41 AM
BOSTON, Aug 25 (IFR) – Ever since the data dump this morning the curve has been
steepening, 5s/30s zipped near 3 bps steeper from near the regular futures
enhanced-liquidity open (108.5 bps) and have held session wides near 111.3 bps.
A huge block steepener went through the futures pit about an hour after the
data, and packed a powerful punch buyer of 23,752 FVUs while selling 17,119
USUs. The talk is that a large hedge fund is unwinding a profitable flattener
before the Yellen event risk at 10am ET Friday. Too there were a few decent
sized sellers in the mix letting go good size in 30s and sellers of the longer
belly as well.
However, the steepener blast which pushed 10s above 1.58% for the first time
since Monday did not find follow-through selling, to the contrary buyers both
fast and real money jumped in ripping 10-year yields right back to 1.565%.
The swift buying into the steepener blast likely was a billboard that 7s are
well spoken for, ample curve concession following decent outright concession
following earlier selling in gilts and bunds that were dragging UST yields
higher from earlier.
Quite healthy awards for 2s and 5s with high Indirects Tues/Wed suggest foreign
buyers have returned after a July month end supply hiatus. WI 7s are decent
value on the curve and always in demand for month-end extensions, however given
Yellen event risk and a weekend to boot will have dealer skeleton staff risk
profiles remaining low.Â
- Let’s take a look as some markets that are moving today.Most of these pay little attention to Yellen.
- Soybean oil 114 tick range down 32 tics or 1 % on day.
- Copper down 1.66% on day.Break of price Support due to low Imports into China.Prices at a 2 month low.
- British pound Brexit Shmexit trades at a 2 week high
- Live cattle tried to move higher but talk of lower Spot trade caused sellers to come in take prices into the gap from 7-22
With Most Markets on Yellen watch it pays to look at something that is not directly affected by fed decisions.
US Bonds being Impacted by Curve trades I believe.This very well could be profit taking from Curve flatteners before the event risk at end of week.BB telling US that a big block trade went through this morning in treasury complex Buying the short end and selling the long end.Also remember from this morning outlook lots of activity being reported in the Eurodollars,Euribors and Short sterling so this does give us some color on where the action is.European long end bonds show yields higher across the board as it is not just treasuries being sold. The broader markets trading risk Off which should be providing a bid into bonds,but it is not.When expected triggers do not provide the response we normally see something is afoot.This very well could be the Spread trade dictating the action. Find below the 2/30 and 5/30 yield spreads on a 1 minute chart.As spread steepens prices move higher.
Since 7:00 AM prices have moved straight up.Oil is down 2.5% and should put a bid into bonds.This very well may happen before the day is over.
I mentioned that it might be event risk or a hawkish Yellen driving the trade.If it was yield curve should flatten not perform as it is now.