Bond Yields

  • 30 year yields 2.59%  Highest since early June
  • 10 year yields 1.84% also highest since early june

Futures contracts on Both have traded to multi week lows as the pressure from the Sell in European bonds is too much to ignore.Current rate hike probabilities stands at 71.5 %   little changed from yesterday.The move higher in Oil due to OPEC comments about cutting supply  is also a negative for bond  prices this morning.One day Sell off  who cares,A 2 day sell off the beginning of a trend?

I ‘m curious to see how long Spoos can stop positive with sell off in Bonds?

Morning 10-27

2 day theme from Morgan Stanley:” Traders compounded supply pressures by adding to shorts and steepeners and reducing duration, as speculation about not as easy global monetary policy looking to next year and beyond also was picking up again.” Both DB and Barclays reported better than Expected earnings and this giving banks and risk a lift.UK GDP came out higher than expected and this has also caused Selling in the Gilts. Let’s think of this a second UK inflation expected and encouraged to move higher, Growth Not being impacted as severely as thought by Brexit yet. Growth and Inflation does make us Bullish Gilts does it now.10 year gilt Yield +9 Bps. And at highest level since June 23rd. Bund yields +6.4 Bps, France +5 Bps.,Spain and Italy +4 Bps. 30 year yields Buxl +8 Bps,France +7.5 Bps, and UK +5 Bps.Similar to yesterday outlook ,More sellers than buyers in the Fixed Income complex.
Other Stock news QUALCOMM is buying NXP semiconductors for $47 billion. Overwhelming majority of Companies that reported earnings this morning beat expectations. Yesterday tesla and Biogen beat.Spoos+7 handles but European Bourses are mixed due to lower bond prices.
Currencies in no hurry to do anything metals are enjoying a slight bid and oil is sideways. Yesterday’s hero Nat gas is up A touch but fireworks could still emerge as Storage number and contract expiration is today.
Peso down on the day as some polls have trump leading in Florida.

Nat Gas liquidation

Below is a Graph  of Nat Gas longs .This is one metric to measure the speculators position,The managed money category.They are (were) the  longest(most bullish) they have been in over 2.5 years.It seems everybody running to the exits at one time as prices collapse for the 4th consecutive day.Simple Example of a trade getting too crowded(everybody getting long)  and when the Liquidation does come, it comes quick.

cfcdommn-index-cftc-nymex-natga-2016-10-26-11-38-48

November was sold Aggressively on Monday( expires Tomorrow)  and the last two days it has been December.Today is different then the prior 2 days in that the Weakness is more pronounced in the Deferred months  then the front .

 

EIA Oil Numbers

Weekly oil Numbers are bullish , a big surprise.Crude oil reported a draw of  553 Barrels where markets were leaning towards a hefty build,Crude Oil snapped higher in a heartbeat, rallying Over 100 ticks.But number is not all that bullish as the majority of the draw happened in padd 5,  the west coast.Exclude that  Drop of 2.5 Mln Barrel  and Crude storage actually increased.The reason why  the West coast gets excluded is that most of their oil comes from Alaska,they are self-contained. Crude oil production also increased as well.

Oil products, gasoline and Distillates saw demand increase and reported storage numbers inline to bullish.I believe  distillate more bullish than gasoline number and would not be surprised to see gasoline  trade lower.A build in gasoline stocks at East coast delivery point will weigh on prices

ECB comments moving bonds

Alerts History
* 26-Oct-2016 08:46:38 AM – ECB ALMOST CERTAIN TO KEEP BUYING BONDS BEYOND MARCH, ADJUST PROGRAMME RULES- CENTRAL BANK SOURCES
* 26-Oct-2016 08:46:38 AM – CHANGES TO CAPITAL KEY, ISSUE LIMIT AND YIELD FLOOR ARE UNDER CONSIDERATION – CENTRAL BANK SOURCES

CHANGES TO CAPITAL KEY, ISSUE LIMIT AND YIELD FLOOR ARE UNDER CONSIDERATION – CENTRAL BANK SOURCES – Reuters News

26-Oct-2016 08:46:38 AM

Morning 10-26

Price drivers: apple missed on Revenue and reported a 3rd straight quarter of declining me- Phone sales, Stock -3%.Plenty of Government Supply weighing on European Fixed Income. Germany, Portugal, Italy and UK (50 yr. bonds sold) have all sold paper today. Talk that UK may face 84 B pound hole in finances due to Brexit weighing on Gilts. A Big Verizon deal priced in Euros also adding pressure .Toss in a Break of short term technical levels and European Bonds are being taken out to the wood shed. Reuters telling US that price action has been extremely poor as very few Buyers are stepping in. The German Finance Minister, Schaeuble, who just loves QE said “there was a growing international consensus that monetary policy had reached its limits” Is another negative for bonds.
Yield changes 10 Yr. maturity in Bps.
• Italy +7.4
• Germany +5
• France +4.8
• UK +5.3
Not just the 10’s being sold 30’s as well. Changes in yield shows Germany +6, Italy and France +5.5 and UK +4 bps, Yield changes not as dramatic here in the US 10 year yield +2bps and 30’s +2.6Bps.
European Stocks are being sold as well. Ftse -1%, Dax -.6 and Stoxx 50 -.3%. Australian stocks -1.5% as Inflation data came out higher than expected. Also German Import data came out a touch higher which could be construed as negative for bonds. Let’s see if European bonds cane recover throughout the day as it may give a lift to European stocks.
Oil Down as Worries about solidarity with OPEC members. Weekly API numbers reported a bigger build in oil stocks than forecast. Don’t worry soybeans higher again today.
Dollar is lower, euro higher and yen steady. No impact on markets due to currency movements yet. New home sales today the economic highlight

Stock Story

9-11 Spx sectors are lower today led by Consumer discretionary.The leading declines within the sector are Under armour -14%,Whirlpool -12%  both down  due to  lower earnings.Mohawk industries?? they make carpet,tile and other flooring products Stock is down 6% due to negative outlook for demand.Of the 87 stocks that make up this sector 80 are lower.Some of the other losers Lowes,GM Darden.When these stocks drop it is not a good sign for the Economy  as it hints that people are less reluctant to spend on things they don’t necessarily “need”.This could be due to worries about Economy or Job market or heck even the Election.Whatever the reason this weakness is not good for overall outlook for the economy.At least for today.