Thursday Macros
Markets Treading Water on Light Volumes...Employment Looms... Big Ranges
Market are marginally unchanged , coiling for a big move on tomorrow's employment data... Overnight the ranges for treasuries was narrow on light volume, but equities made a very nice upward move, only to see it evaporate as early NY came in... The Dax gave up over 200 points since 5 am... And the S+P had a 20 point range, while the Nasdaq had over a 100 point range... So there is good pent up demand for the beginning of a new month, new quarter, and half year strategy implementation... Oil continues to move higher... We think 85-90 is in the cards in short order, as demand soars and supply increases marginally... Expect shortages... WTI is now above 75.
Treasury traders took the indexers and reallocation traders to the woodshed yesterday... It was like taking candy from a baby (not that we would do that)... All the smart money knows that indexers now buy in the 3-4 PM range... So treasury geeks brought the 10 year to the high of the day of 1.435 and once the indexers were full buying at the highs, they brought it right back to 1.47... If you read our commentary yesterday we said in paragraph 3 to expect a back off to 1.47 at the end of the day, regardless of how high we went...
Rates... Curve trades have shifted via the charts from steepeners to flatteners, we are not taking the bait just yet... We still see inflation and tapering (look at oil) as a big consideration for the yields of longer treasuries... So while we are not short, we see positioning starting to get long... So we will be on the sidelines as long as 5 years stay in the range of .78-.95... For today we do not expect much, just flattening out positions in front of the short day tomorrow, and close on Monday... With the employment number in the am... Historically when we had big positions in a past life, these days were the toughest to hedge correctly.
Equities... Still expensive... Still no big catalyst for a correction just yet. Bloomberg intelligence says that volatility goes away for the summer holiday and comes back in August... That is consistent with our view that equities should have about a 6 week window before we start to see some type of correction... This would also coincide with the Jackson Hole Fed conference... We can send the BB research for those that want it... But nothing is ironclad and we plan to trade/view the markets every day for signs, positive and negative.
Another market that is very concerning is JUNK..companies sold a record amount of junk bonds in the first half of this year after investors went out the credit curve to maximum risk to source yield. Issuers priced 535 billion of speculative notes , the most of any half year ever, and a 49% increase from a year ago. Junk bond yields dropped to a record low this week... Current yields for CCC are 5.65 to start the morning...High yield, which is now an oxymoron, is down to 3.75... Not good places to enter for new positions... Still plenty of other ideas out there , much better on a risk reward...
My son says I should summarize in my last paragraph... As millennial's only want to read one paragraph... So here it is... Expect a range bound day with limited flows... Range for the 10 year should be 1.44 -1.52... Equities will probably end positive on the day but not huge... The real move starts at 8.35 tomorrow for about 2 hours... Either you play black or red... But don't expect 10 years at 1.47 on tomorrow's close
