After a day of Unwinds the risk parity trade back on track as both treasuries,bonds just above yesterday’s highs and stocks,spx +.6% higher today. The heavy dose of Fed speak reiterates: inflation not a problem in fact persistently low inflation is a bigger problem,We still believe in phillips curve and the neutral Rate of Interest likely to stay depressed for some time.A quick note on phillips curve if we take Williams and Daly at their word then Jobs gains can continue without sparking wage gains,further evidence that higher inflation is not a worry. Clarida also said that Fed will be looking at new ways to Stimulate economy when the time comes,such as capping yields on treasuries,I thought a bold an important statement.SPX needs to trade above 2800 to get another shot of upside momentum,10 year yields need to break below 2.61% to get break the sideways range it has been stuck in.
Feds powell testifies next week,Q4 GDP,Housing Starts so plenty of event risk to create some volatility,I hope,
Yesterday’s action in Stocks resulted in the first down day for both the Nasdaq composite and Russell 2k in the last nine trading sessions, second for Spx during that time frame. YTD dow and SPX ~ +10.7%,Russell +16.8%,NDX +11, S&P 600,Small caps+16%, Both SOX (Semi) and KBW bank index +16.8%. The percent of companies in SPX trading above 50 D MA is 91%, the Highest in 3+ years it goes for Nasdaq at 72% this is not an overbought indicator but something to take note of. I will be watching to see if this percent starts to deteriorate as this could indicate upside Momentum is slipping or has reached a peak. The Fed is never going to hike again trade may again take a hit today as A plethora of Fed Speakers will be at Conference in New York speaking on Inflation, Balance sheet and the Economy.
Copper having herself a week +6% in Comex 5.2% LME as stockpiles shrink. Per LME statistics, Copper in warehouses would only satisfy 13 days of Demand, near a record low. The cash-3 mo LME spread has been in backwardation for last 6 days, Spot higher then deferred price, touching the highest level at one point in 4 years. Helping copper advance is continuing speculation that US / China trade deal will result in positive outcome, Copper +1.5% so far today.
Other markets Show oil +1%, Spoos +11 handles, Bunds +40 ticks, Dollar small bid and treasuries steady to higher. All is well in the World optimism regarding China /US trade deal grows, US Deficit is not a concern and Global growth Trade is not an issue.
Zero Economic data today thus all eyes and ears will be the Fed conference in New York with the First speaker Bostic, Speaking at 7:20.Vice chairman Clarida speaks at 11:00 this is the highlight on the schedule. For good measure Draghi speaks at 10:15.No I.G. corporate deals announced overnight so it looks like a quiet day ,Some of yesterday’s selling in Bonds was caused by the Heavy Corporate slate of Deals.
Plenty of action/Volatility in treasury Complex today driven by large amount of IG paper announced today,Fed unwind trade,Roll activity and just maybe the late to the party short Vol traders getting a bit nervous.lets look at generic Vol metrics to see what Vol has been doing lately ,it has been trending lower.
Lets look at today’s Change in Interest rates across the Treasury Curve
A handful of items causing the weakness in longer end today,A 30 year tips auction shouldn’t be ignored at noon.
*RTRS Source US/China have started to outline
commitments in principle on the hardest issues in the trade dispute marking the
most significant progress to date towards ending the trade war; negotiators are
drawing up 6 MOUs covering forced tech transfer & cyber theft; IP rights;
services; currency ; agriculture & non barrier tariffs to trade
*Fed’s Clarida says lack of data
still clouds U.S. economic forecast– it is not clear how much of growth slowdown the
United States is currently seeing, in part because of incomplete data following
the U.S government shutdown, Fed Vice Chairman said in a television interview
aired on Wednesday.
release of the monthly PMI data from Europe.in the aggregate reported In-line
to slightly better, the only sore spot and a big one is Germanys Manufacturing
47.6 vs. f/c 49.8.Dax took a hit on this release.
The weakness in European Stocks continued
after comments from Austrian Central Bank president and hawk, Nowotny he said
no need for more Liquidity and ECB should have acted more quickly and raised
rates. Dax further hit as the ECB minutes showed that members were not excited
about issuing a new target loan program
and Bonds lower this morning, Bunds reacting to a break in support levels being
helped by some optimism regarding china trade news, both treasuries and U.K.
Gilts following the lead of Bunds. Yesterday’s FOMC minutes not as Dovish as
markets have been pricing in as no clear signal of an Easing bias was given in
fact I believe they left door open for rate hikes to continue,if data cooperates.
Dollar index steady the one standout currency is the Aussie dollar it is on the
offer vs. all majors today as China has banned coal imports from that country.
mostly lower Copper -.5%, Oil steady, palladium -1.4% and gold -.3% markets
trading without a macro theme so far today. China pledged to buy $30B more of
US agriculture goods Soy +1%,Wheat +
2% Corn +1.8%.A handful of Economic data and a bit of Fed speak could be drivers
of today’s flows.
Due to harsh weather Most D.C. offices shut so the FOMC minutes will be released on Web site before any news agencies can read and provide important headlines.We could see a bit more volatility due to this as it will take a bit more time for minutes to be digested.Recall that the Fed pivoted to a central bank on hold from one on a rate hike cycle so many questions need to be answered.Discussions surrounding Balance sheet runoff will be monitored as well ,the current forecast is for Fed to halt the unwind by year end.
Spoos Higher by 5 handles and struggling to trade aggressively above yesterday’s highs.Long end bonds being weighed down by hefty amount of IG paper to be priced today,short end steady.All markets waiting for FOMC minutes and dollars reaction
Impressive move higher by Crude and brent today as Nigeria contemplating cutting production to boost prices.Gasoline on the bid since 8:00 pit open refinery issues one possibility