Today has been a tumultuous day in equity markets. Earnings reports are driving the market into positive territory. Technology sector is telling a recovery story in the markets. Financials are rising up driven by stronger earnings report by Goldman. Investor fraud case still looms over Goldman. Market legal experts are in the view that this legal battle will be adding another feather to Gold man’s cap.
S&P 500 traded above 1200. On Friday, it staged a decline in reaction to SEC accusation on the Goldman. I thought may be a pull back and this might persist probably for couple of days. But like a sprint runner who slipped down and picked up his pace, financial markets have resumed their march higher at the behest of strong earnings reports.
On economy front things are still the same,
Unemployment high, consumer sentiment sullen
But Retail sales are higher, personal consumption expenditures are higher
Housing still struggling to improve
Manufacturing is faring far better with PMI and ISM indicators signaling expansion phase.
So where will be end of April: MY bet S&P 500 will rise another 2%.
I forgot to mention one point, Greece I think will be forced to do some kind of default if not this year earlier it will be definitely next year. I think this way because, if I look at Greece and its debt needs, these needs are going higher than being offset by any kind of positive revenue growth. In such a scenario core pressure on Euro’s underperformance will disappear. So Euro can possibly go higher.
I will come up with some trades I think can help generate money on this tomorrow.
Tuesday, April 20, 2010
Sunday, April 4, 2010
Week Ahead
Weekly Summary
ISM (Services): March ISM (S) index will be released on Monday and consensus forecast is at 54 compared to February.
Pending home sales: Pending home sales report suggesting slight decline will also be reported on Monday.
One important event of the day is Fed’s meeting to review the discount lending rate. Discount lending rate decision will have impact on the banks borrowing from the Fed’s discount window. I believe Fed is in the mode of burnishing its credentials to fight inflation by adjusting discount rate and at the same time keeping the Fed funds rate at current level so that it will not derail the growth process that is underway.
On Tuesday we will get FOMC meeting minutes. I think this still remain a low key event.
For Oil markets there is one release that can directly affect is crude Oil inventories.
Finally Wholesale inventories will be released on Friday.
Markets are closed in Europe for Easter. In US markets will open on Monday and it will be a testing day. In Equity markets, we will see a huge gains and will be a testing week if markets can hold on to the gains and trend higher.
Dollar is poised to get stronger at behest of strong growth theme in US.
Bond Markets will have to digest treasury supply and Fed meeting minutes. Last week Non Farm Payrolls have caused a selloff in treasuries. This week USM10 will be testing key support levels.
Oil has broken the 70-80 dollar range and currently trading at $85. Strong growth rate in US will drive oil higher. This week we will also have the oil inventory data that will weigh in. Last month WSJ carried an article suggesting that inventory measurement activity is prone to lot of inconsistencies. Need to see how market will react to inventory data from this perspective.
ISM (Services): March ISM (S) index will be released on Monday and consensus forecast is at 54 compared to February.
Pending home sales: Pending home sales report suggesting slight decline will also be reported on Monday.
One important event of the day is Fed’s meeting to review the discount lending rate. Discount lending rate decision will have impact on the banks borrowing from the Fed’s discount window. I believe Fed is in the mode of burnishing its credentials to fight inflation by adjusting discount rate and at the same time keeping the Fed funds rate at current level so that it will not derail the growth process that is underway.
On Tuesday we will get FOMC meeting minutes. I think this still remain a low key event.
For Oil markets there is one release that can directly affect is crude Oil inventories.
Finally Wholesale inventories will be released on Friday.
Markets are closed in Europe for Easter. In US markets will open on Monday and it will be a testing day. In Equity markets, we will see a huge gains and will be a testing week if markets can hold on to the gains and trend higher.
Dollar is poised to get stronger at behest of strong growth theme in US.
Bond Markets will have to digest treasury supply and Fed meeting minutes. Last week Non Farm Payrolls have caused a selloff in treasuries. This week USM10 will be testing key support levels.
Oil has broken the 70-80 dollar range and currently trading at $85. Strong growth rate in US will drive oil higher. This week we will also have the oil inventory data that will weigh in. Last month WSJ carried an article suggesting that inventory measurement activity is prone to lot of inconsistencies. Need to see how market will react to inventory data from this perspective.
Friday, April 2, 2010
Euro - Bear put spread trade
EURO: March unemployment report is moderately better report. It also provided some strong indications by revising up previous numbers. This means US economy recovery is breather and growth story is still intact. This fundamental news is strongly supportive of dollar and bearish to EURO. On the manufacturing front, ISM for manufacturing reported 59.6 a very strong number indicating expansion in manufacturing sector. This news might allow fed revising its stance on the ultra loose monetary policy. On Europe front, still Greece problems are not yet over. Greece is trying to roll its debt by issuing new bonds. This means there is still uncertainty in the direction of euro. Fundamental factors, growth is favoring strong dollar but sovereign debt issues are weighing in. Still we have Portugal, Italy, Ireland and spain to come up with stronger fiscal measures. In the light of these factors Euro looks vulnerable. So medium term the dollar is going to look strong.
Some recommended strategies are
1) Short Euro
2) Buy June futures put options
Buy 1.34 E6M0 june puts at 2450 and sell 1.30 E6M0 June put at 1150 for net debit of 1200.
This is a very nice way to monetize events strong recovery in US economy and sovereign crisis related issues in Europe.
Risk to this option is US economy hits a wrong note due to concerns of the Domestic fiscal crisis in various states and housing related drag has surprising negative impacts.
Some recommended strategies are
1) Short Euro
2) Buy June futures put options
Buy 1.34 E6M0 june puts at 2450 and sell 1.30 E6M0 June put at 1150 for net debit of 1200.
This is a very nice way to monetize events strong recovery in US economy and sovereign crisis related issues in Europe.
Risk to this option is US economy hits a wrong note due to concerns of the Domestic fiscal crisis in various states and housing related drag has surprising negative impacts.
ISM - Payroll -March -2010
ISM: Economic activity in manufacturing sector expanded in March and overall economy is expanding. Index stood at 59.6. An indication above 50 is considered to be expansionary.
17 manufacturing industries have shown growth.
Among the components, Inventories and Price paid have shown significant changes to the levels from February.
Inventories contribution looks a bit unsustainable at this level of 55.3
General commodity prices are also increasing and so the price paid component has increased.
PMI at a glance in last 12 months.
Month PMI Month PMI
Mar 2010 59.6 Sep 2009 52.4
Feb 2010 56.5 Aug 2009 52.8
Jan 2010 58.4 Jul 2009 49.1
Dec 2009 54.9 Jun 2009 45.3
Nov 2009 53.7 May 2009 43.2
Oct 2009 55.2 Apr 2009 40.4
Average for 12 months – 51.8
High – 59.6
Low – 40.4
Net this report suggests economic recovery is intact and markets are poised for a strong growth ahead of time.
Unemployment: Much awaited unemployment report hit the electronic screens on an EASTER holiday. This report came at the heels of negative reports from ADP. Market has been looking at a range of -40,000 to 400,000. Final report indicated that employers have added 162,000 people. This number is a reasonably good number in the light of additions being expected of Census related hiring. Census hiring stood at 48,000 and will increase in the periods ahead of us.
Unemployment rate stood at 9.7%
March employment came from temporary help services , health care and Census hiring. Job reductions are still happening in Financial industry and information technology industry.
Non Farm payroll employment for January and February has been revised from -26000 to +14000 and -36000 to -14000 respectively.
17 manufacturing industries have shown growth.
Among the components, Inventories and Price paid have shown significant changes to the levels from February.
Inventories contribution looks a bit unsustainable at this level of 55.3
General commodity prices are also increasing and so the price paid component has increased.
PMI at a glance in last 12 months.
Month PMI Month PMI
Mar 2010 59.6 Sep 2009 52.4
Feb 2010 56.5 Aug 2009 52.8
Jan 2010 58.4 Jul 2009 49.1
Dec 2009 54.9 Jun 2009 45.3
Nov 2009 53.7 May 2009 43.2
Oct 2009 55.2 Apr 2009 40.4
Average for 12 months – 51.8
High – 59.6
Low – 40.4
Net this report suggests economic recovery is intact and markets are poised for a strong growth ahead of time.
Unemployment: Much awaited unemployment report hit the electronic screens on an EASTER holiday. This report came at the heels of negative reports from ADP. Market has been looking at a range of -40,000 to 400,000. Final report indicated that employers have added 162,000 people. This number is a reasonably good number in the light of additions being expected of Census related hiring. Census hiring stood at 48,000 and will increase in the periods ahead of us.
Unemployment rate stood at 9.7%
March employment came from temporary help services , health care and Census hiring. Job reductions are still happening in Financial industry and information technology industry.
Non Farm payroll employment for January and February has been revised from -26000 to +14000 and -36000 to -14000 respectively.
Wednesday, March 31, 2010
Market Decline is transient
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
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
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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