Thursday, 30 April 2009

Bund bounces back

Well since the last update we have traded pretty much sideways, both in bonds and stocks. This was to be expected after such a big run up, this consolidation is likely to continue, until we have something to push us significantly one way or the other.
US stocks made an attempt to break to the upside, but sellers returned for some much expected profit taking.
Chrysler announced bankruptcy protection, so one down out of 3. It is trying to reach a deal with Fiat to keep it alive, I believe it will but it is the weakest out of the three and is likely to find it the hardest to resurrect its fortunes.
Euribors enjoyed a a somewhat volatile session, however spreads remained broadly in line. Jun10-Sep10 Spread is now trading 19.5s and 20s slightly lower then the last outlook a week ago, further out the dec10-mar11 is still trading 19s-19.5s. Today I played the range, but found legging a bit difficult as many of the indicators were off the mark. We had for a majority of the day Stocks and Bonds going up in unison, as well as wildly diverging bund and schatz.
We have may day holiday tomorrow so European markets will be shut.

Monday, 20 April 2009

Stocks end down, financials dump

Well they say the more it goes up the harder they fall, and this was definatly the case with financials today. Bank of America gave up 25% despite having a great 1st quarter making more then the company made the whole of last year.
As expected bonds came back in favour with the bund rallying 100 ticks, to almost trade 123s. The "leaked" stress test report has certainly raffled a few feathers but its hard to tell how much it is to be believed.
Looking forward I would imagine a further consolidation to the downside before we think of going much higher for stocks, and for bunds,I'm still looking for 124s.
On a personal note I will be gone for the next week, happy trading!

Stress test revealed

Bonds up stocks down as a leaked Bank stress test supposedly reveals what we already know and that is that we are in deep S**T. Bunds up 45 ticks as a speak, Euribors are positive after being down earlier.
Below I have copied the results which are from the Turner Radio network:

The Turner Radio Network has obtained "stress test" results for the top 19 Banks in the USA.

The stress tests were conducted to determine how well, if at all, the top 19 banks in the USA could withstand further or future economic hardship.

When the tests were completed, regulators within the Treasury and inside the Federal Reserve began bickering with each other as to whether or not the test results should be made public. That bickering continues to this very day as evidenced by this "main stream media" report.

The Turner Radio Network has obtained the stress test results. They are very bad. The most salient points from the stress tests appear below.

1) Of the top nineteen (19) banks in the nation, sixteen (16) are already technically insolvent.

2) Of the 16 banks that are already technically insolvent, not even one can withstand any disruption of cash flow at all or any further deterioration in non-paying loans.

3) If any two of the 16 insolvent banks go under, they will totally wipe out all remaining FDIC insurance funding.

4) Of the top 19 banks in the nation, the top five (5) largest banks are under capitalized so dangerously, there is serious doubt about their ability to continue as ongoing businesses.

5) Five large U.S. banks have credit exposure related to their derivatives trading that exceeds their capital, with four in particular - JPMorgan Chase, Goldman Sachs, HSBC Bank America and Citibank - taking especially large risks.

6) Bank of America`s total credit exposure to derivatives was 179 percent of its risk-based capital; Citibank`s was 278 percent; JPMorgan Chase`s, 382 percent; and HSBC America`s, 550 percent. It gets even worse: Goldman Sachs began reporting as a commercial bank, revealing an alarming total credit exposure of 1,056 percent, or more than ten times its capital!

7) Not only are there serious questions about whether or not JPMorgan Chase, Goldman Sachs,Citibank, Wells Fargo, Sun Trust Bank, HSBC Bank USA, can continue in business, more than 1,800 regional and smaller institutions are at risk of failure despite government bailouts!

The debt crisis is much greater than the government has reported. The FDIC`s "Problem List" of troubled banks includes 252 institutions with assets of $159 billion. 1,816 banks and thrifts are at risk of failure, with total assets of $4.67 trillion, compared to 1,568 institutions, with $2.32 trillion in total assets in prior quarter.

Put bluntly, the entire US Banking System is in complete and total collapse.

More details as they become available. . . . . .

UPDATE 0147 HRS EDT Monday, April 20, 2009 --

For those who may be skeptical about the veracity of the stress test report above, be reminded that only last Sunday, April 12, this radio network obtained and published a Department of Homeland Security (DHS) Memo outlining their concerns that returning US military vets posed a domestic security threat as "right wing extremists." That memo, available here, is marked "FOR OFFICIAL USE ONLY" and contained strict warnings that it was not to be released to the public or to the media. We obtained it and published it days before other media outlets.

That DHS report appeared on this blog at least two full days before the story was picked up by The Washington Times, and virtually every other US media outlet.

Details of certain aspects of the stress test reported above have now been CONFIRMED through REUTERS News service when they disclosed the risk-capital percentages publicly on April 6, 2009 at this link

Further, todays Wall Street Journal (April 20, 2009) is confirming at this link that lending by the largest banks has DECREASED 23% since the government began the T.A.R.P. program, causing many in Congress to ask where the money has actually been going. Apparently, it has been going into propping-up the failing banks instead of out in loans to the public.

Its hard to tell whether this is true or not, but the market is believing it seems at the moment. My opinioon is that we will never know the truth.

Friday, 17 April 2009

GE and Citigroup results better then expected

So we got slightly better numbers then expected from these two Blue chips. We gaping up pre market on the two, I could see this as buy the rumour sell the fact though. I see us ending down for the day despite early strength.

JP Morgan lifts markets

Another up day for stocks yesterday as we breached 8100 after good results from JP Morgan. I along with many other do think this is getting a bit over extended, but whilst the momentum is to the upside I am staying clear of punting short unless the tape suggests otherwise. Today with results due from GE and Citigroup, this will really be a test to see if we keep going higher in these markets.
On the Bond front, Bunds did exactly as expected and tested 122.45 and actually went as low as 122.30. Before bouncing back to the 122.45 level. It was a very clear sell signal as yesterdays analysis showed. Long term we are expecting a move back up, but with the deluge of earnings we may have to revise our target, time will tell.
Euribors spreads have come off over the last few days, with spreads especially near the front off 3 to 4 ticks of its monthly highs. Lately volume has been very thin, as we wait for the next steps by the ECB. I've been playing the range over the last few days, with an emphasis on the red to green months, as there are a few more clear cut opportunities there.
As I finish writing this stocks are pushing through highs again on expectation of some good numbers from CITI, lets wait and see...

Wednesday, 15 April 2009

Bund Technicals

After we broke 122.45 on Tuesday, as we expected we gapped up higher on wednesday. We gapped up to 122.75 and reached a day high of 123.10 before coming off again as US stocks began to rally on FED beige book assessment. Intraday we formed a head and shoulders formation, with resistance at the shoulder at 122.85 and a floor at around 122.70. Looking at this short term, I would expect a test of the 122.45 level closing the gap from yesterday morning, before making a move up medium term towards 124.00.

Fundamentally speaking this longer term view can be supported as it seems increasingly likely ECB will cut further.
Todays we will have earning from JP Morgan, which will set the tone for stocks today. It is likely they will also show that things are getting better, but the real test will be when Citi report as they were given the most bailout money and previously in the most danger of going under. We shall see how it pans out...

Tuesday, 14 April 2009

Stock market tumbles

Stock markets took a tumble today after some real bad retail sales numbers. Before the numbers they were up again and the numbers gave everyone a reminder that not all is well yet. We settled below 8000 on the Dow which could prove to be significant going forward.
Whilst there was some action in stocks, bonds action was very lacklustre with very poor liquidity throughout. Trading Euribors at the moment is a bit of a nightmare, reminds me of the old TED spread days. I'm hoping it picks up as I put today down to easter weekend hangover.
Bunds ended the day at 122.48 finishing near the high of the day. We broke out of the intraday resistance at 122.45 in late trading, and this could be a floor for tomorrows action. I would expect the rally in bunds to continue in the next week inching us closer to the 124 target.
Tomorrow we could be looking at more weakness in stocks opening up after a dissapointing number from Intel, shares are down 5% in after hours.

Thursday, 9 April 2009

Financial Stocks Soar

Today was a big day for financials as Wells Fargo predicted some very upbeat first quarter earnings. Profit of $3billion on revenue of 20Billion. Most oft his profit was from the increase in refinancing, which in turn led to Bank of America rising 35% since it is likely it will benefit from the very same thing. For the week for equities we are slightly up, but the pace of increase is slowing as would be expected after such a huge run up. The earnings season really starts to gather steam next week with a barrage of companies reporting next week including the mother ship General Electric. Most of the action in stocks and bonds will be underpinned by these results.
On the bond front, it was an extremly quiet day volume wise. BoE kept rates unchanged and that pretty much killed game for short sterling as there was not much reaction to the news and I think short sterling traders started the holidays early. On Euribor front we had a sell of in spreads as we rallied in stocks. For Bunds we pushed down lower and settled at 121.87, looking ahead I think we need to be looking at breaking 121.50 if we are to head any lower or otherwise my bet is we still head towards 124.

People have been asking me alot lately where do we head now for stocks, and my feeling is that in the last month nothing much economically has chnaged, but just the mood has changed, slightly more risk appetite is returning and people jumping on the back of the rally hoping not to miss it. This market right now just represents a huge pool of emotions. FEAR of missing the rally, GREED of not getting out after such a big move up, there are those who are leveraging in the option market because they think they have missed to much of the rally so far as 20% more options traded then the daily average today, and over 50% more then on a normal pre holiday trading day.
I still remain a bear, and I think we are to still head down some point this year as I have said in previous posts. Only time will tell...
Happy Easter

Wednesday, 8 April 2009

Interest rate futures continue to push up

The rally in STIRs continued yesterday early on as stock futures were down after the a down day on wall street. They did come off as the day went off and equities reversed losses.
Euribor spreads were quite flat after moving around quite a bit in the previous sessions, volume was lighter as well. Jun10-Sep10 spreads were in the 21.5 - 22 range, Dec10- Mar11 spreads ranged fron 19.5 to 20.5. For me it was a quiet day, I found it hard to initiate many positions due to the low liquidity in the far end Euribor contracts.
Short Sterling was a in tight range as well today as we wait for the Bank of England interest rate decision scheduled today. There is not much more they can do now, but still anything is possible.
As I write stock futures are on the up with gains in asia overnight, it could be another volatile day as we have PPi for the UK, BoE interest rate decision and jobless claims in the US.

Tuesday, 7 April 2009

Stocks pullback

We had a much expected pullback in stocks today and rise in bonds. Short end lead the advance in bonds, with Euribor and Schatz outperforming the bunds.
Euribor spreads pulled back in the front months, with Jun10-Sep10 reaching as low as 21.5 given it was trading 24s yesterday. However the move up was on much lower volume then the last couple of days, so we shall see if this bounce up has any legs.
Stocks sold off as traders take profits before earnings which started with a pretty bad one for Alcoa. They posted a $500 million loss, which is evidence of the slowing global demand for commodities.
I think this sets the tone for what is to come ahead. The real test will come when banks report next week. It will certainly show how much toxic assets are still on the balance sheets and whether they are moving forward.

Monday, 6 April 2009

3m Euribor trading wildly

Things started the week off where they finished on friday, with some real swings in the Euribor contracts.(European interest rate future) We pushed up to new highs in Jun10-Sep10, Sep10-Dec10 spreads, before pulling back midday. As I have done before I shorted the spreads on the move up, which worked out nicely as they came of a tick from the morning high.
Bonds in general sold of in the morning, especially the UK and EU STIR (short term interest rate) contracts, on heavy volume. Large selling clips were seen across the curve. The market turned however as stocks started to pare its gains and head to negative territory.
We are in the middle of no where for stocks and bonds right now, and with 1st quater earnings starting tomorrow, it will set the tone for where we head next.
The momentum is still on the upside right now, but I believe its starting to fade.
For Euribors I think we mite head up soon after the sell off we have had since the ECB rate meeting. It is still likely the ECB will cut further as the recession isn't going to end any time soon. For Bunds I think we see 124 before we see 120.50.

Friday, 3 April 2009

Bund trading lower even with bad job numbers

Bunds hit the 122.00 level dropping 250 points from its resistance level it was at just 2 days ago. The question is are we going to test the next support level at 120.50 or head back up to the 124.50 area. Well my bet would be a run back up to 124.50. This would coincide with an overdue pullback in stocks, which at the moment looks very strong, rising today despite dismal job numbers. However technically speaking 8000 on the Dow Jones is resistance, and more resistance is at 8500, so it would really require some real good news, and not just ignoring bad news to push this market higher.
Euribors also continued to sell off as did short sterling. Spreads were ranging in a much larger range since yesterday, which is making trading much better. This accompanied by increased volume has created much more opportunities. Jun10-Sep10 spread has ranged between 20 and 22 over the last two days, ranging nicely. Next week I would expect to see continued adjustment in positions as they digest this weeks events.
Summing up I think this week just seemed to perfect for stocks, we had the relaxation of mark to market accounting, G20 stimulus agreements, a spot on job loss, one after another news was positive for the market. Sounds to good to be true, something has got to give. I'm not a bull yet but still will stick to day trading, as these swing trades are a bank breaker if you time it wrong. I think we are going to start seeing the demise of the dollar too long term. I was looking into a automated fx package and this one called FX auto pilot seemed to be interesting. Will be looking into it more will keep you posted.

Thursday, 2 April 2009

ECB cuts 25bp, and stocks soar again

Well we certainly had some volatility back in the market accompanied by some huge volume. Bund bounced very nicely of the 124.50 resistance and got smashed to the support level. This move down was accompanied by big volume, with over 1 million contracts traded.
Euribors as you would expect got drilled lower too, surprisingly the spreads stayed in the range, with plenty of opportunities to leg up spreads, especially with the increased liquidity.
ECB presidents Trichets decision to cut rates by only 25bp was a big surprise to the market, as lets face it, Europe is in a deep recession with unemployment and low inflation. I believe Trichet is trying to give him self more room for maneuver rather then trip over them selves cutting rates as low as they can go. The question you have to ask is that does it make a meaningful difference if rates are at 0.5% and 1.25%. Will it spur the economy any more? In my opinion not really. People call Trichet slow to react, but I guess time will tell whether it will make any difference or not, I don't think it will, when one nation starts to recover so will they all.
Stock look like they already believe we are at a turning point, with a 20% plus rally from its march lows. How much further up can it go, well the market always takes the least expected path. There is a lot of money on the sidelines that can propel this market higher, but before the end of the year I still believe we will make another attempt at the lows. Tomorrows Non farm payroll number will probably confirm a very bleak jobs picture still, and remind us all we are far from near to some sort of recovery, cause jobs are the most vital part of kick starting the economy.

Wednesday, 1 April 2009

Stocks up before ECB meeting

As we approach the ECB rate decision the curve shifts continued from yesterday with the from month Euribors getting sold relatively to the red months, with the jun10-sep10 spread falling to 20s. At the same time the reds were stronger then the greens as the body of the curve is shifting upwards, with Mar11-Jun11 trading 23s. I tried to focus trading spreads between Sep10 and Mar11, as they were ranging in a 1/2 tick range, and had less fluctuations. Today was quiet with lacklustre volume again. Bunds are hugging the resistance of 124.50, where we go from here will be heavily influenced by tomorrows decision. Below is a chart of the bund range:

As far as stocks goes, European and US markets erased early losses as we ended up the day near highs. I'm still in doubt about this rally, personally I don't think it makes sense. We have 2 of the big 3 car markets going bankrupt in my opinion, hundreds if not thousands of big companys will fail ,commercial real estate is going to collapse, and residental still has another 20% down to go Fed has tripled it's balance sheet, money supply nearly doubled in the past 6 months, Govt. on the hook for 10 trillion since summer, new bretton woods coming, no one buying the long bond other than the Fed and their quantitative easing and the markets go higher.
What do you think?

Bonds go higher

Bunds have reached top of the range, as bonds go up despite equity strength. The day was very lackluster volume wise, as it appears traders are waiting on the sidelines
as the weeks events unfold. Tomorrow is the start of the G20 meeting, and announcements from which could be a real market driver.
Euribor spreads have seen varied price action, as front month spreads appear to be coming of and far month spreads continuing its rise. Jun10, sep10, Dec10 have seen the bulk of the buying relative to the front months and green months.
It is ironic just as I mentioned the range in the Mar11-Jun11 in the previous post spread it jumped through the 21 resistance level and traded through 22s, where as the Jun10-sep10 spread has come of from 23s to 21s. The curve plays are expected as we approach the ECB meeting, as we anticipate the next move.
Stocks finished there best month for 6 years, but i'm not reading too much in that as its been the best or worst months for a lot of things, as we continue this wild volatility, and see these massive swings in share prices across the board.
It is likely just as it happend when we hit the november low, that we will establish a 1000 point trading range for the next few months, unless there is another big catalyst to push it in either direction.
As far as my approach is concerned, im keeping it small till we see what action the ECB does on thursday.

Short Sterling spreads nudge higher on hawkish Fed; Walmart blowout

As most must know trading Short Sterling is a bit of a bore, and has been for a while. Having managed to get out of my 2 month hold before,...