Wednesday, 26 September 2012

Stocks Rally Fizzling out?

After a huge run up in stock markets, on all corners of the globe, it seems now that Europe questions are being asked again, the optimism is waning  The Dow dropped 100 points yesterday despite good data out of the US regarding consumer confidence.
The Bund is always consolidated above 140, having been trading mid 138s last week.
The real question is has anything changed, we have assurances from central banks that they will fully support indebted nations, but the fact remains that we are still not growing, numbers look weak and without growth its hard to grow out of this mess, and for this reason longer term I dont see no other way to go then sell stocks, and buy Bunds. Stocks have been artificially bid on the back of the Fed Easing strategy, but there's no real macro fundamentals to really back this up.
Earnings next week will paint a better picture next week, but although we are likely to get better numbers, its more by being efficient, cutting costs rather then employing workers and growing rapidly.

Looking at STIR spreads they have been in a tight range as you would expect, and so just playing the small moves nicking half tick here and there seems best play. Nothing really notable to mention in the past week, but we have been seeing more volume in these STIRs which is good, with over 100k contracts trading on many contracts.

Been looking at Brent Oil Spreads, and that saw a breakout on Monday in the 1 month butterflies at the front of the curve, which was a bit nasty, although it has faded some of it. These spreads are moving quite a bit, so providing more opportunity but much more breakout prone lately.

As far as the rest of the week goes, not much on the calendar, and we look to next week as we get a raft of data to see where we go.

Friday, 14 September 2012

Lower Bonds higher Stocks on the back of QE3

So much for thought we wouldn't go below 139 in the Bund, but despite widespread anticipation of this move from the FED we reacted with a big sell of in the Bunds, which goes against what you would fundamentally expect, and we are trading multi month highs in all currencies against the dollar. The EurUsd is trading above 1.31, given that 9 days ago we were 1.25 which is a huge move!
Spreads are inching up as you would expect too, but not getting affected as much as the longer end of the Yield Curve.
So here is the facts, Nasdaq at decade highs, European Indices at year highs, Dow at 4 year highs, yet the economy is massively weak, this move by the FED was on the back of a very weak employment picture, and with the 3rd round of QE in the works, one has to be aware of the potential inflation risk down the line.
You can say that stocks are the only investment with yield given the low rate policies from the central banks, but do i think this is all massively overcooked! The answer is yes, and so I am expecting some correction going forward, although I dont think this will happen till next week as I cant see people wanting to be short over the weekend. Either way, its all exciting stuff! Have a good weekend

Wednesday, 12 September 2012

German Court ratify ESM Plan

The German Constitutional Court has ratified the eurozone bailout package. The bill will now be signed into law.
At issue was the legal matter of whether the permanent bailout fund which the eurozone nations had established (the European Stability Mechanism) was in keeping with the German constitution.
The ESM is a scheme which allows joint funds to be spent buying debt directly from governments. These governments would request help after finding it too expensive to borrow from the market. Unlike the OMT, its potential size is limited to €700bn. Germany will take on 27.15pc of these contributions, giving it a maximum liability of €190bn. Of this sum, €80bn (or €21.72bn for Germany) must be paid up front to the ECB.

We had quite a wild move on the back of this as the Bund initially went bid before selling of hard to reach a low of 139.24. The Euro also breached 129, as optimism has grown greatly. Couple this with likely QE out of the FED tomorrow, has led to dollar weakness and a big drop in the dollar index.

Spread wise we have steepened as you would expect with the big fall in the Bund, but the shorter end of the curve has stayed pretty stagnant with only a slight upward move in the Euribors.
Below is some video analysis on the past weeks moves.

Tuesday, 11 September 2012

Bullish ECB but bad NFP

So we got the expected volatility last week as the ECB delivered on the promise that the market was expecting, and this in turn lead to Euro strength, as we traded above 1.28. As far as Bonds are concerned, we had a big sell of and traded 139 handle, on the new Dec12 Bund contract, its been a long while since we have had sub 140 prints in the Bund, and is a definite sign of more risk appetite.
We dropped as low as 139.42 in the Bund, on the back of the proposed Bond purchases from the ECB, but we pushed up over 100 ticks on Friday as US Non farm payroll disappointed, and was a timely reminder that the Global Markets are still sluggish and there's still along time till things will really turn around.
Have bounced twice from 139s, I expect mid 139s to be a buy as I cant see us falling too much more in this Bund.
Points of interest in the Bund to the Upside is 140.94-141, 141.38 and 142.48 to the down side, 139.42, 140.63.
Its a similar way Spreads pushed up on the back of Draghi actions, but faded this move on the disappointing non farm payrolls. I was trading the Mar14Jun14 quite a bit and was selling it up the way up from 7.5s to 8.5s, and this worked out as it came back down to 7-7.5s.
It was a similar story along the curve.
Looking forward, we have gone back to the sideways low volatility markets but looking for further progression out of Europe as well as FOMC press conference and projections 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,...