Monday, 24 August 2009

Euribor Curve steepens

As rate hikes look imminent, front month euribors spreads are storming higher as back month spreads falls traders bet on interest rates. Recent positive news have put pressure on Bonds as risk appetite grows.
Mar10-Jun10 rose from a low of 33 on Friday to 38 in the afternoon, where as Jun11-Sep11 spread fell from 18.5s to 17s in the afternoon.
Looking forward it looks like this trend is likely to continue, and I favour being long on pullbacks on the front end and short the back end,unless new news dictates otherwise.

The Recession has ended!...yeah right

Well judging by the rampant rally in the stock indicies, it appears to be so. We are soon to be crossing the 5000 mark on the FTSE 100, and 10000 isn't far away in the Dow.
Alot of shorts are getting hit on these move up as many who thought we will revisit the lows are being forced to cover positions on the back of better data all round and generally bullish sentiment.
Although many still remain bearish, path of least resistance is up it seems, one of those still a bear is Nouriel Roubini (one of the guys who predicted the recession).
He says:
Employment remains weak.
We're still facing a solvency crisis, as true deleveraging has yet to occur.
Countries with current account deficits (like the US) will need their consumers to retrench further.
The financial system remains severely damaged.
Corporate profits will remain weak, discouraing companies from hiring new workers.
Public sector re-leveraging will crowd out the private sector, and stimulus will run out next year
Without revitalized consumer in "surplus" countries (like China), demand will remain weak overall.
Finally, he gives two reasons to fear the dreaded double dip. The first is the possibility that the Fed will fail (miss the landing strip, so to speak) as it undoes pro-liquidity policies. The second is the likelihood of commodity prices (food, copper, oil) coming back with a vengeance. He believes the global economy could not tolerate $100 oil this time around.

The bottom line however is that sentiment trumps all, and as far as the markets go, we are still going up.

Tuesday, 18 August 2009

Have equities turned?

The technical outlook looks to have shifted over the last two weeks. The failure to break recent highs at 1016.00 in the S&P 500 on two occasions has lead to a potential double top formation and has created a very strong resistance level. The target of this technical formation is at 957.50; coincidentally this represents daily support formed as a result of a previous double top. A break of this support would likely lead to a test of 927.25 and beyond that 865.50. A break of resistance at 1016.00 would likely surprise many market participants and could lead to another aggressive move higher with the next significant daily resistance at 1067.00.
Lest week Michigan Confidence and US Retail Sales came in below expectations and the market reaction was very telling. In recent weeks slight misses have been met by only small sell offs. Both of these figures led to concerted down moves and some panic within the price action. This weeks data releases are dominated by housing numbers and the equity markets reaction independent of the numbers will likely be very telling. If we see a muted reaction to a strong number or a sustained sell off on the back of weaker one this could well be another sign that we have reached a medium term high.
Bonds have shown ongoing strength in light of sideways equity trade and this is abnormal in light of the ongoing inverse relationship. We would suggest that bonds often can be a good indicator of future sentiment and with this in mind this could be another indicator that equities are approaching a medium term high.
(extract taken from futex)

Wednesday, 12 August 2009

German Bunds heading back up

After some aggressive selling recently in bonds as stocks continued upwards, we have bounced of 120 support in the Bund and are heading higher again. This was a double bottom as can be seen below. Next target is 121.50, depending on whether we continue this rally in stocks.

Euribor spreads have stabilised somewhat after breaking new highs in the front months. Sep10-Dec10 spreads are now trading in a 36-39 range, where as the back months are feeling selling pressure as the curve continues to adjust to rate expectations.
Today action is slightly muted as we wait for the fomc rate decision.
The big issue at Wednesdays monetary policy decision is whether or not the central bank will expand its Treasury purchases. We believe that the central bank will keep its schedule unchanged but that the door will be kept open for possible future changes.
Economic data have continued to improve and we believe that this will be noted in the FOMC statement. Inflation pressures on the other hand remain subdued. Hence we expect the statement to reiterate that the Fed funds rate will be kept exceptionally low for an extended period.
Overall the meeting could turn out as a non-event. Markets are pricing around 110bps of tightening over the coming 12 months primarily beyond Q1 2010 and we don‟t expect the FOMC meeting to alter current market expectations much.
That said, the range of possible outcomes is vast. Markets are likely to be unusually sensitive to the wording about the purchase programs or any signal regarding the future path of policy.

Friday, 7 August 2009

Forex robot review

A few weeks back I opened an account using the FAPturbo robot and am posting a quick review on how things are so far.
Its actually been a very bad start with the robot dropping jus under 1000 so far, what I found is risk management is the key, tweak some stops and lower the lots size to make it more manageable, since then it has been performing better. So far in august the robot is up 2%. Below is a sample of some of the trades so far.

If you buy through this link I can also email you more safer risk parameters.
For more information on this forex robot click HERE to go to there homepage

Thursday, 6 August 2009

Financials will continue to rally..

The rally in stocks is likely to continue as financials continue to recover with bumper deals associated with AIG and other government programs. Here is a list of fees generated over AIG, im sure these banks couldn't be more happier at this situation...
Among the biggest beneficiaries is Morgan Stanley, which has earned about $10 million assisting the Fed, but could collect as much as $250 million from various AIG-related deals..

Goldman Sachs Group Inc., Bank of America Corp. and J.P. Morgan Chase & Co. have all gotten assignments in recent months to help dismantle AIG...

AIG and the New York Fed, which helps oversee the government's ownership stake in AIG, are paying BlackRock Inc. to manage more than $35 billion of the insurer's toxic assets...

AIG is preparing to offer investors shares in a major Asian life insurance unit, American International Assurance Co., early next year. That initial public offering could raise more than $5 billion. Morgan Stanley and Deutsche Bank have been hired as lead underwriters... Each bank could pocket nearly $45 million in fees...

Accounting firm Ernst & Young has a New York Fed contract that could pay $10 million to $60 million...

Law firm Davis Polk & Wardwell LLP, which was brought into AIG at the peak of its crisis last September, is charging up to $950 per hour for partners' time. That reflects a 10% discount, which "is not a common practice," says Marshall Huebner, Davis Polk's lead attorney on the matter...

Goldman was part of a group of banks that helped AIG raise $1.14 billion this year by selling a large stake in a reinsurance company. The group of banks shared an estimated $39.7 million in fees...

Bank of America advised AIG on the recent sales of its car-insurance unit and a Tokyo building. Those deals generated $5.5 million and $1.9 million in fees, respectively, for the bank and others, according Thomson Reuters and Freeman & Co...

Blackstone Group, which has been advising AIG since last fall, has already brought in around $50 million, according to a person familiar with the matter.

And on and on...
Man what a time to be a Banker!

Front end Euribor spreads rise

We were looking at the 37 level, as a resistance ont the sep10-dec10 spread for a while now but we have finally broken through and have traded as high as 39 as we establish a larger range for the spread. We are ranging between 36s and 38s right now which is giving us some good trading opportunities. As traders price in rate increases over the coming year, front month spreads have shot up, where as green month spreads have fallen sharply and the red months have fallen a couple of ticks.
As stocks remain pegged to the upside, Bonds have been pressured to the down side, with bunds trading low 121s.
The rally in stocks has also led to dollar weakness, as all major currencies are reaching multi months highs against the dollar.

Monday, 3 August 2009

Global stock indicies continue to rise

After some good news from HSBC and Barclays, the market has reversed early losses to be heading to a very strong start to the day, however the first day of the month is often characterised by large early buying as institutions take the opportunity to rebalance their portfolios and to enter the equity markets. This should not be mistaken for a breakout as it can often be aggressively retraced, but it can provide great opportunities in the first few hours of trading.
The technical picture still appears bullish. Last week the S&P 500 held above the daily inverse head and shoulders neckline (currently at 963.00). All participants now will be focussed on the psychological level of 1,000.00 and beyond that daily resistance at 1,009.00. Until these levels to the upside are broken or the head and shoulders neckline is invalidated, we will be trapped in this corridor awaiting a signal for the next medium term move, be it a continuation or retracement.

Bonds have sold off and Itraxx index has tightened to below 600 for the first time since September, as traders continue to flee safer assets.
Looking forward we have rate meetings from ECB and the BoE, as well as Non farm payrolls. which will confirm our current trend or be the start of a reversal.

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,...