Today markets staged small decline. This decline is mainly attributed to weak ADP employment report. This report suggested a reduction of 23000 heads for the month February to march. But I think this report result should not be considered as preface to the Friday’s unemployment report. As Friday’s report is more comprehensive and contains the new additions from the public sector. So it means last two days fall should not let bears to come out of their hibernation and declare their possibility of winning. I think eventually bears will be vindicated but they have to wait till markets have completely understood that economies cannot be driven by public or private debt for long time. Economies are driven by growth and quality earnings. So I will safely predict S&P 500 will rise above 1200 and may be 1300. Reason being clear, like Washington depends on daily polls every day people are depending for their well being on stock market performance. If stocks fall for few days media will go crazy about coming Armageddon. Typically if you have observed markets have become very resilient to bad news. They tend to fall less for bad news and rise more for good news. This asymmetric behavior is what driving markets crazily up.
On the Monetary policy front, Fed is on hold with regards to hiking fed funds rate. I think fed will raise the rate only after markets have priced in more than 100% probability. This has been the case for most of the previous hiking cycle. Fed is on hold not for any fancy reasons. It wants to be sure that its hikes are required to tame the inflation not growth. Fed has to face huge debt supply from the US treasury. So takeaway here is to play money market carry trades. This involves buying calls on EDZ0
Wednesday, March 31, 2010
Tuesday, March 30, 2010
US 30y Bond futures finds support (114)
USD 30y
US Govt 30y futures are trading in a tight range after last week big moves. At this point of time most of investor universe has assimilated some facts that have caused those spikes. These facts are, Weak 118 Billion treasury coupon securities auctions, unwinding of Swap spread positions, Pension fund buying activity and Corporate issuance glut. Don’t forget we have some market moving announcements within investment fraternity by Greenspan (canary on coal Mine), Bill Gross (Its good to move into stocks) and etc.
This week we have started with no big movements in the 30y yields. Economic news related to health of US economy remained stable to slightly positive. Market is waiting on the big news movers like Non-farm payrolls, ISM on first two days of April. Now a days economic indicators also started coming out neutral to slightly positive. This kind of scenario is making Equity markets to go bullish on positive news and stay muted to negative news. Bearish commentators are calling it top at every point market rising and feeling frustrated for not getting their call true. So where does this leave in terms of direction for treasuries. I think there will be a chance of yields moving higher is very plausible. But at this time it is very difficult to make this call because, technical analysis is suggesting the futures are heavily supported at 114. In addition, treasuries have been struggling to go beneath this low. Also even if it goes to this level such a move looks highly not sustaining. Another subtle fact that might come into play is new mortgage principal write downs by Banks will lead to spreads rising instead of falling. Another interesting thing will be treasury will be exiting from the MBS market.
My trade recommendation would be
1) Sell May 113 puts for a credit of $328 each
This trade has one major risk is market goes in a sell off
US Govt 30y futures are trading in a tight range after last week big moves. At this point of time most of investor universe has assimilated some facts that have caused those spikes. These facts are, Weak 118 Billion treasury coupon securities auctions, unwinding of Swap spread positions, Pension fund buying activity and Corporate issuance glut. Don’t forget we have some market moving announcements within investment fraternity by Greenspan (canary on coal Mine), Bill Gross (Its good to move into stocks) and etc.
This week we have started with no big movements in the 30y yields. Economic news related to health of US economy remained stable to slightly positive. Market is waiting on the big news movers like Non-farm payrolls, ISM on first two days of April. Now a days economic indicators also started coming out neutral to slightly positive. This kind of scenario is making Equity markets to go bullish on positive news and stay muted to negative news. Bearish commentators are calling it top at every point market rising and feeling frustrated for not getting their call true. So where does this leave in terms of direction for treasuries. I think there will be a chance of yields moving higher is very plausible. But at this time it is very difficult to make this call because, technical analysis is suggesting the futures are heavily supported at 114. In addition, treasuries have been struggling to go beneath this low. Also even if it goes to this level such a move looks highly not sustaining. Another subtle fact that might come into play is new mortgage principal write downs by Banks will lead to spreads rising instead of falling. Another interesting thing will be treasury will be exiting from the MBS market.
My trade recommendation would be
1) Sell May 113 puts for a credit of $328 each
This trade has one major risk is market goes in a sell off
Thursday, March 25, 2010
Market summary
March 25,2010
Market Summary
USD dollar index closed at 82.5
USD/Eur currency closed at 1.329.
Today Germany and france have reached a deal with regards to aid package to Greece. This involves IMF. ECB president has responded saying this kind of mechanism will hurt Euro. Consequently euro fell further. It looks it has further to go
30y futures: closed at 115.04. Last two days have been very damaging to treasuries. The following factors played into the weakness of the treasuries
1) Weak treasury auctions (markets are uncomfortable to impending treasury supply)
2) Swap market spread unwinding activity. Lots of players have crowded into spread wideners and this was not happening.
These two factors weighed heavily on the bond prices
Oil: oil is trading with in the ranges near $ 80
Gold has traced down to 1090 levels.
Equity markets had a volatile session. Markets rallied initially at the behest of good earnings from best buy, qualcomm and probable end to the woes of Greece. But towards the end of session markets shed all the gains that were obtained due to strengthening of the dollar
For tomorrow we will be awaiting GDP data and Michigan sentiment indicator.
Market Summary
USD dollar index closed at 82.5
USD/Eur currency closed at 1.329.
Today Germany and france have reached a deal with regards to aid package to Greece. This involves IMF. ECB president has responded saying this kind of mechanism will hurt Euro. Consequently euro fell further. It looks it has further to go
30y futures: closed at 115.04. Last two days have been very damaging to treasuries. The following factors played into the weakness of the treasuries
1) Weak treasury auctions (markets are uncomfortable to impending treasury supply)
2) Swap market spread unwinding activity. Lots of players have crowded into spread wideners and this was not happening.
These two factors weighed heavily on the bond prices
Oil: oil is trading with in the ranges near $ 80
Gold has traced down to 1090 levels.
Equity markets had a volatile session. Markets rallied initially at the behest of good earnings from best buy, qualcomm and probable end to the woes of Greece. But towards the end of session markets shed all the gains that were obtained due to strengthening of the dollar
For tomorrow we will be awaiting GDP data and Michigan sentiment indicator.
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