-10 IR M9 @ 98.04
+2 6A Z8 @ 0.7213
-2 6N Z8 @ 0.6602
+2 6A Z8 @ 0.7213
-2 6N Z8 @ 0.6602
macro paper trading
- Thread starter macro_paper
- Start date
BAX futures are still trading at around 16th of August levels – before the release of the latest CPI of 3% headline/2.1% ex energy – which overshot BoC’s expectation that inflation would go up to 2.5% yoy – so probably markets think that was temporary. Let’s see how BoC assess that.
Red contracts are still at January levels – GDP has since slowed down, trade balance deterioration, house prices almost flat yoy, retail sales improved but nowhere near 2017 levels, unemployment stopped going down, PMI’s okay. This lackluster data looks inconsistent with aggressive pricing in whites and compression between whites and reds. Looking at BA M9-M0 at 12.5 bps.
Interestingly, Sweden, just like two other countries I just looked at (Australia and Canada), also had property prices slowdown. There market is still skeptical of Riksbank’s plan to hike this year and EURSEK keeps marching higher. Yet this weakness is not helping improve trade balance. Half increase in trade deficit is with oil-exporters, but the other half is with Germany and NL, so I’d guess that certain imports are price inelastic (cars, PCs, machinery?). Weak krona doesn’t seem to be helping the economy. It’s also weakened beyond what Riksbank expected. Inflation has stabilized above 2%, labour costs have trended up, GDP is strong, unemployment slowly going down and participation at series high, IP okay, confidence up, PMI’s strong for the past few years. Negatives were latest PMI, two weak retail numbers and weak industrial orders for a few months now. I think that the trend in labor costs is the ultimate proof that inflation is stable and Riksbank could confirm their intention to hike, but they are notoriously dovish.
Red contracts are still at January levels – GDP has since slowed down, trade balance deterioration, house prices almost flat yoy, retail sales improved but nowhere near 2017 levels, unemployment stopped going down, PMI’s okay. This lackluster data looks inconsistent with aggressive pricing in whites and compression between whites and reds. Looking at BA M9-M0 at 12.5 bps.
Interestingly, Sweden, just like two other countries I just looked at (Australia and Canada), also had property prices slowdown. There market is still skeptical of Riksbank’s plan to hike this year and EURSEK keeps marching higher. Yet this weakness is not helping improve trade balance. Half increase in trade deficit is with oil-exporters, but the other half is with Germany and NL, so I’d guess that certain imports are price inelastic (cars, PCs, machinery?). Weak krona doesn’t seem to be helping the economy. It’s also weakened beyond what Riksbank expected. Inflation has stabilized above 2%, labour costs have trended up, GDP is strong, unemployment slowly going down and participation at series high, IP okay, confidence up, PMI’s strong for the past few years. Negatives were latest PMI, two weak retail numbers and weak industrial orders for a few months now. I think that the trend in labor costs is the ultimate proof that inflation is stable and Riksbank could confirm their intention to hike, but they are notoriously dovish.
removed the ED M0-M1 leg @ -3.5 bps. Still got 15 lot M9-M0 steepener on and 15 lot Z8-Z9.
+15 BA M9-M0 @ 13.5
closed 2 lot 6E @ 1.15925. Been a sucker trade. More than 300 pips down on it.
+15 BA M9-M0 @ 13.5
closed 2 lot 6E @ 1.15925. Been a sucker trade. More than 300 pips down on it.
U8->Z8:
-2 6E @ 0.0082
+1 NOK @ 0.00042
-1 6N @ 0.00001
+1 6A @ 0.00025
-2 XT: +U8 @ 97.3775, -Z8 @ 97.3575
-2 6E @ 0.0082
+1 NOK @ 0.00042
-1 6N @ 0.00001
+1 6A @ 0.00025
-2 XT: +U8 @ 97.3775, -Z8 @ 97.3575
Been a month since looking at Australia. Since then more bad data has come about housing prices and housing financing. PMI’s have been mixed with better manufacturing and weaker services. TD infl still same 2.1% yoy. Iron ore prices unchanged. RBA don’t really have anything to talk about. Short IR M9 looks safe at 98.04, though its price is now below that of IR H9. Missed the moment to cover at 97.96 around 19/09/2018 when it piggybacked on UST sell-off (the same day Trump added more tariffs on China). AUDNZD has been range-bound 1.0875 – 1.0975, so it looks slightly riskier as it could fall back to the lower end of the range.
EURCHF has gone up a lil bit over the past few days despite BTP-bund but over longer horizon it's down to 1.14 from 1.20 - right where it stood when gov formation got messy on 29/05/2018. IK-BTS is now tighter than it was on stress points of 15/08/2018 and 30/08/2018, almost as tight as on 08/06/2018 but not as tight as 29/05/2018. US investment sentiment doesn't want to get poisoned in SPX and BB oas. Blue euribors dont wanna react either. In may we had a dip of 40 bps. This time it's nothing. My fundamental view that EZ will not get hike has very slightly softened after labour cost index data a few weeks ago, where costs increased dramatically in Italy, rebounded in France, remained stable in Germany and slowed down in Spain, but I still don’t see inflationary pressures. EURJPY hasn't heard of Italy either. It's still at 131.80 - in two previous stress points it dipped below 126.
Now with BTS I am not sure I agree that situation is as bad as EZ heads make it be. 2.4% isn't 4.4% or 6.4%. That said, I don't believe that Italy will back down on proposed budget. M5S and the league have to deliver on the preelection promises – are they really gonna backdown on promises when the guys first to lecture are the same guys who couldn't get their own budget under control? 2.5% spread is starting to look good for 2y paper, but it reached 3.8% in May.
EURCHF has gone up a lil bit over the past few days despite BTP-bund but over longer horizon it's down to 1.14 from 1.20 - right where it stood when gov formation got messy on 29/05/2018. IK-BTS is now tighter than it was on stress points of 15/08/2018 and 30/08/2018, almost as tight as on 08/06/2018 but not as tight as 29/05/2018. US investment sentiment doesn't want to get poisoned in SPX and BB oas. Blue euribors dont wanna react either. In may we had a dip of 40 bps. This time it's nothing. My fundamental view that EZ will not get hike has very slightly softened after labour cost index data a few weeks ago, where costs increased dramatically in Italy, rebounded in France, remained stable in Germany and slowed down in Spain, but I still don’t see inflationary pressures. EURJPY hasn't heard of Italy either. It's still at 131.80 - in two previous stress points it dipped below 126.
Now with BTS I am not sure I agree that situation is as bad as EZ heads make it be. 2.4% isn't 4.4% or 6.4%. That said, I don't believe that Italy will back down on proposed budget. M5S and the league have to deliver on the preelection promises – are they really gonna backdown on promises when the guys first to lecture are the same guys who couldn't get their own budget under control? 2.5% spread is starting to look good for 2y paper, but it reached 3.8% in May.
+1 BTS Z8 @ 108.02
+1 6J Z8 @ 0.00884
-1 6E Z8 1.1581
+2 6C Z8 @ 0.7802 (it doesn't look like CAD has reversed all weakness accummulated during the negotiations)
+1 6J Z8 @ 0.00884
-1 6E Z8 1.1581
+2 6C Z8 @ 0.7802 (it doesn't look like CAD has reversed all weakness accummulated during the negotiations)
Q3: +0.54%, 3.41% annualized vol
Right before it fell to 1.1690 the same day on ECB. Stupid.
A few observations from yesterday/today.
Looks like there is a thaw in US-Turkey relationship. There was a confirmation Turkey would be getting more F35’s shortly. Today market took 25% CPI yoy quite well.
Brazilian bovespa run-up of 6% over two days along with 3% currency appreciation looks bit extreme over a poll that Bolsonaro is tied with Haddad now. Bolsonaro’s anti-rating has been too consistently high to change opinion over a single poll.
Big oil stock build, Russia and Saudi Arabia reportedly agreed to boost output, yet oil keeps going higher. Did it really take markets 5 months to realize that Iranian shipments will (most likely) be cut in November?
“Strong economy” data in the US. ISM services PMI strong, but Markit not really, most other countries PMI has been poor too. My interpretation of Fed talk was dovish. Got my confirmation from Harker that he thinks they should take a pause, from Evans that neutral rate estimate hasn’t gone up, from Mester that there’s no risk of inflation jumping higher, from Powell that it will take long to get to the neutral rate. ADP has been strong, though.
Looks like there is a thaw in US-Turkey relationship. There was a confirmation Turkey would be getting more F35’s shortly. Today market took 25% CPI yoy quite well.
Brazilian bovespa run-up of 6% over two days along with 3% currency appreciation looks bit extreme over a poll that Bolsonaro is tied with Haddad now. Bolsonaro’s anti-rating has been too consistently high to change opinion over a single poll.
Big oil stock build, Russia and Saudi Arabia reportedly agreed to boost output, yet oil keeps going higher. Did it really take markets 5 months to realize that Iranian shipments will (most likely) be cut in November?
“Strong economy” data in the US. ISM services PMI strong, but Markit not really, most other countries PMI has been poor too. My interpretation of Fed talk was dovish. Got my confirmation from Harker that he thinks they should take a pause, from Evans that neutral rate estimate hasn’t gone up, from Mester that there’s no risk of inflation jumping higher, from Powell that it will take long to get to the neutral rate. ADP has been strong, though.
The global yield increases from mid-August created some things that look interesting in EURIBOR land. First, the red contracts now price as much hiking as the green contracts do, or right now this is 40 bps tightening priced between June-19 and June-20 and 40 bps priced between June-20 and June-21. In 2017 and 2018 the reds priced in 6-12 bps less than the greens . Fundamentally, it makes sense to me. We are less certain that inflation pressures will materialize in Eurozone in 2019 than we are about 2020. The slight difference this time is that ECB have had markets believe through the change in forward guidance language that a hike is on table in Q4 2019. It’s rather unfortunate for Draghi to depart because he’d probably skip a hike if one is not warranted than satisfy the hawks/financial stability boogeymen and take the blame for premature tightening a year later.
The second interesting thing is that the green euribors are now a lot more hawkish than the green Eurodollars, 40 bps vs -3 bps. It won’t make sense to price ECB even more hawkishly in 2020-2021 while pricing that Fed cutting rates is as equally probable as hiking further.
I am also bit curious if this second thing is the answer for the first thing, i.e. no-move Fed pricing not allowing to price ECB more aggressively for 2020-2021 than 2019-2020.
The second interesting thing is that the green euribors are now a lot more hawkish than the green Eurodollars, 40 bps vs -3 bps. It won’t make sense to price ECB even more hawkishly in 2020-2021 while pricing that Fed cutting rates is as equally probable as hiking further.
I am also bit curious if this second thing is the answer for the first thing, i.e. no-move Fed pricing not allowing to price ECB more aggressively for 2020-2021 than 2019-2020.
Retail sales print is good in Australia and important since it's retail sales and wage growth that RBA want to see the most. YT futures have often acted as high-beta yield instrument moving off 10y USTs even when US short end didn't move much, but lately hardly moved move than german schatz.