Sunday, 6 April 2008

As expected, weak NFPR

Well as we guessed the Non-Farm did indeed come in lower with the headline figure dropping 80k. This caused a rally across the curve in fixed income. I did however find the action on Friday a bit confusing for two reasons. Both the US and European bond markets retraced pretty much all their gains post payrolls and on some very good size. The Bund getting within 5 ticks of its pre-non farm rally. What was particularly odd was that it was very difficult to identify when this presumably NFPR profit taking was going to finish. When it did the turn around, it wasn't all that clear to me and the resulting rally took out the previous high, largely due to the rally in the UST's. Again the cue seemed to be purely off the back of the stock market. However, I do note that for a non farm friday the Bund volume was light at some 800k ish lots. Which leads me to my second source of confusion and that is how the equities seem to have disregarded non-farm. However I would have to say that I don't think the daily Dow chart looks at all constructive. Three spinning tops with what looks like a good swing higher forming on the daily bond charts makes me think that stocks are going to be under pressure early this week.
On the calendar to look forward to we have very little in the way of decent data. 11:00 tomorrow provides Feb industrial production for Germany, and given the strong ifo, I wouldn't be surprised if this came in better than expected. This week is really going to come down to Thursdays ECB press conference to see if the uptick in inflation and the public sector pay deals have the ECB hawks on full alert and willing to up their rhetoric. The beginning of the week will be about the stocks and risk aversion keeping the bid into the fixed income markets.
On Friday at 16:00 the yields were Euro(2,5,10) 3.48, 3.66, 3.94 and US (2,5,10) 1.85, 2.64, 3.49. The euro stood at 1.5738 and at 0.7893 against Stg. The curves continuing their flattening bias, as the US / Euro curve widened reflecting the poor figure on Friday.

Thursday, 3 April 2008

Lacking direction

Yields across the curve fell slightly from yesterday in what was a lackluster days trading. The surprise was the Eurozone Retail Sales figure for February that was expected to show a 0.2% rise. However this came in at -0.5% mom, this lead to a bit of a rally in price. What was more of a worry in the figures was that Germany, the most important of the Eurozone countries, registered a fall in retail sales of -1.6%. I think this is quite significant and shows that perhaps the economy is not as robust as we are lead to believe.
We had the Service NAPM out of the states in the afternoon and this showed a small uptick but didn't lead to much action in the fixed income. Once that was out the way the market tread water, with all minds fixed on tomorrows NFPR. The German factory orders may provide some short lived interest tomorrow around 11 gmt but after that we will have to wait for the 1:30 lottery that is Non-Farm. We had another Doji today in the Bund and shows that there is much indecision in the markets down near this 4% yield. Only a higher than expected figure will lead to its breach. Given the very high Jobless figure today (Easter calculation issues apparently!) we would have to be thinking that NFPR will be on the weak side.
At 16:00 the yields were Euro (2,5,10) 3.50, 3.68, 3.98 and the US 1.87, 2.70, 3.56.
Euro was 1.5613 and 0.7834 against Stg.

Wednesday, 2 April 2008

ADP Surprise.

Relatively dull day in the Bunds today. In the morning we flirted with 3.98% but the price was well supported and was unwilling to test 4%. The afternoon was where most of the action was. The ADP started things off with surprise to the upside +8k(exp -40K) This sent the Bunds and the Treasury's lower. The flatners started to be added across the curve and the Bund poked up to set a new high as Bernanke seemed slightly less positive about the economy. However these gains soon reversed and towards the close of the cash a size seller came in and pushed yields through the 4% level. This pushed the future down to score a new low at 115.04. After a short battle at the low the losses were just as quickly reversed and the Bund traded back to the middle of the profile setting the stage for an almost doji candle. This is typical of a market trying to gauge its short term direction as the key 4% level is tested and defended time and time again. Tomorrow perhaps will set up more directional trade although we will probably have to wait for the ISM non-manufacturing at 3pm for this. The morning however does offer the eurozone pmi services and the Retail Sales for Feb.
At 16:00 the Yields were Euro (2,5,10) 3.57, 3.74, 4.01 and US 1.91, 2.75, 3.59 Most of the movement in both curves occurring at the front as the twos rallied 6 and 14bps respectively to flatten out the curves. The US Curve moving more as Brokers started to suggest that Bernanke's rhetoric was making sub 2% rates look less likey. Euro was at 1.5612 and against Stg 0.7879.

Tuesday, 1 April 2008

Recession over..?

Well the good news is with UBS posting $11.9billion loss in the first quarter the sub prime problems are behind us and the recession is but a distant memory. I Should have known from the amount of bearish rhetoric I read this morning that the stocks were going to have some seriously large gains. I always get a wonderful sense of understanding when I watch the Bund rally after a higher CPI figure and rally after a stronger Chicago figure, just because the stocks are a bit under pressure. Needless to say the large gains to the upside of the equities lead to a big sell off in the bond markets. The Doji in the UST's were indeed a good call and the Bund did make a flirt with the 4% yield. Amazingly I didnt manage to translate this into any profit. I have decided to try not to discuss my trading in my blog so there shall be no more mention of that, just my thoughts, moans and groans on the markets.
One interesting snippet that Bloomberg decided not to cover in the ISM breakdown was that prices paid was up to 83.5 +8%!! and increasing at a faster rate (as was the case in the chicago figure). Inflation what inflation I hear them cry? did you see the US CPI last month, benign was an understatement. Well I sure cant wait for this months release because the clues are that it will be a stinker.
At 16:00 the yields were as follows Euro (2,5,10) 3.51, 3.67, 3.98 and US at 1.77, 2.64, 3.56. the euro was at 1.5595 and against stg 0.7894 as the dollar staged a broad based rally. I would assume from the charts that the Equities are looking very constructive for a continued short term move higher and conversely the fixed income will be pressured. I still think that 4% will prove a big barrier for the Bund and think we will see the US/euro spread narrow some more as it tightened by 6bps today.
The calender tomorrow offers up Eurozone PPI, US Factory Orders and Bernanke testimony at 14:30.

The April Fool?

Got up late today so decided to have a quick read of the blogs to get a bit of background info. Couple of items I picked up on were Banks with write downs (Mish's global eco trends), defaults on pooled mortgages (Mish again) and two items in the FT, one on Euro Libor and another on banks (via the Big Picture). Having got the impression yesterday that the stocks felt weak and the fixed income supported I was wondering if I was an April fool as I watched the action unfold this morning (see chart left).

As it was I never get too blinked with my views and can spin on a dime. I missed some of the down move, but did scalp a few ticks short from home before heading into the office. I will just note that the Bund was very lethargic in selling off with the stocks rally and again the volume was light. Yields are around that 3.94% level and seem to be attracting resistance here. In the larger view the Treasury/Bund spread moved a great deal last week and this may be another reason why the Bund feels supported. Yesterdays Doji in the US10Yr is warning of indecision and perhaps is foretelling of a minor trend change. Either the spread will narrow again, or the extra pressure will help the Bund test the 4% level.