Monthly Archives: February 2016

From WDYM

m6m7

The collapse of this relationship in 2016 is a graphic representation of the poor data and negative rate gloaming. In "normal" times - remember normalization? - the spread would move out toward 150 bps with the Fed around. Instead, the year long jawboning to 1st hike produced a short blip....then collapse.

The sister relationship in Euribor is an "above par" handle -3.5 !! The bear flattening on the T curve has facilitated the recent pop back to life. The sketchiest type of improvement. (as 2yr to 5yr T sector leads market down the Red and Green Euros widen to the front). We prefer to trade the 2nd year spread, with March already upon us, we will be switching to Sep16-Sep17 promptly. The wider the better. Contango? This will go down as the shortest tightening cycle ever.

Classical Monday

30 minute atr
240 minute atr
daily atr
daily pivots
weekly pivots
monthly pivots
upside retracements
downside retracements
regression channels
support and resistance
On the economic calendar:-
  9:45 am Chicago PMI (Consensus 52.1 v Prior 55.6)
10:00 am Pending Home Sales (Consensus 0.6% v Prior 0.1%)
10:30 am Dallas Fed Manufacturing Survey (Consensus -30.0 v Prior -20.0)
11:00 4 Week Bill Announcement
11:30 3 Month Bill Auction
          6 Month Bill Auction
  3:00 pm Farm Prices

 

A Hopeful Session

The year spread came into Friday morning at a new low of 10.5bp. (EDM6-EDM7). 2016 opened with much ado about the Fed and this relationship around 60bp. A "normal" tightening cycle would have pushed the spread toward 150bps. Quite strikingly, the present situation is anything but "normal" let alone a "tightening cycle."

The Friday session saw the curve bear flatten. A small encouraging sign was the 5bps pop this action caused in the EDM6-EDM7 relationship, out to a whopping 15+. By comparison, the Euro based spread is -3.0bp with the legs at 100.30+ and 100.33+, respectively. As I tweeted earlier this week, "Above par and inverted is where I get off the bus." No self-respecting nation with even a marginally functioning financial system would advise or tolerate such a dystopian forward curve view.

The continuing and accelerating regulatory destruction of the CP market could continue to weigh on the term structure in STIR. The global LIBOR banks are also steady CP issuers, As that market is shackled with post crisis regulation, CP issue rates have widened steadily over T Bills. Coupled with negative rate regimes forcing breath into interbank, short tenor LIBOR sets will be pressured outward. This will make halting the Eurodollar flatlining more difficult.

Remember the mantra: Steep is Good.

Classical Friday

30 minute atr
240 minute atr
daily atr
daily pivots
weekly pivots
monthly pivots
upside retracements
downside retracements
regression channels
support and resistance
On the economic calendar:-
  8:30 am GDP (Consensus 0.4% v Prior 0.7%)
                International Trade Goods Balance (Consensus $-61.1B v Prior $-61.5B)

Personal Spending (Consensus 0.3% v Prior 0.0%)
Personal Income (Consensus 0.4% v Prior 0.3%)
10:00 am Consumer Sentiment (Consensus 91.1 v Prior 90.7)
11:30 am 7 Year Note Auction
1:00 pm Baker-Hughes Rig Count

Speaking today:-

10:15 am Jerome Powell
John Williams
1:30 pm Lael Brainard

Classical Thursday

30 minute atr

240 minute atr

daily atr

daily pivots

weekly pivots

monthly pivots

upside retracements

downside retracements

regression channels

support and resistance
On the economic calendar:-
  8:30 am Durable Goods Orders (Consensus 2.0% v Prior -5.1%)
                Jobless Claims (Consensus 270K v Prior 262K)
  9:00 am FHFA House Price Index (Consensus 0.5% v Prior 0.5%)
  9:45 am Bloomberg Consumer Comfort Index
10:00 am EIA Natural Gas Report
11:00 am Kansas City Manufacturing Index
                3 Month Bill Announcement
                6 Month Bill Anouncement
                52 Week Bill Announcement
  1:00 pm 7 Year Note Auction
  4:30 pm Fed Balance Sheet
                Money Supply
Speaking today:-
  8:15 am Dennis Lockhart
12:00 pm John Williams

Classical Wednesday

30 minute atr
240 minute atr
daily atr
daily pivots
weekly pivots
monthly pivots
upside retracements
downside retracements
regression channels
support sand resistance
On the economic calendar:-
  7:00 am MBA Mortgage Applications
  9:45 am PMI Services (Consensus 53.7 v Prior 53.7)
10:00 am New Home Sales (Consensus 520 K v Prior 544 K)
11:30 am 2 Year FRN Note Auction
  1:00 pm 5 Year Note Auction
Speaking today:-
  8:00 am @Tradingpoints
                 Jeffrey Lacker
  1:15 pm Rob Kaplan
  6:30 pm James Bullard

 

Classical Tuesday

30 minute atr
240 minute atr
daily atr
daily pivots
weekly pivots
monthly pivots
upside retracements
downside retracements
regression channels
support and resistance
On the economic calendar:-
  8:55 am Redbook
  9:00 am Case-Shiller HPI (Consensus 0.8% v Prior 0.9%)
10:00 am Consumer Confidesne (Consensus 97.2 v Prior 98.1)
                Existing Home Sales (Consensus 5.32 M v Prior 5.46 M)

Richmond Fed Manufacturing Index (Consensus 2 v Prior 2)
State Street Investor Confidence Index
11:30 am 4 Week Bill Auction
1:00 pm 2 Year Note Auction

Speaking today:-

8:30 pm Stanley Fischer

On a Negative Pegged Money Market

The base case for negative rates lies in the desire to promote a more robust interbank market. The question remains whether such a market still exists in the post credit super cycle world and if so, has it retained its benchmark status? As we posted last month, Harley Bassman of PIMCO has focused on the distinction between "risk free" and "benchmark" . Consider negative rate sets in context of The Matrix.

When Neo pokes his finger through the television screen he believes he is crossing over to another side. In fact, Neo was already in an abstract environment and was merely going deeper into the strangeness.  The decades long growth in interbank benchmark lending transpired in the IOER absent world. IOER is a monetary tool utilized on impaired systems. A rate that is positive or negative is inconsequential to the underlying reality and only a function of degree. The Fed increasing the spread between Dollar based activity and Euros, Pounds, Yen and Francs highlights the difficulty of a CB "going rogue."

Negative rate pegging promulgates a deflation fear. Absent the actual deflation, the peg is an interbank lending Hail Mary. The global money market no longer funds itself through unsecuritized non-collateralized interbank borrowing, let alone off balance sheet notional phantasm. Negative pegs are no more mis-guided than quaint concepts of "normalization." "Normalizing" rates is a process that can only occur when/if the global money markets exit their quantitative regimes. That prospect is nowhere on the horizon. As long as quantitative central banking continues, we, like Neo, must begin our analysis from a distorted perspective.

Classical Monday

30 minute atr

240 minute atr

daily atr

daily pivots

weekly pivots

monthly pivots

upside retracements

downside retracements

regression channels

support and resistance
On the economic calendar:-
  8:30 am Chicago Fed National Activity Index
  9:45 am PMI Manufacturing Index (Consensus 52.5 v Prior 52.7)
11:00 am 4 Week Bill Announcement
11:30 am 3 Month Bill Auction
                6 Month Bill Auction

Classical Friday

30 minute atr

240 minute atr

daily atr

daily pivots

weekly pivots

monthly pivots

upside retracements

downside retracements

regression channels

support and resistance
 
On the economic calendar:-
  8:30 am Consumer Price Index (Consensus -0.1% v Prior -0.1%)
  1:00 pm Baker-Hughes Rig Count
Speaking today:-
  8:00 am Loretta Mester