Amazon $30 off session  highs as prices collapsed fro no apparent reason.Earnings after close today so my first  thought is that earnings had leaked,No evidence of that …yet.Down goes Amazon down goes Nasssy and Spoos.Nasdaq dropped 60 handles as the sell all tech stocks   and ask questions later mentality took over.I will keep you updated.

Oil Spreads

Both Crude and Brent Front month Spreads continue to tighten getting closer and closer towards  backwardation.( front month higher than deferred).brent has 7 ticks and Cl has 11 ticks to go to achieve this.The Gartman adage that backwardation=Bullish market holds true.Another way to think of this is that you don’t want sell into a market that is backwardated.Now Oil has not achieved this just  yet  but another round of Bullish Statistics next week will most likely do the trick.The Whole OIl curve is becoming Tighter over the last 2 weeks as prospect for tighter supplies  gains traction. Money managers are not net short so this is not a short covering rally ,this is a rally based on momentum and a possible shift towards less  shale supply.

US production has dropped  3 out of last 8 weeks,This does not appear to  be significant taken at  face value  but the last time this occurred was Late january early  February.Weekly rig count has dropped 2 out of last 4 weeks.Again taken at face value not a big deal but if you look historically we haven’t seen this all year.These are small drops in production but none the less   drops .lastly to repeat Halliburton and baker hughes have said they will lower Shale production as Costs becoming higher then profits.If this can continue  backwardation is almost assured.

30 year yield

30 year yields  coming up to real good resistance at 2.95 % roughly 152-02 ish in futures price.Currently yields at 2.93%. very heavy selling continues in the longer end today as AT &T comes to market with long end paper and a 7 year auction  just adds more supply to the mix.

30 yr yield

Morning 7-27

A tale of 2 continents so far today .Bunds Higher Dax lower. NASDAQ higher Treasuries lower. Deutsche bank, Bayer and Deutsche bourse reported disappointing earnings weighing on Dax providing bid for bunds. Facebook reported better than expected Earnings lifting NASDAQ and Weighing On treasuries. Plenty of reasons being talked about why bonds continue to trade heavy/lower. From IFR news who have a very good handle on things says” The long-bond has seriously underperformed on the curve, steepening to the 10-year by 6 bps and near 10 bps to the 5-year. Hard to pinpoint the exact cause of this but it does appear as if Risk Parity accounts got caught long of duration at the expense of being underweight equities, and readjusted these positions accordingly and “As well, the curve has been showing a fair degree of sensitivity to Fed policy perceptions. The apparent moving forward of the balance sheet unwind – to September — while perhaps pushing back the next rate hike – to December or beyond — is being viewed as a curve steepening impulse weighing on the long-end.
Dollar finds itself up a few ticks as December Fed Rate Hike probabilities are back at 43% after dipping into Mid 30’s post fed meeting. Dollar up a few ticks and has been trending higher most of the morning. Gold higher by .75%, Copper +.4%. Oil taking a leg lower this morning sitting lower by .6%.Once yesterday’s highs were broke the trend in Oil turned down. Platinum +5% todayCopper continues its spectacular run to the upside helped today by a Beat of China’s Industrial profits metric. I will be watching the dollar today as Shorts in the DXY are at multi year highs. A good old fashioned squeeze will be coming sooner rather than later.
Another heavy day for earnings as 79 SPX companies report this morning and Amazon after the close. Today’s economic calendar has a few second tier data points so any impact from Numbers will be short lived. The healthcare debate rumbles on but markets paying little attention to the debate.
AT & T will be coming to market with a 7 part bond offering ranging from 2-41 year maturities this too weighing on treasury curve..Theme for today is risk on USA risk of Europe.

Yield curve post fed

5/30 yield  curve steepens aggressively post FOMC announcement.  Further worries about Inflation gaining  traction towards 2% target was cause for  5 year yields to drop faster the 30’s.. rate hike probabilities  down 10-15 % vs. Pre- Statement.


Market update and Fed Expectations

Spoos with a 3 handle range Since 8:30 Cash open,NDX 16. Dollar is trending higher and The sell off in long end continues as yesterdays lows in Bonds and ultras have been broken.10 ‘s have held yesterday’s lows so far.The unwind of the Flattener trade continues as yield curve trades wider  for second day in a row.plenty of stock Stories today AT&T jumped the most in 8 years ,5% higher as company reported a surprise in Subscriptions.Boeing Gapped higher on open and is set for best day in 8 years! it is not just FANG driving  The indices higher it is the Likes of CAT,AT&T,BA the old wall street dow stocks providing leadership.Energy sector + .9% leading group within the SPX.OIl higher by ~2% as weekly EIA numbers were in line but a dip In production  has caught markets by surprise.  Facebook out with earnings  tonight and market is expecting a disappointment,stock down 22 cents as I type.

Easing of Financial conditions is a term that I have seen used more and more over last 2 weeks.The financial conditions index made up of Spreads  between  AAA/Treasuries,Eurdollar and Libor , Stock market and a few other metrics. The higher the index more accommodative are financial conditions. This metric touched a 3.5  year  high today and could give Fed some worries as this may start to show a Bubble in some assets.Merrill Lynch comment from today saying the AAA and AA spreads to treasuries at tightest level in years.

Fed statement watch 2 areas today:

  1. Will they give solid hint that September is when balance sheet Unwind announcement is made.The Fed could indicate this by changing the verbiage of  Balance sheet Normalization to start later this year to relatively soon.”
  2.   How concerned are they that Inflation weakness is not transitory.Most likely will tweak  inflation comments to hint that Inflation continues to drop and has not stabilized.Markets expected a dovish tweak to this language.

Very little impact expected by market  hopefully the  market is wrong.All eyes on Dollar for first reaction to statement