Guess the chart

XLU US Equity (Utilities Select 2017-05-31 14-12-58

This is an ETF that has touched an all time high.It is one that is highly responsive to interest  rates,The utilities ETF .Reuters had a nice write up about this.I will paraphrase put in own words. Utilities rely on short term funding to make their business work.They are  negatively correlated to  Interest rates.So what  does this Chart tell us then if it is at an all time high? Hmmm   talk  more tomorrow.

2 very important pieces of news

  1.  from WSJ “Former FBI Director James Comey is expected to testify as early as next week before a Senate committee that President Donald Trump asked him to back off the investigation of former national security adviser Mike Flynn, according to a person familiar with the matter”
  2. COMEY TESTIMONY COULD COME AS EARLY AS NEXT THURSDAY

Should make for some very  good TV watching next week

Beige book

The broadest statement from beige Book On Economic Growth saw a Step back from April  where all districts saw an increase in growth.Today’s report “Most districts reported economic growth.In Regards to labor market” LABOR MARKETS TIGHTENED  WITH SHORTAGES BROADENING .But “price pressures” little changed and consumer spending little changed.

Outside of tighter labor markets not a rosy picture painted for US economy over the  last month.This is a broad stroke commentary I need to read report to narrow focus.

Afternoon update

Oil was trading as if the demand would never eclipse supply and that Zero was only possible support.Thi stype of trade lasted until 10:31  and then prices caught a small bid and stand 70 ticks from the lows.Their wasn’t any news I could find to cause the bounce.The unofficial   European Close most likely causing some  month end adjustments.It is almost comical that at 10:31  0il rallies and then drags spoos along with it.All the action stops right at 10:30 amazing isn’t it?

Currently treasuries are still higher on day Stock future lower   the Risk off theme continues this afternoon but a slower pace  post 10:30

Corn

Yesterdays first look at the quality  of Corn emerging  was a dissapointment.Traders  expected the Number to  come in near the  5  year average of 72%  it was  reported at 65 % good /Excellent.Too much rain  and cold weather in parts of Indiana and Illinois the areas of concern.Corn +36 ticks (+9 cents) as short covering has been trigegred.July corn possible breakout of sideways range at 380  currently trading 375’6.Dec. Corn breakout at 395’6  currently trading 394.Corn already at 1.5 ATR as activity and volume are brisk.if this lower quality of corn persists it could turn into a big deal  but for now  just some short covering as shorts maybe a touch nervous.

 

Risk Off!!

mercy  What a turnaround post 8:30 SPX open. What was a mild risk on trade  has turned into a full-fledged risk off.Reason in no order of Importance. JPM and bank Of america speaking at a banking conference said that Q2 Revenue will be lighter than expectations.These comments weighing on all banks/Financials . GS -3.2%,JPm -1.7%,MS -2.5%,BKX  bank index -1.3%.This sector weighing the most on Spoos.The nasdaq 100 NDX has been +3.3% this month. WSJ articles yesterday and today flaunting the gains and reporting even the smallest of tech stocks are caught up in the Excitement.I beleive  End of the month profit taking in play here.Fang Stocks your Nasdaq benchmarks all lower on the day.Chicago PMI was in line but pending home sales fell below consensus.Even Though pending home sales, a second tier Economic release, the string of ” misses” continues on the Data front.Also weakness In Oil prices is finally having an impact on Energy related stocks

Oil Lower as Monthly OPEC output Increased by 250k barrels a day, yes  Increased.Libya and Nigeria increased production as they do not follow OPEC production cut deal.

Morning 5-31

News of Note.
Euro Zone CPI in both the core and headline measure missed consensus by.1, and were lower than April. This should have changed the narrative of next Week’s ECB meeting to Somewhat Dovish from somewhat hawkish. The euro does not see it this way nor does the Bund. Euro is actually higher by33 ticks and Bunds and schatz are actually a touch lower on day. Hmmmm. Month End activity could very well help explain as the Euro is in demand against all the major Currencies. One other Note from Morgan Stanley via the FT.A proposal is being thrown around to Securitize EMU debt. Basically combining all European Sovereign Debt into a new Instrument. Germany has been opposed to this in the past but possible tweaks to idea may bring Germany on board.
UK election are one week away and more negative polling numbers are appearing. No one expected these. The latest poll shows The Conservative party lead by Theresa May, may not win enough seats to have a majority! If you recall from yesterday the headlines was that the Conservatives would only have a 12 seat majority. What was considered a crafty and shrewd Move by the PM could turn into a disaster for her party and possibly Brexit negotiations. It is only one poll but the GBP is very responsive to them and will be so for next week.
Oil shows WTI -2.4% Brent -3.1% today is last day to trade July Brent and June gasoline and heating Oil. Brent showing greater losses as too much Supply from USA Shale and possibly per Bloomberg (BB) the once expensive deep sea Drilling may now be cost effective. Opec-Non Opec deal losing its Bite as Oil in flush out mode. Could be some month end activity as well.
China PMI was unchanged vs. April’s level but impact on markets marginal. Nickel -2.8%, Steel in China -1% and all other base metals BB tracks are down on day Gold, platinum a touch higher and Bitcoin -.5%.With Oil and base metals lower you would think Stocks would be trading lower But they are not. Risk on is the theme from overnight as stocks are higher throughout Europe and Spoos +6 handles. Could very well be month end activity driving the bid. Fixed income steady to lower. Talk growing of One more rate hike this year and done
Massive truck bomb in Afghanistan kills 80 wounds 100’s

market thoughts and fed expectations

To build off the last posted report from “macro man”. Eurodollars and treasuries dialing back the rate hike path from the fed.Some has to do with a Delay in Trump Policy implementation,Some has to do with Weak Q1 economic data,some with a Dovish interpretation of Fed shrinking balance sheet and lastly Inflation that is stubbornly low.Plenty of reports about the massive short covering in Eurodollar complex as higher rate  bets are unwound.Per BB $6million in shorts were covered last week.With the 10 year treasury positioning now neutral the bets of only  one more  rate hike for the year could be on the rise.

Fridays payroll focus  should be on the Inflation metrics of wages. The Amount of jobs created are not what is   driving the discussion on rate hikes.Todays reading on Monthly /yearly PCE was in line with expectations but the trend is lower to sideways not higher.In February the y/y PCE was 1.8%  today it was 1.5%.This Is what is holding back an aggressive fed.The trend in PCE inflation was higher post election into End of Q1 2017,  Traders and the Fed need to see this trend tr-established higher  before  aggressive rate hike bets are back in play.Lets Hope Q1 data  was just a hiccup and the Higher rate  trades do come back.Without them this slow bleed higher in treasury and eurodollar prices will continue.

Speculators Are Finally Long Treasuries. Now What?: Macro Man

From Bloomberg
(Bloomberg) — It has taken four months, but we can officially lay the euphoria of the Trump reflation trade to rest. Speculators have now gone long duration across the Treasury futures curve, according to CFTC data. While it is tempting to extrapolate more buying into the future, traders may find it more remunerative to look for something other than a monotonous grind lower in the level of yields.
• While much discussion of fixed-income positioning tends to focus on the 10-year part of the curve, I prefer to look across the gamut of maturities to get a more complete picture. On a duration-weighted basis, speculative Treasury futures positioning has gone long for the first time since last summer…and a mere four and a half months after registering record shorts.
• It probably isn’t a coincidence that the short covering started around the time of the March Fed meeting. Although the FOMC hiked rates, the accompanying projections — particularly the infamous dot plot — disappointed some of the more aggressive market expectations.
• Given recent disappointments on the growth and inflation front, is it possible for the FOMC to ratchet its forecast profile lower once again, thus capping yields? Of course it is possible…but given the recent position shift, particularly in 10-year futures, I would argue that a lot of that is probably in the price.
• What I find interesting, however, is the dispersion of positioning across the curve. Speculators have their longest positions in 10-year futures since 2007…but their short position in ultra bonds remains near a record as well. Indeed, plotting normalized speculative futures positioning reveals readings of close to two standard deviations or more in 10s (long), fives, and ultras (both short).
• This in turn suggests that the real opportunity in the Treasury market may entail betting on the curve and for positions to converge on zero. While the 5-10-30 butterfly is above last year’s lows, at -20 bps it is at levels that have proven supportive for much of the last 15 years.
• Of course, the curve itself usually trades with a directional tilt, so perhaps making a call on the direction of yields is unavoidable. Still, when confronted with a choice of positioning for mean reversion or extremes to get more extreme, given the current level of market uncertainty I’ll choose the first one every time.

Soybeans

Katy bar the door.Plenty of selling in Old Crop  beans as they trade to a 16 month low. The reasons.No weather issues,Possibility of farmers  Planting more Soy at expense of Corn due to early season rain and The collapse in Brazilian Real which caused lots of brazil Supply to hit market  all at once.Speculators continue to add to short positions, which stand at a 2 year high.This heavy short position could be the only reason for prices to rally but they will need a catalyst to become worried.Today after the close the USDA reports  its First update on the Quality of the Soy and Corn crop.Expectations are for these metrics to fall around the 5 year average.AS memorial day moves to the rear view mirror Planting is done and Focuses turns towards the quality of Crops coming out of ground.hard to find anything bullish For beans right now.

Corn not as bearish of an outlook as Soy but nowhere near bullish.The hefty amount of net shorts in Corn has seen  a decrease over last 2 weeks as short covering in futures occurs. This is likely the reason that Corn is in a sideways pattern as some still hold out hope for some type  damage to Crops from Inclement weather.Please see  above the trade-off  of Soy for corn.Evidence of this possibility can be seen in the Soy corn ratio  as it continues to drop to multi month lows.This spread is a possible indicator of what farmers may have done regarding planting.As  spread moves lower  more Soy supply  and less corn.