Friday, 28 November 2014

Bunds at all time Highs

Its been a very tough market to trade lately especially as a day trader, as volatility has dried up to some of the lowest levels on record, as well as the absence of any sellers which has pushed the Equity markets massively higher in the past 6 weeks. Despite weak data out of the EU, mixed data from the US and recession in Japan, it seems the only thing that is required to keep the markets going is cheap money and QE. The SPX is up 14% since October 16th, Nasdaq is up 14% and the Dax is up 20% of which 10% of the move has happened in the past week. 
The main explanation for this is the fact that most fund managers are underperforming relative to the benchmark, which has lead them to push this market up and snap up stocks in order to become vested and show performance. There is a lot of cash on the sidelines and this is all coming to work right now, despite very high valuations and a very stretched market. 
On the Bond front, Bunds have hit new all time highs today at 152.85, as QE talk from the ECB and lower inflation figures has pushed Yields down. Looking at the chart below we see the uptrend that has developed of late, with the next target in the Bund being 153.40,  with near term support at 152.47, then 151.54. 

With rollover approaching, we could see some volatility in the roll, but the trend is likely to remain intact.

Thursday, 20 November 2014

Big miss on German PMI

A big miss on German PMI today with the Flash Manufacturing coming in at 50 (exp 51.5) and Services coming in at 52.1 (exp 54.5). Since Germany is carrying Europe pretty much this number will come as some concern to Euro Leaders and the ECB increasing the likelihood of all out QE in the Eurozone, and that lovely word QE is just what the stock market loves, and most likely will propel Dax and Cac to further higher moves.
This is the environment that the central bankers have created, but when things turn it will turn hard!
In terms of reaction today, we had the expected push up in the Bund, with a 30 point move in the space of 5 minutes with resistance at 151.52 which was Mondays lows.  A break up above this level will bring about 151.77 as the next target, and then 152.10, the week highs the next target after that.

Across the channel, the UK benefited from better retail sales, with the divergent growth between Eurozone, Japan, UK and US becoming ever wider. Because of this its unlikely that the US or UK will have the balls to pull the trigger on rates leaving this easy bias around for longer.
ES is down 7 dollars as I write, and Dax down 40, BTFD?

Tuesday, 18 November 2014

Short Sterling Spreads Flatten.. Stocks still going up!

The action in the STIR space has been a snooze fest to say the least. I started getting short spreads mid October, admittedly at what was in hind site pretty bad prices. Over the next couple of weeks Sep15Dec15 pushed up from a low of 9 to printing 19s, and I was naturally shorting all the way up, but the action was so slow that it was probably the most tedious trade I have ever been in. For the next 2 weeks and coming into the first week of November, prices grinded higher, and all I could do was try to improve basis, as the Spread then topped around 18s, Finally a week later, 3.5 weeks after getting into the trade, the curve flattened and my over riding feeling was just to get out as I was so fed up holding for so long, and so I got out at 17s and a few at 16s, having been short from 14s up to 18s. Now the Sep15Dec15 trades at 14/15. Had I managed to hold would have been a great trade but although I had the patience to hold for a month, a week more and would have made the whole trade worth it.
The take away from this is that this type of trade a few months ago would have lasted a few days, or a week, but to day trade these markets now is pretty much impossible, and by the looks of it rate hikes seem to be pushed back further on the back of falling inflation, which is not likely to help the day trading action in STIRs.

On the Equity front, its like Ground Hog day every day, we have a bit of early weakness and then the buy the dippers, (who now buy on 2 tick dips) push everything back up, and this is purely funds trying to generate performance as many are under invested. So regardless of news, fundamentals or anything else, the word is Buy. In the past this kind of cheap money fueled rally has nasty consequences, so lets see how much they will push this up before rationality sets in.

Tuesday, 11 November 2014

The Rally Continues...

So last week we had mixed data at best, but with that having little relevance to today's markets, it's no surprise we keep pushing higher. Since October Option Expiration we have rallied 8% in the ES and similar amounts in other major indices with no real sign of a let up in the move upwards. The price action pre correction has reared its ugly head again. This is low volume, low volatility and few opportunites.
The VIX which is the fear gauge for the SPX is back at 12 and complacency seems to be the name of the game.
The market has maintained its bid through the constant references to QE from central bankers, and the market loves QE. But the way I see it is QE is like the pill in the film Limitless (good watch if you haven't seen it). The initial effects are great for the Stock Market but the likely after effects is likely to be bad! Only time will tell.
On the Bond front, its been pretty mixed with the Bund consolidating the past few weeks and the 10 Year has been drifting off as Equities go up.
STIRs again have been difficult to trade due to lack of action, with Eurodollar really being the only play right now.
Tomorrow is the UK Quarterly inflation report, so that should provide some much needed volatility in the Short Sterling space, so looking to that for some good trading opportunities. 

Monday, 3 November 2014

Busy Week Ahead

As usual the first week of the month is flooded with data, We had good data out of the UK today with PMI Manufacturing coming in above 53, and above expectations which has given an offer tone to the Gilts, and ever so slight steepening in the Short Sterling.
The UK and European STIRs still pretty much are difficult to trade so the focus has been more on Eurodollars, which has been better for scalping and the volume has also been alot better.
The main action has been in the Equity Space with around a 10% rally in alot of the major indices showing that QE and cheap money is alive and kicking, and investor appetite for yield is still in force. The small correction proceeding the rally was the catalyst that the bulls were waiting for it seems, as now they have made that up as quick as it went down and the US indices have all hit new highs for the year in the process. There doesn't seem to be much let up in the buying of these indices and the way it looks I can see this just going up with every pullback bought with more vigor. I hope I'm wrong as I would love more two sided markets but the past 2 years have been this way so cant see there being any change in the short term.
Looking forward, we have ISM Mfg this afternoon, followed by ECB on Thursday and NFP on Friday, so should be a good week for opportunities.

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,...