Orderboard & Flow (Archive) |
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| Posted: 2018-Sep-04 01:07 by Vertex |
| Posted: 2018-Sep-04 01:11 by Vertex |
Current market expectations as implied by Fed Fund Futures suggest that the US Federal Reserve is on track to hike rates later this month, and again in December. The FOMC dot plot projection implies 4 hikes in 2019, and a Goldilocks scenario in 2020 where growth, inflation, and interest rates are all balanced in perfect harmony for an unspecified period into the future. In fairness, with the US posting a 4.2 percent annual increase in GDP, the future does look bright. One area of concern is the recent softening in the U.S. housing market where sales of existing homes have fallen for four consecutive months, the longest such streak in five years. The drop-off is a troubling sign to many analysts, especially because the housing market is considered an indicator of the U.S. economy’s overall health. While data in the US looks mostly solid, there are developing events on the international stage that grow more troubling by the day. Argentina has raised rates to 60% in an effort to arrest a collapse in the currency, while consumer price inflation in Turkey accelerated to 17.9 percent, data on Monday showed. And this does not look to be the top of the cycle. Producer prices, which usually lead consumer prices, rose 6.6 percent in August alone, pushing the annual rate above 32 percent. Core CPI rose to a record 17.2 percent annual rate. As noted last week, credit spreads on Eurozone debt have widened on fears that defaults in Turkey - due to an inability of Turkish firms to refinance maturing debt at reasonable rates - will manifest substantial losses for Eurozone banking counterparties should the Erdogan government collapse. All of which may be exacerbated on Thursday. US President Donald Trump is still waging the global trade war, and is likely emboldened by success negotiating a replacement for NAFTA with Mexico last week. U.S. Commerce Secretary Wilbur Ross told Fox Business News on Tuesday that the White House believes it’s important to resolve trade disputes in “our own neighborhood” quickly and favorably, while calling on Canada to join the agreement. Ross further suggested President Donald Trump’s position is that it’s currently not the best time for negotiations with China, crushing expectations for a speedy resolution to that disagreement. The next major event on the Trade war front will arrive Thursday when the comment period for tariffs on $200 billion of Chinese goods is scheduled to end. Many expect the US President to move to implement the new duties quickly, which China has vowed to retaliate against. Economists suggest that the proposed duties will have a material impact on GDP, shaving as much as 0.5% globally. The Main Event For many the main event in the week ahead will be US Non-Farm Payrolls due to be released on Friday. With the unemployment rate ticking down to 3.9% last month, it is reasonable to conclude that the US is at or near full employment. Economics 101 teaches that when an economy reaches full employment, firms need to raise wages to attract workers. Those rising wages are inflationary and very soon now - maybe as soon as Friday - there will be an upside surprise. |
| Posted: 2018-Oct-22 23:57 by Vertex |
___________________ President Trump kept his promise to forge a new NAFTA agreement covering $1.2T in cross-border flows. After contentious negotiations US President Donald Trump, Canadian Prime Minister Justin Trudeau, and Mexican President Enrique Peña Nieto came together to produce a much needed update to the terms of trade. Treasury Issuance $40 Billion - 4-week bills (10/02) $48 Billion - 13-week bills (10/01) $42 Billion - 26-week bills (10/01) Orderboard & Flow Last weekend this service reported that Turkish 10s were yielding 18.12% and the lira was down 65% YTD. The reversal has been swift with the TRY recovering 3655 pips in 5 days. Try not spend it all in one place. |
| Posted: 2018-Oct-22 23:59 by Vertex |
___________________ There was a steepening of the yield curve last week with 2s/10s widening to 35bp from 23bp the week before. This should result in some attractive yields at auction when US bond traders return from holiday on Tuesday. Treasury Issuance $40 Billion - 4-week bills (10/09) $48 Billion - 13-week bills (10/09) $42 Billion - 26-week bills (10/09) $26 Billion - 52-week bills (10/09) $36 Billion - 3yr Notes (10/10) $23 Billion - 9yr 10mo Notes (10/10) $15 Billion - 29yr 10mo Bonds (10/11) Trade War Update In an effort to combat the mounting negative impact of US import tariffs on its domestic economy, the Peoples Bank of China moved to ease monetary policy over the weekend by announcing a 100 basis points cut to the reserve requirement ratio (RRR) for most banks. This will result in an injection of 750 billion yuan ($109.2 billion) in cash into the Chinese banking system. Elsewhere, Bloomberg has released a report asserting that China has attacked the US supply chain by injecting hardware based backdoors into server mainboards, potentially compromising critical infrastructure. Companies mentioned in the Unfortunately the supply chain attack isn't the only news from the front line. Numerous sources have reported an "unsafe" confrontation in the South China Sea between US and Chinese warships. Thankfully, no casualties were reported. |
| Posted: 2018-Oct-23 00:03 by Vertex |
____________________ There are moments in time when the market is supported by the thinest of thread. Collectively market participants have an incentive to support prices. That process includes the periodic shifting of sentiment in order to clear the weak handed and temper speculative excess, but in every case it comes with risk. The market has entered a long expected period of increased volatility. There are many reasons for this including the onset of full employment in the United States, which historically has lead to a noticeable increase of inflation measures. To combat this real and present risk to human well-being, the Federal Open Market Committee - chaired by Jerome Powell - has collectively decided to increase the overnight lending rate to ~2.20% and signal an additional 100bp in hikes over the next year. It is easy to cast stones at the good people toiling away inside the nations central bank for ruining the party that market participants enjoy so much, but that is their job. Markets did not collapse this week because of the FOMC. The problem is that for many on Wall Street and elsewhere, a decade of monetary stimulus has produced the deeply flawed assumption that interest rates would never rise again. This assumption allowed too many to bid prices for some assets well beyond rationality, and now that interest rates are returning to historical norms it is no longer prudent to hold those same flawed assumptions about rates. The sell-off this week is the associated repricing and for many it will hurt. How much pain participants can look forward to is unknowable at present because the rise in rates is only one of several factors driving the sell-off. There is some disagreement regarding the accuracy of the Bloomberg report detailing a Chinese attack on the technology supply chain via malicious hardware injection on PC motherboards bound for the US, but a look at the pricing of securities offered by the firms associated with the report shows it is clearly weighing on sentiment. Will this be the event that turns tech loving consumers dark on providing the trust that high flying silicon valley companies need to operate? Maybe not, but after years of lax concern for user privacy, it might not be far off. And then there is the trade war. Look, if it turns out that the supply chain attack is legit it is the sort of thing can turn an economic war into something far more consequential for humanity. Toss in the rapidly approaching deadline for BREXIT, a new flare up in EU-Italian budget negotiations, ongoing issues with Argentina, Turkey and rumors of a disappointing earnings season ahead and you have a potentially explosive situation. At a minimum it may be time to acquire some protection. |
| Posted: 2018-Oct-23 00:11 by Vertex |
____________________ A confluence of events caused the benchmark S&P 500 index to plunge 5.5% last week and put market participants on edge. Rumors have surfaced that a "technical glitch" prohibited customers of Vanguard from executing trades on Thursday while the market was in free fall. Worse, the price of protection is rising after last week's plunge drove the VIX to levels not seen since February. Sentiment brightened a bit heading into the weekend with Turkey finally released Pastor Brunson, but the whole event is a stark reminder of the risks associated with normalization of fiscal and monetary policy after a decade of extraordinary measures. On the bright side, last week's $230 Billion Treasury auction priced well. Treasury Issuance Ahead $45 Billion - 13-week bills (10/15) $39 Billion - 26-week bills (10/15) 4-week and 8-week bills to be announced on 10/15 for auction on 10/16 |
| Posted: 2018-Nov-05 15:59 by Vertex |
____________________ Sentiment has turned decidedly negative this month with a decline in the S&P500 of 10% from highs notched in late September. As outlined in the meticulously crafted training product, sentiment drives market pricing. It is impossible to know the specific level of a turn in advance, but there are factors supporting current market sentiment that, where they removed, could allow for a return to the highs and beyond. The most pressing concern for market participants is the outlook for Fed interest rate policy. After many years of fiscal and monetary stimulus investors have bid up prices for assets. This can be seen clearly in capitalization rates for commercial real estate. Unfortunately, the stimulus is now being removed with net flows from central bank asset purchase programs turning negative. Additionally, the current Fed dot plot suggests four 25bp hikes to the overnight lending rate between now and end 2019, along with an acceleration in balance sheet reduction to as much as $50 billion per month. After a tumultuous few weeks, market assets are still not priced for that reality. It would be fair to assert that this latest market correction is policy driven, and that the Federal Open Market Committee is trying to force market participants to stomach some undesirable medicine. Regardless where one comes down on the merits of that policy, it is impossible to escape the fact that liquidity is being removed at a meaningful rate and that it is having an impact on market pricing. There is probably more pain ahead for the over leveraged and otherwise poorly positioned, but that does not mean all is lost or that everything is going to zero. Sentiment Changes It is possible that the FOMC will lower the forward guidance on rates and/or balance sheet reduction in the face of escalating market volatility, but the house view is that this is unlikely. Friday's Non-Farm Payroll data is expected to indicate tight labor conditions with the potential for accelerating wage inflation. Another potential game changer would be a move toward resolution in the ongoing trade dispute between the US and China. Corporate executives are noting that tariffs are having an impact on the global supply chain and disruptions are beginning to show up in earnings. Unfortunately, analysts expect little movement on this front until after the US midterm elections in November. With that in mind, traders should look for catalysts elsewhere. Thankfully corporate earnings are still a potential driver with plenty of big names - including Apple and Facebook - due to report in the week ahead. |