Friday, 31 January 2014

Emerging Market Worries push Spreads Down

This week has been a weird one in the sense that I didn't think Stocks could go down in this new age, but yes they can, and when they do they go down hard and aggressive! I think many people wanted a pullback, but a pullback based on general profit taking, and not any fundamental issues like the plunge in currency in emerging countries like Turkey and Argentina. This has really sparked some real worry, and for the first time in a while, the market seems heavy, path of least resistance seems down, despite some big moves up in between.

Euribor Spreads have been pushed to lows on the back of Equity weakness and also weak Eurozone CPI. The ECBs target of 2% inflation seems far off as we had a 0.7 print this morning, which intern pushed Bonds up and has lead to a narrowing in the Yield across the curve. The Mar15Jun15 Spread has traded as low as 4.5 which is a buy all day long, and I have been trying to get long that level everytime it reaches down there, and will add more on at 4 if it continues going lower as I think its good value for 1/2 tick at least, and has worked the last two times it has reached that level. I'm currently long 8s and 8.5s in the Sep15Dec15 Spread and aiming to get long 6s in Jun15Sep15 Spread.

Short Sterling on the other hand remains at high levels and I can start seeing weakness in the front end of the curve, so I'm trying to sell any push up in the Spreads, namely 21s and 22s in Mar15Jun 15 when it gets there. It was trading 24s last week which was the sell of the century, but I only took a tick, when a lot more was there on that.
Month End today so we most likely have some volatile moves, market weakness continues as I write! All eyes on next week when the usual raft of big data is due...

Wednesday, 22 January 2014

UK Unemployment rate ticks down to 7.1%

On the back of strong retail sales last Friday we had strong numbers from the UK labour department today, with the Unemployment rate ticking down to 7.1% just above the 7% target set by the BoE. Cable jumped 100 pips again, and Short Sterling aggressively sold off, being down an average of 12 ticks across the strip.
I chose to focus on the spreads and having been short the front month going into the data, I had no choice but to average in as the Mar15Jun15 spreads pushed up big, moving from 20 to 24. I averaged all the way up and now am averaged at 22 so hoping I get an opportunity to get out. At the same time I was long the Jun16Sep16 Spread at 21, then at 20, now its 19/20, meaning a double whammy of averaging. Not an enjoyable day, but hey at least it moved. Ended up trading over 200 lots of Short Sterling, on that report, so hoping that we get some retracement.
Given this data it is possible the BoE target will be hit next month, however the BoE stated they are in no rush to raise rates, but with strong data all round, the likelihood of a rate rise this year is definitely on the cards, so this the market to watch out for. Below is the move in Dec15 Short Sterling.

Euribor on the other hand, has just been dead in the water relatively, so haven't done much on that as the European economy is totally on a different level to the US and UK, with more talks of easing still in full force.

Else where Stocks continue its yo yo action, as the FED rate decision looms, in another will they taper or ot taper meeting. Pretty mixed data, with most US data coming in strong, but NFP coming in very weak, makes this not clear cut as to what will happen, either way will give some volatility!

Friday, 17 January 2014

Strong UK Sales numbers push up Cable, Gilts and Short Sterling Drop

Its been a quiet week in the STIR space to put it kindly, but with this massive beat in UK retail sales we had a very nice move down in Short Sterling, and a 100 pip move up in Cable. I didn't catch the move down in Short sterling outright, but I used the down move as an opportunity to get out the long Spreads I had been holding for four days and initiate more shorts on the move up, as it reached the top of the range. I had mainly focused on Shorting the Mar15Jun15 Spread at 20s, where I was able to short a few, and then used the inevitable fade to get out at 19s, so worked out nice.

The big beat puts the likelihood of the UK acting first in terms of rates a more real possibility, and so it is likely that these Spreads will remain at these levels if not edge higher providing data continues to come in strong.

On a separate note, below is a chart of Short Sterling and Cable:

You can see in Cable a 30 tick move up in the 25 minutes before the data was due, something tells me, as usual someone had the number, as always. I was tempted to go long into it on the back of it, but backed out unfortunately.
Despite this Short Sterling Spreads have reverted back to levels prior to the data, so looking for an opportunity to go long again.

Wednesday, 15 January 2014

Euro Algo gone wrong!

In what has been a super boring morning, my main highlight has been watching a Euro Algo going berserk with a 2 lot buying and selling at market for over 10 minutes accumulating to over 10000 lots at least. That works out to a 250k loss at my guess.
Watch some of it here:

Friday, 10 January 2014

Draghi maintains Easy Policy Stance

So there was not much change in yesterdays rate meeting, other then being more stern with his words stressing, there is much the ECB can still do. So while the FED and BoE are looking to ease back the ECB is looking to do more, and this as you would expect gave a bid to Euribors and European Bonds, and Spreads flattened, however it didn't really last long as we came back up the spreads to pre ECB meeting levels, which gave a nice buying opportunity on the dip. The action wasn't too volatile, with the move up on the initial comments the main opportunity, as you can see below in the Euribor Dec15 Contract:

The main focus however is as always Non Farm Payrolls, a good number would almost guarantee more tapering in the next FED meeting, however a bad one would push treasury Yield lower and smack the Dollar in the process as well. ADP private payroll number forcasted a 238k increase, which was 40k more then expectations, so with that in mind, it is very possible we can see an number well above 220k.

Hoping for some good action!

Friday, 3 January 2014

Euribor Spreads Tank after Run up

Yesterday was quite lively in the Euribor Space, unlike today mind you which is dead as anything. Off the open we had a spike down, and I happened to get caught quite bad as I had bids below, ended up hedging my longs in Sep15, Dec15,Mar16 and Jun16 going short a bunch of Dec14s and Mar15s, which at the time gave me the chance to get out for a respectable loss rather then taking the 2 to 3 tick loss I would have had I not spreaded it up.
However we had the mother of all pullbacks in the Spreads, as you see below (Mar15-Mar16), and astonishingly manged to get out for a profit, and had I held would have been up over 2k, but hind site is a wonderful thing.

The run up in my opinion seemed to be well over done, especially in Euribors as Europe seem to be far away in terms of economic numbers then the UK and US, and so the rise in the Yields of the UK and US was much more understandable, and the Euribor Yield rise was more in sympathy then anything else. So my bias was to short it no matter what, but luckily despite a very bad entry, in the region of 48-49s, I still managed to bank a little.

Today is just a write off as there is no volume, and the real action hopefully begins next week, with Non Farm, ECB and UK rate decisions along with a raft of other data.

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,...