Peso

President Trump for the third? time has said he will close the southern Boarder and possibly close it to all trade ,Hmmm Livestock Producers might not like that too much. The Mexican Peso doesn’t like it down some 1% today .A fact from the office of the U. S. trade representative,Mexico was the second largest Export market for US goods, in 2017

Morning 3-29

Flows:

LONDON, March 29 (Reuters) – Investors chased a sharp bond market rally this week, ploughing $8.6 billion into global bond funds while they pulled $12.5 billion from equity funds, Bank of America Merrill Lynch (BAML) strategists said on Friday, citing EPFR data.

It was the 12th straight week of inflows into bond funds as bond yields continued to slide across the world with German Bund yields falling back below zero and parts of the U.S. yield curve inverting.

U.S. equity funds saw significant outflows with $7.7 billion pulled from the region, while European equity funds lost $4.8 billion in the week to March 27.Both have been among the biggest flow losers of the first quarter, with $39.3 billion pulled out of European equity funds while $37.6 billion exited the United States. Financials saw the biggest outflows among equity sectors this week, at $1.5 billion, while defensive healthcare and utilities sectors had inflows.

  Positive news regarding trade talks as Mnuchin says this round of talks Concluded and they were Constructive. China’s Vice Premier will be in D.C. next week to continue talks. Shanghai closed +3.2%, CSI 300 +3.86% and NKY +.8% as Optimism spread through markets. Spoos +11 handles NASDAQ +34 Dax + .9%, Stoxx 50 +.8% as 16-19 Stoxx sectors higher led by basic resource and retail companies. This Risk On move weighing on treasuries and Bunds for now, as Long as this week’s lows in yields hold there shouldn’t be much panic today in treasury Complex, Short end of yield curve seeing the biggest adjustment today as 2s and 3s see yield +2.5bps while 30s   higher by less the 1 bps. A bit overcrowded in the long short end trade. A voice from the past Janet Yellen said she does not see fed Cutting rates in 2019 and unlikely to slip into a recession

 Dollar sideways, some action in the Pound as The Brexit saga continues there may be another vote on Brexit deal today or may not thus the gyrations in the GBP. Oil on the Bid this morning headed for   one of the Best quarters in a decade Russia accelerating production cuts(BB). Spoos  higher= oil higher on China trade, Sure I can see that, quarter activity might be playing a role as well .China manufacturing PMI to be released this weekend ,some may be banking on a stronger report  Copper +6 handles +1.6%, Nickel +1.4%, Palladium after scoring two Limit down moves over last 2 days trading higher +2.65%. Reflation trade today! An important crop report today at 11:00, Grains unchanged on day, yesterday lean hogs closed limit down, they closed limit bid on Monday volatility there touch an all-time high this week.

Month End quarter today, April Commodities go First notice, April RBOB and HO expire along with May Brent. Economic calendar shows Core PCE at 7:30 and new home sales at 9:00. Dallas Fed president Kaplan speaks at 9:00 and Governor Quarles (voter) at 11:00.

Risk On theme aided by trade talk optimism

lean Hogs

Below chart of October Hogs which are locked Limit down as I type.No long liquidation just yet as Volume running below last 5 days average. Open Interest for today activity not known till tomorrow but if past few down days are an example open interest hasn’t budged it has actually increased,indicating longs have not panicked and liquidated ,yet.Quarterly Hogs report After close,No China purchases in weekly Export data maybe the reason for weakness today. For downside momentum to occur longs need to be liquidated

Rolling Over

Profit warning from a German manufacturing Company ,Osram which cited “weak car and phone Demand”(BB) along with comments from Market news quoting a chinese advisor saying ” we will not drop tech Push” have caused stocks to turn Negative.A break below VWAP line in both SPoos and Nassy providing a bit of momentum selling adding insult to injury.Stocks tried to find the positives today Jobless claims good,even though final look at Q4 GDP missed consensus , GDP for 2018 was solid 3%,KC manufacturing 10 vs forecast of Zero , not enough to offset A Negative China comment or Alleviate the Negative sentiment surround Risk.

Choppy Trade in treasuries a bit of Angst over upcoming 7 year auction, Fed speak this morning not dovish enough to maintain the bid.Gold whether month, Quarter end liquidation or Dollar strength or both but Gold -$21 or 1.4% the short term uptrend is being reversed.

President Trump has Asked OPEC to lower price of Oil ,watch RBOB calendar spread today as the uptrend in serious jeopardy and April Expires tomorrow

Morning 3-28

Five Fed Speakers on Schedule today, the highlight of todays planned events

  • 8:30 VC Clarida
  • 9:00 Bowman
  • 10:30 Bostic
  • 12:15 Williams
  • 4:00 Bullard

Trade in stocks choppy so far today German CPI in line, Deutsche bank may or may not need to raise capital to complete Commerzbank deal, demand at Latest Italian Auction weak and Brexit still undecided  but GBP -150 ticks. Bond rally easing a bit today    bunds steady, 30 year bunds +22 ticks, U.S. bonds have a handle range but trade little changed as type. Yesterday’s 5-year auction was okay worries might be growing about today’s 7-year sale. The shorter maturity the more impacted by Fed rate policy thus the strong demand for 2 year and less so for the 5s. Dollar index higher again today as it trades above last week’s highs an important accomplishment due to the dovish fed.

 Palladium down again today -3.5% after dropping 5.8% yesterday pallidum has been the best performing precious metal this year. Oil heavy today as gasoline plummets for the second day. A bit of weak Technicals, Contract expiration, a cancellation of 2 US oil tankers all-weighing on prices.WTI -1.4%, Brent -1% gasoline -2.2% Gold -.5% trading down towards the 1300 handle and copper little changed.

 Spoos and Nasdaq unchanged, Dax steady to higher. Supposedly A breakthrough in US china talks but let us wait and see if we get proof of this. Jobless claims, last look at Q1 GDP not likely to have much impact ton trade.

Morning 3-27

Bond friendly news to start your day:

  • Bank of New Zealand held Policy rates steady, but said next move in rates will be lower, joining almost all other major central banks Turing dovish on policy. The Kiwi, Down ~1% vs USD
  • 10-year bund auction saw strong demand, the strongest in over a year as   Germany sold Bunds with a negative yield for first time in 2 years. Let that sink in for a bit very strong demand for paper with negative yield!
  • Draghi said this morning “Progress on reaching ECB’s Inflation goal has been delayed not derailed.” and as a shout out to banks he said may need to soften impact of negative rates.
  • Trumps nomination to be a Fed Governor Stephen Moore, said Fed should immediately cut rates 50 bps.
  • 3mon 10 year yield spread further into negative territory or inversion below last week’s lows. This is the global slowdown barometer
  • Above average volume in the 10s overnight

Not a headline but an Explanation of the Mortgage hedging activity that has helped pressure rates from Citigroup:

   As bond yields fall, some homeowners will look to refinance their mortgages because they can get a better deal. However, that complicates things for investors in mortgage-backed
bonds, because their investment strategies partly depend upon forecasting how many people will pay off their loans early. Refinancing in effect increases the rate of prepayments.
That in turn alters a key characteristic of mortgage bonds: duration, or how much their price reacts to changes in interest rates. Managers of bond investments tend to have targets for
duration, so a shift can prompt some to buy interest-rate swaps in order to hit those goals. Citigroup Inc. strategist Jabaz Mathai believes that is what happened last week when 10-year Treasury yields slipped below 2.5 percent in the wake of the Federal Open Market Committee meeting.


  The sharp move in rates since the FOMC decision “can be attributed to mortgage convexity receiving hedging,” Citigroup’s head of U.S. rates strategy wrote in a March 22 report. The 10-year Treasury yield falling below 2.5 percent “likely triggered convexity flows, which is typically done by servicers, REITs and money managers,” he added. Swap spreads have collapsed across the board, not just one slinked to 10-year Treasuries.


   Spoos Trading down 7 handles near session lows, Both Dax and Stoxx 50 caught a small bid off the Draghi bank Comments but they too trading down on day. Theme for today is slowdown worries. Dec 20  Eurodollars +8 ticks  new contract highs   75% chance for rate cut in Dec  81% in January. Copper sideways stuck in sideways range. Crude a bit heavy due to lower spoos and the API reporting a surprise build in oil stocks. Dollar unchanged

7:30 trade balance data will be watched closely.

Fed Speak:

6:00 PM feds George

Oil Curves

By looking at the Brent and WTI curves I remember Something that Gartman said many times in his morning Missive,Backwardation is bullish.The reasons ” why” are part of the discussion but not for today’s by simply looking at the curve,prices higher in the front months vs the backs one can infer that supply is tight ,and prices may continue higher.I paraphrase Gartman want to play it from the long side when price structure like this

Brent curve today, brown line vs 1 week ago green line, the backwardation expanding in the front switch quite aggressively over time frame.Without looking too much into details the first thing I would say is that supply is getting tighter vs last weeks thinking

Below the Cl Curve,Brown Line today, green one week ago Front few months moving higher ,eliminating the contango and moving closer backwardation. The Cl curve moves to complete backwardation,Front higher the back months starting with September Contract.Big Draws expected from storage,higher exports any maybe just more demand as refiners exit maintenance causing the tightening or rallying in the front month Crude spreads. WTI curve not as Bullish as brent

What is bullish is the RBOB Curve take along at how much the front part of the curve has rallied vs 1 week ago, extending or expanding the difference between the front months and Deferred.

Front Month Rbob spread continues to rally pushing the front Further month into backwardation, I will stop showing spread either post settle on Friday or when it has a down day. Somebody may be caught short here

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