Morning 6-30

Compared to last 3 mornings Overnight markets showing a sense of calm. Month end/ Quarter end may bring some action around market closes but for now peaceful easing feeling. Bunds higher, Stocks higher, Dollar higher as it is a reversal of what we have seen after since Draghi Comments. Yield curves steeper.5/30 curve will close this week with a steeper /higher prices for first time in 5 weeks and only the second time in 7.Eurozone inflation was released and it did beat consensus. This trade of”firm inflation” has been played, thus very little reaction in market place. If the Numbers were a big miss I would believe reaction would have been noticeable. Stock markets in Asia/Australia reacted to yesterday’s weakness out of US and closed lower overnight. All European bourses are trading higher with the Dax your laggard only higher by +.25%. Spoos+6 handles NASDAQ +21. will this strength stay? Depends on whether or not the Month End Gyrations are complete. This week has been about Global Repricing of hawkish central Banks due to comments, speeches from BOC, BOE and ECB. The least hawkish Central bank this week is the Fed. Rate hike probabilities for December have been stuck in low 40% all week. Currently stand at 43%.This update from Morgan Stanley “We now see H1 GDP growth running at 2.3% annualized, up from 1.9% Tuesday, after an unexpected upward revision to Q1 to 1.4% from 1.2% that had positive underlying details that boosted our Q2 estimate further to 3.2% from 3.0%,
Oil has confounded the experts again. Oil headed for 7 the consecutive higher close in the face of Higher Libyan output which is close to 1 million barrels a day. Almost triple what it was 3 months ago. I will repeat when market trends it will ignore evidence counter to that trend. Gasoline and heating Oil are a touch higher. The move higher in oil over the last week also weighed on the long end bonds as Dreams of Higher inflation due to run up fit the narrative that markets are believing in. Copper not talked about much but she has been trading higher, set for 6th consecutive higher close. Reflation trade has some legs?
One of the bigger crop reports of the year will be released @ 11:00. Quarterly Ending stocks and planting intentions are the only 2 metric released so it eliminates a lot of the noise that is usually a part of the monthly reports. Wheat will be in focus especially the Spring Wheat variety as it is higher by 35% this month. Quick overview more soy and less corn to planted.
News:
• Don’t sleep on today’s PCE Core inflation numbers A surprise higher number could have a big reaction on prices
• Trump tweeted out just repeal Obamacare now and worry about replace later
• Iraq Declares ISIS reign over after Stronghold Mosque seized

The selling continues

SPX -1%,NDX-2.25% Dow -.9%.  Ugly day getting uglier. Fang stocks -2.5%.Should be  quite  A busy month/quarter end tomorrow.Besides  reflation  trade,higher rates I still think Month end  trade big impact on nasdaq weakness.Vix +28% today who said volatility dead.Stoxx and Dax vol closed higher by ~20% today and ten year vix +7% .Amidst the collapse in Stock Indices the energy and Financial sectors are still  green on the day presenting an opportunity for spreads.Sell the winners buy the losers.

Dollar slow and steady down move, Yen slow and steady up move. this isn’t a macro panic yet  as  Stock Futures are the only product being taking out to wood shed and even that might be a stretch as SPX only down 1%..Bonds dont want to move higher as the Higher rate ideas keeps lid on prices  but the move lower in Stocks is moving some money over to bonds.A stalemate!Crude oil won’t collapse and this is really telling.   Weak stocks  and Higher Libyan oil production along with oil on pace to close higher for 6th consecutive day you would think this is a perfect recipe for lower prices.

From Mizuho” All five FAANG stocks $FB $AMZN $AAPL $NFLX $GOOGL now below 50-DMAs for the first time since 2/16/16. The FAANG stocks have only all been below their 50-DMAs on 4% of trading days since $FB IPOd in May 2012. (Bespoke)”

 

5y5y inflation

This week has seen a switch towards a more hawkish Central bank outlook  but with some doubts about outlook of inflation.Today German Inflation beat expectations which provided more evidence that ECB QE  could be winding down.In the USA we have yet to see a steady and consistent rebound in Inflation  but that hasn’t stopped the 5y5y inflation swap from following Europe higher.This “swap”  is what inflation in 5 years will be like 5 years from that point.Confusing isn’t  it.   Regardless both the fed and ECB use this to monitor Inflation expectations.

 

inflat

The Top graph EU lower USA.The  upswing in Inflation expectations actually started right around  the 21st and then got a boost From Draghi speech.This is metric will drive Central bank intentions more so then Job gains

Quick Update

Minneapolis Spring wheat touched Limit up on the 8:30 Re-Open.Drought conditions did worsen.Thi shas dragged all other grades of wheat higher.European stocks Continue to move lower and this gives another reason to Sell Nasdaq, which is down 65 handles.Bunds continue to makes new lows and Drag treasuries with her. Inflation expectations move higher.I will provide a graph for these and Wheat in  next update.

Morning 6-29

I have been talking about it all week, when In A trend markets will ignore all information that refutes it. Yesterday ECB sources said markets misunderstood Draghi Comment from Tuesday Morning, he was neutral not hawkish. This momentarily slowed the Selloff in bunds yesterday. This Morning it is German Inflation, which is released on a State by state basis and at different times throughout day that has applied the pressure. The First of these states to release Data was at 2:00 A.M. Inflation was a touch higher than Forecast and down went bunds and Buxl and up went the Euro. Reflate, higher rates trade in full swing Bund yields +20 Bps and Buxl +19 Bps since Tuesdays lows, Euro at 9 month highs up above 1.14 handle. Also weighing on Fixed Income the higher price of Oil as it works on its 6th consecutive higher close. Not Just German 10 year yields moving higher. Irish yields +10 Bps Spain +8 and Italy +9 Bps. No more QE!! This continued sell off in European Bonds is weighing on US as Well.10 year yields +17Bps and 30 year yields +15 Bps last 3 days. Summer doldrums no more! Besides German Inflation Data German Consumer Morale At highest level since 2001, Eurozone Economic sentiment highest in 10 years. Treasuries losses accelerated as they broke Wednesday’s lows volume is big.
European Stocks Steady to lower nowhere near the panic we saw yesterday. Spoos + 5 handles and NASDAQ -17. I still believe Some Month End Quarter end gyrations going on in NASDAQ. Second tier Economic data today so that will not be a driver of Action.

Position Unwind of the ECB QE trade will the main focus. Gold -$4 and Copper +3 handles
Spring wheat continues to be on tear another 25 cents today and +80 cents this week. Big crop report tomorrow

A volatile day

Markets have had quite  ride last 24 hours.Markets interpreted Draghi Speech as hawkish but only to be told  12 hours later that in fact it was a neutral  Message. Bank OF England Carney reminded traders that they too are leaning hawkish by saying “Some removal of BOE stimulus may be necessary” One tide lifts all now as central banks turn hawkish all Bonds are sold,Dollar and stocks sells off .

US stocks have recoup much of yesterdays losses in fact SPX is trading right up near yesterday’s highs .NDX    $20 away from yesterday’s highs. Today FANG +1%,Risk on/Off  Index +2.5% ,Trump  basket +1.5% and Most shorted stocks Index +1.85.Possibility of Higher rates has lifted the banking sector. It is your sector leader today in Both Europe and US. Dollar is still heavy down ~40 ticks as the thought process is something like this .FED in Middle of rate hike cycle and markets may be priced too aggressive with Hikes. Whereas ECB just starting to think of higher rates and maybe act sooner than market thought so Euro needs to be trading higher.Just some thoughts.