Friday, 20 June 2014

Worse Economy mean higher Equites

Its been a generally quiet week, with alot of the data pretty much coming inline with expectations, so no real moves coming from there. The FED announced that it will keep accommodative stance, and this in turn pushed all Indices higher to new record highs, with ES above 1950, DOW approaching 17k, and Nasdaq on its way to 5000. In Europe DAX has settled over 10000, CAC above 4500, but the overall laggard in this whole process is the FTSE 100, which is below 6800 and one of the few markets that isn't trading above its pre crisis all time highs, which was set at the end of 1999!
Now why is this, you can argue a lot of the commodity based stocks haven't done well which has dragged the Ftse down, but in reality, the Economy which showing the most promise, and a shift away from easy bias, and to a more normalized interest rate environments the one that gets punished the most. With strong growth, in manufacturing and service sectors in the UK as well as an improving employment picture, and a over heating housing market has increased the likelihood of a rate rise by the end of the Year, and hence halted the Stock Market advance.
On the other hand the ECB which has negative interest rates with a pledge to cut it further if necessary, and the FED, which maintains it will retain easy bias at least into mid next year,  has pushed their respective Stock markets higher and higher.
Moral of the story, the more fragile the economy, the more vulnerable the economy will be to a rate rise, is the Stock Index you need to go long in. This is the way it works in this environment now days!
This lack of volatility and low rate environment doesn't help day traders at all, but then again we the last thing on the mind of central Bankers as they keep feeding this market to go higher and higher. It doesn't look like it will stop, and I think valuations and such things are irrelevant, as countries with mediocre economic numbers, and low rate environment will continue to experiance new high after new high.

On the Fixed Income front, Bonds have pushed up on the back of FED action, and since then has been pretty quiet. With July 4th Holiday around the corner I cant see volumes picking up any time soon, so the most likely outcome will be further grinding up the indexes, and sideways drifting Spreads.

Friday, 13 June 2014

BoE's Carney Signals Earlier Rate Rise

In what was a surprise move BoE head Carney signaled that rates were likely to be raised earlier which led to a 120 point move up in Cable and a 20 tick drop in the front end of the short sterling curve.
It was a very busy day in the Short Sterling space, and the open was quite wild. Gaping down 15-20 ticks I was looking to fade the initial move which turned out to be the wrong move and before I know it they spiked Short Sterling down a further 8 ticks putting me down big. I shorted into the move and as the middle to the back end of the curve flattened out as much of the steepening was done around the front end, I managed to make back 70% of the loss, but it was disappointing as it was an opportunity lost as there was plenty of action to have a good day.
Despite this however, it is likely that all UK data will be more in focus then before and we will likely get more action in Short Sterling which can only be a good thing.
Next week will be interesting for sure and hopefully there is some follow through. Big data to look out for is UK inflation data and retail Sales. Any strong number could really bring out the big players.

Friday, 6 June 2014

ECB Deliver What Markets Wants

Yesterday we got a cut in the main rate the deposit rate and the refi rate from the ECB, with the deposit rate going negative as expected. As you would expect there was a lot of volatility after the number with the initial reaction being a sell of in Bonds and a slight steepening in the Yield curve, which seemed to be a relief trade before going the way you would expect it. Spreads have dropped to new lows with a big flattener put on today, with Jun16Sep16 trading 5.5/6s considering the previous low was 7, Sep16Dec16 trading 6.5/7s with previous low being 7.5, so the question is how much can it keep going down. Naturally I've been buying it all the way down like a kid that don't learn from previous mistakes. I got back in way too soon, so will be looking to do another averaging job to hopefully get out.
Todays big Non Farm Payroll turned out to be a bit of a non event as everything came in line, however it still managed to be good enough for more record highs in this Stock Market, as I wrote last week and at the beginning of the year, too much cash on the sidelines, no Yield anywhere so Yield chasing continues. Despite saying this for a long time, I continue to try short it, which as you can guess hasn't been a good move. I guess there is no limit to how high this can go, as valuations and general health of the economy doesn't mean much when there is a supply and demand imbalance.
Next week is light in terms of data so its likely to be quiet in general. Hope to get a bounce in these Spreads!

Tuesday, 3 June 2014

Markets await for the ECB

So after pretty much treading sideways for the past week, there is much speculation that there will be a negative deposit rate announced by the ECB on Thursday. On top of that there is talk of a 4 year LTRO, so with all of this and the Bund trading between 146-147, alot of this seems to be priced in so anything short of this could be a great opportunity to get long the Spreads as the knee jerk reaction should be a steepening of the curve. I would be looking at playing it through Euribors and playing the 6 month spreads onwards to really try capture some yield movement.
There has not been much to write about over the past week as volumes have been very low amid this low volatility environment.
Equities have grinded up higher day after day, with any kind of small pullback met buy a barrage of buyers desperate to get in. Shorters are shying away because they have been hit pretty much every time it seems there mite be some momentum to the downside. For a day trader these markets are very tough, cause we live of volatility and without it I've inadvertently turned into a position trader, with alot of my trades taking days if not weeks to get out of! And while interest rates remain low and yield chasing continues, amid the record levels of cash amongst wealthy investors, I can only see this market continue to grind up with any sell of not lasting long. In my opinion the market isn't being priced based on the economy, its just merely supply and demand. With little yield available else where Stocks and property will be the way to go.

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,...