Wanna talk/think HARVEY and economics?? See RBOB visuals ..... below the point that people where would have predicted an
The BondBeat Monday, August 28, 2017
See GP disclaimer HERE
In The News …
BBG: Kuroda Cautions That Japan Can't Keep Current Growth Rate BBG: Kuroda Sees Yield-Curve Control Allowing BOJ to Buy Fewer JGBs BBG: Fed's Mester Says Keep Up the ‘Gradual’ Pace on Rate Hikes
RTRS: Euro hits 2-1/2-year high near $1.20 BBG: Why Even A Partial Government Shutdown Could Disrupt Bonds BBG: Wall Street Vets From Dalio to Gundlach Warn on Emerging Markets
ZH: "Unloading Dollar Assets Would Be Most Effective" - Chinese State Media Unveils Trade War 'Countermeasures'
@ScottMinerd: PBOC purchases of USTs More than OFFSET Balance Sheet Reduction in to 2019
BARRONS: Why Wage Growth Should Rise BBG: Cohn or Yellen? Bond Traders Say Same Difference Quick (& clickable) Links:
What Happened Overnight
Bloomy/EconODay Calendar
Mon 8/28/2017 5:07 AM
Items Of Interest GP Documents:
- Econ Indicators - 5yr & Under - Index Spreads -
Pivots & MAs (end of TECHs)
POSITIONS UPDATES JPM LESS SHORT BUT ALL LONGS LEAST SINCE 2013
StreetStuffWkly 08.28.17
Technicals 08.28.17
UK bank holiday has taken concept of summer Monday volumes to new lows. WORSE YET. CASH USTs are CLOSED BUT some buying TY October 127 CALLS noted. BBGs Stephan Spratt “Bund Futures Volumes Slump to Lowest Seen in Sept. Contract. Bund futures stick in 26-tick range (1.8bps) with futures volumes slumping to lowest since Sept. contract became the front month as U.K. bank holiday halts activity, with close to 40% of recent averages as of 9:20am London time… Cash Treasuries are closed in London. Buying of upside seen in options, with TY Oct. 127 call bought 15k at 20 ticks, according to one trader in London …” AND so I’ll quit while I’m behind and mention techs PDF I’ve cobbled together start with look at 2s (50dMA and a T-LINE both @ 1.35, so support?) and 5s (233dMA and T-LINE @ 1.77’ish, again SUPP) … ALSO given epic storm in Texas have a look at RBOB (I’ve laid on top of AAAs nat’l avg for reference). H’lines below mostly dealing with Jackson Hole fallout (which I attempted to do with this past weekends note: http://bit.ly/weekend082617) And so with not much time to rest this week … rip the Bandaid OFF and let us know however we can help as you prepare for 2s
(1130a) 5s (1p) and some 2nd tier econ data today (Trade, 830a, Dallas Fed Mfg 1030a). 7yr auction TOMORROW, ADP (and GDP) Wednesday, month-end THURS and NFP Fri…Draghi and Yellen made very little mention of ANYTHING important. EURUSD nearly hit 1.20 (not bearish USTs…?!!!) Kuroda? Off charts BOND FRIENDLY…But MESTER? She’s worried about falling behind the curve … You tell ME who to listen to...Have a good start to YOUR National Bow Tie Day!! (no, NOT a joke, see below) http://www.nationalbowtieday.com/
What’s On OUR Minds What may SEEM like a short week ahead simply due to that axiom, time flies when yer having fun OR -- OR said another way, time flies when, on a SUMMER MONDAY MORNING where UKs bank holiday has NO CASH UST trading AND you have UST auctions @ 1130a and then 1pm followed by MORE Tues, followed by ADP on Humpday, month-end THURS and NFP FRI … OK … STOP. BREATH … Taking a moment, then to STOP. THINK. REACT … and THEN, in the heat of the moment, feel free to do just the opposite. As we were doing over the weekend -- talking HS football and learning to drive -- where PRACTICE is good and gets you to where you need to be and when … but INSTINCT is what needs to take over and when it does, the light goes ON and BOOM. Tackles are made. As ar LEFT TURNS OVER major bi-ways into/ahead of traffic. SAFELY. HERE IS‘1.5 seconds of thought’ (golf)
Moving on then and back TO RATES … LAST WEEKEND we were thinking ZEROS AND STOCKS … THIS WEEKEND we’re all Jackson Hole/Yellen/Draghi/Kuroda ALL THE TIME with OUR note sent along Saturday evening BEFORE THE BOXER WON THE BOXING MATCH -- who’d a thunk it -- with following SUBJ LINE: Sat 8/26/2017 6:33 PM EXCESSIVE OPTIMISM meet (Citi's)GRAMI? (Uma, Oprah); Fed+ECB+BOJ=? lets get ready to RUMMMMMMMMBBBBBLLLLLLLEEEEEE....... We’ve really very LITTLE to add TO that process of thought as well as this mornings TECHS.pdf as there’s been little in the way of meaningful volumes. With CASH closed since 2am as UK banks celebrate end of summer, here’s a copule visuals of 5yr FUTURES for some context. 5yrs, DAILY (w/233dMA @ 118-13 ¾ -- SUPPORT, momentum and fibbo levels)
AND HOURLY, going back a month -- note we’re on verge of breaking BADLY (ie HIGHER) for any/all those SHORTS AHEAD OF SUPPLY??
Again, we have little to add here/now given how many red-dots we continue to expect. We’re here and committed to helping any/all who may have some needs. Reach out and let us know however it is we can help … Wanna talk JH? Fine. Wanna talk FX impact?? Ok, here, too. BBG posted this chart short while ago
Forgot what WE think about FX and RATES??
Wanna talk/think HARVEY and economics?? See RBOB visuals on techs.pdf this morning...Or don’t … Lot of moving parts -- as always -- and again, best WE reckon, fewer around doing the actual MOVING of the parts. Have a great start to the day, week and we wish one and all a very happy National BowTie Day!
Items of Interest
EconoDay Economic Calendar AND, ripped from the BBG:
Bloomy’s Fed-speak Calendar August 28, 2017
GPs Key Econ Indicators August 1st, 2017 -> Our “Economic Graph Package” is used by some of our clients to include in their monthly or quarterly reports. We have most of the major economic indicators included to give an accurate snapshot of the economy.
GPs 5yr & Under Summary August 17, 2017- > this is our chart package we call the “One to Five Year Daily”. It tracks agency bullet spreads to Treasuries, date to date, to compute the real maturity spread levels (in basis points) out to five years. We track agency callables against agency bullets and Treasuries. We compare equal maturity dates when tracking these spreads because the effective durations of callables are not stable. So over time we have a consistent methodology that we use to determine “value”. Please give us a call for more in depth explanation. GPs Index Spread Summary July 28, 2017-> We use certain Merrill Lynch indices, which are described at the top of each graph, to try and determine optimal
entry and exit points for each sector. Though the indices should have similar durations, they commonly don’t match precisely so we’ve included the green line (which should be read off from the right axis) to allow you to take the curve into account when looking at historical spread relationships.
GPs Daily Pivots AND NEW MOVING AVERAGES snapshot August 28, 2016 ->
the pivot point is essentially a mechanism for analyzing the short-term supply and demand factors affecting the market. It has limited applications for long- term decision making. Professional futures floor traders, also known as locals, are the biggest proponents of the pivot technique. Scalpers, brokers, market makers, and other short-term traders also use the technique, while upstairs or longer-term traders occasionally look at the pivot for ideas of what the floor traders are doing. The pivot point is basically the weighted average price of the previous trading day, calculated as the average of the previous trading day’s high, low, and closing prices. It represents the major point of inflection each day. Unless there has been significant market news between the previous trading day’s close and the current trading day’s opening, locals often try to test the near term support, resistance, and pivot point. For example, many floor traders cover their shorts and go long into the pivot level if the market opens above the pivot point and starts to sell off. Well, it’s once again that time for information OVERLOAD and so we remind you … clicking up the StreetStuffWeekly.pdf will bring you to a few paged SUMMARY – a cliff notes version, if you will – of what some of the brightest minds and best SELLSIDE analysts are saying and thinking. WE have focused mostly on things directly impacting US RATES so you’ll find lots of specifics as well as economics AND EVEN a couple of the more notable equity thoughts. Just because. Here are OUR ‘cliff notes’ of what stood out this weekend and what you’ll find on the PDF WE’VE LINKED TO:
StreetStuffWEEKLY August 28, 2017 Please see THIS WEEKENDS RANT for OUR SPIN OF THEIR SPIN BEST OF THE BEST-related Ader’s Musings (INFORMA): #Rangebound . . . Yawn, waiting...So, there I was sweating under the hot lights and scrutiny of Vonnie Quinn when she asked me where I stood on the matter. I came back with the middle ground, meaning I wasn’t overly bearish, certainly not, but wasn’t exactly bullish either. I had the chart below in mind when I said the market’s been in a range since March and I think will largely hold to that range for several months longer. Indeed, I think a largely narrow and sideways range is here to stay for years to come. I don’t think calling for, say, a potential plus or minus 50-100 bp move in long rates is something to sneeze at, but I don’t think directionally we’re going beyond that for a long time, a generation. If it takes 30 yrs to take 10s to, say, 3.5-4%, I wouldn’t quite call it a secular bear market. (NOT A BEAR, nor a bull, but pragmatically somewhere in between until such a time the MARKET offers a tell…)
BMO: ...From a broader perspective, we remain constructive on the Treasury market and continue to anticipate that the process of cobbling together enough political support for a Continuing Resolution (CR), to keep the government functioning beyond September 30th, will further exaggerate any flight-to-quality flows that are triggered by competing headlines on the issue or elsewhere. To suggest that the situation is likely to deteriorate before there is a signed CR seems evident, at least if the experiences with healthcare repeal, deregulation, tax reforms, and infrastructure spending are any guide … While the condensed auction schedule does limit the market’s ability to set up for supply, it also makes poor results much easier to dismiss. On Monday $26 bn 2-years and $34 bn 5-years will hit the market and quickly be followed by $28 bn 7-years on Tuesday. This gross issuance figure of $88 bn is made far less daunting by offsetting maturities that total $87.5 bn and effectively leave net issuance as zero ($0.5 bn to be exact). Large maturities tend to favor the front-end auctions (2s in this case), but given the level of excess liquidity still in the market and dwindling short dated bill auctions, we struggle to imagine that there will be any major problems underwriting the new supply. Month-end extension demand will be on the upper end of the range as August was a refunding month – a dynamic that will help contain any pre-NFP downtrade. Citi -- who was LONG last week AND RIGHT, offers THIS updated/modified PLAN this week: ...Our expectation that the market would price a terminal rate of 1.5% for this cycle has largely played out, looking at the fed funds strip, but we see some room for 5y yields to move lower, with some term premium compression in an uncertain political environment. The next step for us, once we hit our targets, would be to position for a mild selloff in rates as the debt ceiling is eventually raised, and the budget resolution is passed. Our plan is therefore to shift our duration positioning from long to short sometime in the second or third week of September. We will also look to initiate a relative value trade to position for the eventual increase in supply once the debt ceiling is suspended by selling shorter dated Treasuries against OIS – our current analysis suggests the 1.125% of Jan 19 as the optimal candidate... (WHEN THE FACTS CHANGE OR PROFITS ARE THERE TO BE BOOKED, WHAT DO YOU DO?? RIGHT, THOUGHT SO…)
And still with Citigroup in mind -- but not (directly) a RATES GROUP, but worth point out is latest. “Global Macro Strategy Ad Hoc Comment - GRAMI Signal Bearish for the First Time Since Mid-2016 … Die-hard GMS readers may remember a S&P 500 trading strategy based on moving average cross-overs of our GRAMI risk aversion metric – see Systematically Trading 'GRAMI Rule' Signals The back test of the trading strategy we conducted in 2012, and out of-sample results in the following year, were promising, with the ‘GRAMI signals’ often catching the bulk of the larger corrections to risk appetite. Since 2013 however, in a world of subdued volatility and frankly absent equity market corrections, signals have been sparser and especially the bearish signals failed to perform. The evidence suggests that this trading rule works well only in volatile markets. Could we get these again? Yesterday, the rule triggered for the first time in 2017, switching from a bullish to bearish signal. And as we noted in our weekly, some other equity momentum leading indicators have also turned over. “ (BIG DEAL ESPECIALLY IN CONTEXT OF YELLEN SPEECH AND WORDS OF EXCESSIVE OPTIMISM … I THINKS … JUST SAYIN) DBs US FI Weekly (chart of what TENDS to happen couple weeks ahead of debt limit DEADLINE -HINT, YIELDS GO DOWN - please direct yer attention, then, TO the calendar??): “No eclipse of the Fed’s narrative …. Current valuations remain stretched. T10 yields have inched closer to levels consistent with a “one and done” Fed and an unchanged term premium. Global composite PMI new orders are consistent with T10 yields around 2.30% to 2.40%, and the bond risk premium looks too low on our models. We remain moderately bearish relative to the forwards, but note that positioning data suggest little short-term catalyst for a move toward our forecasts…Another way to see asymmetric risk/reward in current valuations is by associating T10 yield levels with various Fed rate trajectories, assuming a
constant term premium. As we illustrated last week, current 10y yields are nearing the 2.10% level consistent with a “one and done” Fed (presuming a December hike of 25bp and then static short rates through end-2019) at an end-2018 horizon. Similar logic illustrates that a constant funds rate at current levels and an unchanged term premium is consistent with a T10 yield of 1.90% at that horizon. The key take-away is that 10y Treasury valuations are increasingly pricing a change in the inflation and therefore policy regime. While these outcomes are certainly possible, we do not see them as probable given the current and forward looking data. For this reason, we maintain our outlook for higher yield levels, while noting that downside risks have grown given the string of softer inflation data. Further evidence of a structural decline in inflation expectations, or a deterioration in forward-looking growth data would clearly increase downside risks to our forecasts from current levels…”
GS as far as what to expect ECONOMICALLY (and market-wise) from a debt limit drama: Showdowns and Government Shutdowns (Phillips)...Both deadlines are likely to be somewhat disruptive, although the effects are likely to be modest under most foreseeable scenarios. In the past, federal shutdowns have had only minor economic implications, and we expect that a shutdown lasting one week would shave around 0.2pp off of real GDP in Q4.The financial market implications of a shutdown have been fairly minor historically…Q: How might the debt limit affect the Treasury market? As we approach the debt limit deadline, securities that mature shortly after the deadline are likely to cheapen versus those that mature just before the deadline. In light of our view that the Treasury should have enough cash on hand to make scheduled payments in the week of October 2, this suggests that the disincentive to hold Treasury bills due to the debt limit will be greatest regarding bills that mature on October 12. The left panel of Exhibit 5, which shows the highest yield among bills that mature shortly after the debt limit deadlines in 2011, 2013, 2015, and this year’s announced deadline, demonstrates a modest amount of aversion to holding these securities. While the effect has been limited so far, it has occurred much earlier ahead of the deadline than it did in prior years. The right panel of Exhibit 5 suggests that that market concern is concentrated primarily in the maturities in early October, just after the debt limit deadline...
Technicals August 28, 2017 w/PIVS: 5s vs 1.76; 10s vs 2.18; 30s vs 2.75 Daily Pivots are support What you’ll find and WHY you’ll wanna point/click: GP (thinking 2s, 5s, positions AND RBOB): UK eyeballs and few if any US ones) to deal with it all, lets rip bandaid off think CONCESSIONS and levels. I have ALSO incl some ‘Harvey’ related (GAS PRICE) visuals fwiw; 2s, OUTRIGHT: T-LINE and 50dMA @ 1.35'ish (support) although (ahead of balance sheet adj? SepTAPER?) momentum REMAINS BEARISH; 2s vs 1s3s: NOT CHEAP. Momemtum, though, stretched so perhaps on RV basis, some reason for someone, somewhere to BUY DIP? 5s, OUTRIGHT (w/233dMA @ 1.77 and T-LINES intersecting all 'bout there, too ... ALSO momentum BULLISH); 5s vs 3s7s: 5s have cheapened, momentum stretched, rolling over (supportive OF 5s) BMO (on 5s ahead of auction): 5s – The price action in the belly of the curve has been consistent with the extended momentum profile and that doesn’t show any sign of deteriorating. While technically not in overbought territory, we’re cognizant that the simple fact that stochastics have spent this long near the extremes hints at a potential correction. That said, the bullish descending triangle we’ve been tracking has held and continues to point toward lower yields. We’re watching the most identifiable resistance at the bottom of the yield range from July-August at 1.726%. Beyond this, there is very little before the 1.714% low yield close for the year and then the 1.672% low yield point of 2017 achieved on June 14th. For support, we’re watching the 21-day moving-average that comes in at 1.792% and then the 40-day moving-average at 1.831%. In a more significant selloff, we have the 1.857% 200-day moving-average, but to suggest that is a stretch at this point is simply stating the obvious. We like the high closing yield of 1.827% as well. There is a volume bulge currently forming in the 1.75% to 1.77% zone that could prove a meaningful departure point for a more sustainable move. Citi (OD, 5s): Five-Year Note: Support: 2.12% (March yield highs) with some local support ~1.95%. Resistance: ~1.70%, the mid-April lows, then 1.67% (intra-day low from 6/14). Daily Stochastics: mixed in overbought territory Kimble (on COPPER): Doc Copper & Freeport, continue to blast higher, says Joe Friday … Doc Copper continues to scream higher, with Copper testing 2014 lows and highs at the $3 level. Freeport has doubled the gain of Doc Copper the past 90-days. SocGen on 7yr IRS:: formation of a broad double bottom pattern at the perennial channel support (1.10%/1.04%)… possibly forming a short-term double bottom at the confluence of supports (1.89%/1.83%).
MMO for August 28, 2017 Chair Yellen surprised us by avoiding the question of how financial stability ought to figure into the Fed’s near-term monetary policy plans in her Jackson Hole address last week. On the plus side, the Fed on Thursday asked for feedback on the details of its proposal to introduce a secured funding rate as a replacement for LIBOR. We’re happy to oblige. The Secured Overnight Financing Rate • New labels • Filtering mechanism for specials still under discussion • Medians versus means
• • •
Rate definitions Publication timing Summary statistics
In The Press NOW:
Aug. 27, 2017 1:02 p.m. ET
Central Bankers Can’t Savor Their Stimulus Success Central bankers were looking forward for years to a moment when the world economy would steady, allowing them to unwind extraordinary monetary stimulus from global markets. That moment has arrived, but they are now preoccupied with other matters.
Updated Aug. 27, 2017 4:02 p.m. ET
THE OUTLOOK
Unemployment’s Steady Fall Could Signal Trouble—or a Broader Structural Shift The unemployment rate has fallen to a 16-year low of 4.3% and may not be done falling. The question is whether that is good news because it means the economy is still operating below capacity and has plenty of room to run, or bad news because it means the economy is close to overheating and heading for trouble. “We’re living an experiment now [where] the unemployment rate is falling and it’s fallen below the point that people where would have predicted an inflation pickup,” said Laurence Ball, a Johns Hopkins University economist. “You can imagine the experiment continuing: unemployment going even lower and inflation still not picking up.” In Mr. Ball’s view, the natural unemployment rate and the actual unemployment rate feed on each other so that a lower unemployment rate pushes down the natural rate, which in turn pushes down further on the unemployment rate.
“It could be that unemployment drops down to 3-something [percent] and stays there and inflation stays low,” he said.
That might be the case, but history offers some warnings. The jobless rate bottomed out at 3.8% in April 2000. It spent nine months at 3.4% in 1968 and 1969. But in both cases, recessions weren’t far behind, one driven by a technology bubble in the 1990s and rising inflation in the 1970s. Aug. 28, 2017 5:30 a.m. ET
In a Blast From a Financial Crisis Past, CDOs Are Back
A decade ago, investors’ bad bets on collateralized debt obligations helped fuel the global financial crisis. Billed as safe, they turned out to be anything but. Now, more investors are returning to CDOs—and so are concerns that excess is seeping into the aging bull market.
Aug. 27, 2017 9:00 a.m. ET
Tapping Your Home Equity for Cash Is Big Again Driven by rising home prices, home-equity line originations rose to nearly $46 billion in the second quarter, their highest level since 2008. Aug. 27, 2017 8:00 a.m. ET
Large Companies Oppose Idea for Taxing Foreign Profits Congressional Republicans are trying to write new rules for taxing foreign profits of U.S. corporations, and a group of large, influential companies is warning against one prominent option. Aug. 28, 2017 5:17 a.m. ET
Gasoline Prices Surge After Hurricane Harvey U.S. gasoline futures surged after Hurricane Harvey knocked out almost 15% of the nation’s refinery capacity, with the extent of the damage still unclear. Updated Aug. 27, 2017 7:01 p.m. ET
Amazon Rewrites Rule Book for Grocers By cutting prices on staples at Whole Foods, e-commerce giant looks to boost traffic at rivals’ expense Amazon.com will bring lower prices to its new Whole Foods division on Monday. It also will bring a new rule book, further pressuring an already struggling supermarket sector.
THE DAILY SHOT
Are Americans Waiting for Lower Mortgage Rates Before Buying a Home? 5. While still above 5% per year, growth in the broad money supply has been slowing. This trend is typically an indication of softer bank lending.
…
Aug. 27, 2017 1:42 a.m. ET
China’s markets can’t agree on how good its economy Is Strong currency, stocks and commodities contrast with bond pessimism
AUG. 27, 2017
Bankers and Economists Fear a Spate of Threats to Global Growth
At a conference where economic policy makers usually discuss how to fuel growth, they instead worried about threats from protectionism, deregulation and the debt ceiling. By BINYAMIN APPELBAUM
Scope of storm’s destruction starts to come into chilling focus Thousands of rescue missions have been launched in Houston and across much of Central Texas, where downpours are expected to continue throughout the week and flooding could become much more severe. More than 3,000 national and state guard troops were deployed to assist in relief efforts, with another 1,000 heading to Houston on Monday. At least five people have been reported dead as a result of the storm, according to the National Weather Service. Local officials expect that number to rise as floodwaters recede.
How Hurricane Harvey will impact prices at the gas pump The storm shut down a quarter of oil and gas production in the Gulf of Mexico.
August 25
More seniors are taking loans against their homes — and it’s costing them Rayford, 92, took advantage of a federally insured loan called a reverse mortgage that allows cash-strapped seniors to borrow against the equity in their houses that has built up over decades. But the risks of the financial arrangement are stark — and today the frail widow finds herself facing foreclosure.
Published 1:50 p.m. ET Aug. 27, 2017 | Updated 7:15 p.m. ET Aug. 27, 2017
Harvey expected to trigger modest gas price hike: analyst Published 7:00 a.m. ET Aug. 27, 2017
Bull market for stocks shows signs of stress
Offshore renminbi hits strongest level in a year as dollar softens
The offshore renminbi firmed to its strongest level against the dollar in more than twelve months on Monday as the dollar softened visibly during Asia trading.
Chinese city offers home discounts to attract college graduates The central Chinese city of Wuhan is offering 20 per cent discounts on house purchases to college graduates in an effort to persuade them to stay, upping the ante in a fierce battle to retain talent that has broken out among the nation’s regional cities. 28 Aug 2017 - 5:56am
From The Blog-O-Sphere: Here you’ll find postings and research from the likes of Barry Ritholtz’s Big Picture, Pragmatic Capitalism, Kimble Charting and Zero Hedge - along with everything else we stumbled across that WE need to point out …The point of all this is to pass along things that strike us as interesting – even though they may NOT be our very own…
See GP disclaimer HERE
