6/1 Back from Vegas vacation and all attempts to pay for vacation with gambling winnings fell short of the mark. General sentiment is that young liberal arts degree college graduates are screwed and working at Starbucks. I have it from two teachers in the family that there is serious shortage of public school teachers in Vegas. The city will hire ANY college degree( no specific teachers training required) and you will teach and train simultaneously. There is a term agreement(dont know length) you must sign. KB and other box builders are still claiming and developing tracts of the dessert. The city is growing. Go West.
6/1 Yen vs. USD has broken down from a six month base. Buying risk with yen is a much better relative trade than buying risk with USD . Same may be said for the euro vs USD recently. The two etfs DXJ and HEDJ are performimg better than would a SPYJ(which as of yet does not exist) all USD denominated SPY longs effectively hold. USD has retraced nearly all losses of the Bund yield driven euro rally. Dollar is at resistance and NFP is coming and Greece solution is elusive. Emerging markets are acting weak EEM,EWZ,RSX(strong uptrend) here .
http://www.bloomberg.com/quote/GDBR10:IND The two day move 49 bp. To 71 bp. Inflation data from EUnion was .3% in May apparantly better than expected and a continuance of better than expected macro data from EU. Keep it simple. EUR.USD and US treasury interest rates go up with German Bund yields. Worth watching the 10 year Bund yield. Euro range was apprrox 109-112. Greece rumors and streess a factor as well. Drahgi will speak tommorrow regarding macro,QE and Greece. US seems on hold for NFP Friday. Following chart clearly shows the surprising US treasury bond rally of 2014. The short rates Leg of the spread was dominant. With what was then a decent US macro story and a concern Of US monetary policy ending QE and future rate hikes possible the bond market still rallied. Capital was flowing into USD and US equities and leaving EU stocks, currency and sovereign bonds. Mid 2014 EU macro data signaled deflation and yields and currencies fell. Eventually nehative EU sovereign yields were creeping out the curve 7 years and beyond. Due to this, interest rate differentials, US treasuries - German Bund reached all time with US yields falling relatively less than EU yields. The differential, not absolute rate ,is in theory ,what drives capital flows and it seemed to be true here. Then catalyst for change. Largest red bar in USD of the year in late March 2015 after dovish interpretation of Yellin and FOMC. Treasury rally ended and Euro made first attempt to bottom at 105ish. Euroland was in short euro , short DAX, short EU sovereign debt (front eunning ECB QE) crowded trade when first surprise macro data from EU regarding CPI and growth indicating Deflation has ended. Big unwind . Euro and bund yields had been highly +corr and cointegrated and continued to be in the EU bond route. Makes sense as euros are sold for bonds. The US treasury market yields have follwed EU yields closely as well from 2 years out with the sensitive long end yields rising in what they call bearish steepening. So treasury/bund rate differentials are decreasing(some) as is USD , euro stocks EWG,EWP,EWQ,EWI are steady or rising, ECB QE is in progress with new supply of + yield sovereigns and will extend to 1trillion at 60 bln. / month. This seems to signal EU assets are more attractive than US assets. I have read of Euro parity or the .82 low of many years ago but this sentiment has changed. The move from 139 to 105 might be the extent of the move and maybe it was effective to combat deflation. Seems the euro area is at least closing euro denominated assets. It will be interestig to see the furious defense of 114 and the squeeze if 115 is breached. Will look for QE money to find its way into stocks and the euro risk currencyto rise with QE. Maybe weak US data requiring a DEC fed delay along with ECB QE can ignite a rally going forward. Hard to be bearish here aside from Greece stress.
Euro area macro data better than expected. Drahgi speech today. Commited to QE . Media says he poked the bond market by advising to expect high volatility. Bund yields up 23% to new high of this recent yield rally. Euro took and held 112 level and US treasuries yields 10+ years reaching new recent highs as well. Steepening curve because long rates going up faster than short term rates(which are also rising). USD.JPY is rallying to new highs above 124.
German 10 year yield touched .99% today and euro approx. 114. US treasury yields followed. (Not ED futures but entire curve 2yr-30yr) Is this a combinationof fundamentals and closing a long running(approx 7 months) crowded trade? The trade was borrow euros to buy Europeadn sovereigh debt. Certainly painful for late arrivals as the euro is presently bid heavily and Bund sold hard.
NFP , 280k. Hourly wages up .3% a big surprise. should be seen in upcoming durable goods and retail sales . Fed would see thier analysis as correct , that Q1 gdp was out of trend(funny that iMF said to wait till 2016 to hike). Consensus is SEPtember and market will be clearly told so by Yellin. Dollar reversed, ED futures a year or so out reacted by approx 8bp., significant but not extreme than your somewhat typical NFP or FOMC . Emerging markets had been somewhat weak , maybe a component of this was yields rising in global developed markets (euroland driven) and now there issome more pressure dueto US rate expectations. US treasury yields up accross the curve. Stocks held up very well where good is bad . Greece did not make may 5th and will bundle payment at month end
6/9 3 days post NFP and rates , from 3 month to 20+, are not reversing the reaction to NFP. Case by case, emerging markets continue to be weak. China and India, are begining to look weak as well. Many were weak prior to NFP. Maybe this was "the global rate hike trade", discounting a determined Yellin to hike fed funds rate. EEM is weighted 25% China equity, 14% South Korea, 12% Taiwan, 7% India, 7% South Africa, 7% Brazil and and average of 3% for Russia, Malyasia,Indonesia . 8 others weighted small. China has held up well as of now but may contibute to EEM downside. Long rates , short emerging markets is a risk off play that is performing very well. Not as good is US 20+ rates vs. SPY. TBF-SPY. It is still up 10% this year(neutral) below is a 6 year chart of TBF-SPY, neutral and a 15 month or so chart of TBF-SPY to zoom in on this year. Taper tantrum is shown mid 2013 on long term chart. Short term rates are not completely similar over time but recently, they are.
6/9 Dollar vs. yen and especially euro has retraced virtually all of the positive reaction to NFP. Euro and 10yr Bunds still highly +corr and at 95bp. maybe will run 100bp. again so maybe the Price action of USD is not doubt regarding SEP fed liftoff but still driven by these EU issues and Better macro data out Europe. Chartbsays be bullish euro, long so expect HEDJ to really lag here as Eurostoxx50 is weak as well. What is up with Neiki (EWJ)? Yen has traded down to another level and USD.JPY has been strong recently yet Japan stocks weak here. I dont follow much regarding Japan but its stock market has been much more actively trending for a long time now. Seems all governments have determined it is in their best interest if all monies go into stocks. EWJ, FXY, YCS, DXJ are related etfs.
Consumer sentiment 94 from 90 last week. PPI Up .5% higher than expected. Food up .8%. PPI increase was due to gas increase. Retail sales were up 1% much better than expected .5%. Recent data supports FED position that Q1 was a one off , seasonal thing.. Looking for fed to be hawkish. ED futures are now slightly lower than post NFP reaction. Fomc rate decision and CPI this week. 20+ treasuries have sold with positive Greece news following the 10Bund.does USD. 10yr Bund at 83 bp. Euro surprisimgly stron for the week in light of US data and Greece so bullish euro. Bad week for the dollar against Euro,yen and commodity currencies despite above dollar postive data. Koruda talked up yen. Good week for Europe stocks up about 1.5% mostly due to Wednesday rumor of Greece fix. European, US, China are in tight ranges nearer to bottom range. EEM is in a 10% correction but flat for the week. Short volatiility XIV up 4% for the week. US stocks flat but cant go up without AAPL , -1.2 % on,the week. Slowly Greece has built up to the number 1 thing riskis focusing on.
6/17 FOMC statement today. "Wage growth encouraging but not definite" . Market PA is +1 correlated to dovish interpretation but in a mild way. Volatility in ED futures to the last great NFP and todays fOMC is muted. ES recation is about 50 ticks to 2085 , 2100 is top channel and above it is 2120 near recent all time high. A few taps at recent double bottom level 2160. Tight 40 day range. USD , ED futures, all US treasuries, gold and stocks all reacted risk on to fed. Rate sensitive IYR and XLU , real estate and utilities bounced in line with dovish reaction as did EEM but these things are mostly trending down due to rate hikes coming.