macro paper trading

closed long btp/short bund @ 160.49, 132.82. Will reestablish if this widens again.

reduced BA Z8 long from 10 to 5 @ 98.80, but z7-z8 still looks bit too high versus eurodollars, the oil move down and not too strong econ data.
 
Weekly pnl:

EDU1-EDU2: -750 USD
Short EDH8: +625 USD
Short EURNOK: -3127.5 USD
Short EURCZK: 348 USD
Short GBP, short long gilt: -388 USD, +330 GBP
Long bund against long gilt: +660 GBP, -2640 EUR
Long BTP against bund: +2400 EUR (closed pos)
ER Z7-Z8-Z9: -1875 EUR
Steeper CAD / flatter AUD: +1550 CAD, -3027 AUD
Long BA Z8: +1250 CAD
Long IR U8: -384 AUD

Total: -4806 USD (-3293 USD, +990 GBP, -2115 EUR, -3411 AUD, +2800 CAD)
 
Back here. For various reasons amount of time I am spending on this is woefully below what I had in mind in topic start.

- closed long IR U8 @ 98.20

Week starting 08/05/2017 +7791 USD:
Week starting 15/05/2017 -388 USD:
Week starting 22/05/2017 -53 USD:

By positions 08/05/2017 – 26/05/2017:

EDU1-EDU2: 0 USD
Short EDH8: -2375 USD
Short EURNOK: +1932 USD
Short EURCZK: +2754 USD
Short GBP, short long gilt: +2138 USD, -1320 GBP
Long bund versus gilt: -2640 GBP, +2660 EUR
I Z7-Z8-Z9: +3000 EUR
Long IR U8: +1920 AUD
Long BA Z8: -1000 CAD
Steeper CAD / flatter AUD: -5800 CAD, +7223 AUD
 
rolled -3 long gilts from june to sep @ 129.20, 128.13
rolled -5 CGB M7 into -3 CGB U7 @ 140.97, 145.4
rolled +2 bunds to sep @ 162.37, 164.36
rolled +5 XT M7 to XT U7 97.58, 97.565
 
Week 29.05.2017:

Long EDU1-EDU2: -750 USD
Short EDH8: -500 USD
Short EURNOK: -3610 USD
Short EURCZK: +732 USD
Short GBP, short long gilt: -800 USD, +380 GBP
Long bund against long gilt: +760 GBP, +1760 EUR
I Z7-Z8-Z9: -375 EUR
Long IR U8: -96 AUD (closed)
Long BA Z8: +1500 CAD
Steeper CAD/flatter AUD: -1298 CAD, -1118 AUD

Total: -2654 USD (-4928 USD, +1140 GBP, +1385 EUR, +202 CAD, -1214 AUD)
 
Closed EDH8 short @ 98.49. Its yield is <10 bps down since the March meeting, yet inflation has been poor and I have a high conviction about 2017 core PCE being downgraded on Wednesday. Oil is slightly lower, so no support for headline pce. Probably bit lower median plot. Probably everyone holds the same views as above. I will re-establish the short if yields meaningfully go down and threaten the plan for 2 more hikes, but not much upside for March 18 from here. Maybe steepeners make more sense with Fed taking some time off to deliberate about more than two hikes and the terminal rate but still sticking to balance sheet normalization, at least with a belief that balance sheet normalization will budge the yields.

EUR looks bit too expensive to me, too expensive against the STIR differential, and even more expensive given my disbelief in ECB doing a hike next year (hence I Z7-Z8-Z9 fly). I suppose it’s expensive because perceptions around EUR were changed. It’s no longer a currency that the central bank could weaken further, so it’s more acceptable to hold it.


Week 05.06.2017:

Long EDU1-EDU2: +1500 USD
Short EDH8: +500 USD
Short EURNOK: -113 USD
Short EURCZK: +1914 USD
Short GBP, short long gilt: + 1800 USD, -500 GBP
Long bund against long gilt: +420 EUR, -1000 GBP
I Z7-Z8-Z9 fly: +2625 EUR
Long BA Z8: -750 CAD
Steeper CAD /flatter AUD: +98 CAD, +1463 AUD
Total: ~7730 USD
 
rolled -3 6E from Jun to Sep (part of eURNOK and eURCZK) 1.12795 / 1.13335, +1 NOK M7->U7 @ 0.1195, 0.11974, -2 6BM7 ->U7 @ 1.2812, 1.2848. CPI print messed up rolling plan as the intention was to close the June before the Fed meeting and reestablish at a better level after the meeting.

Got burnt with long BA Z8 too the prev days. It looks attractive to hold it at 98.50 for now to earn some rolldown as Z7-Z8 imo should not widen further (pricing more than a full hike) on one speech without more guidance or hard data proof. Core inflation has probably bottomed (an average mom gain will pull yoy the next release), but will take a few months to see if the trend has changed. Not sure if 98.60 is good enough to add more to the position.
 
Got it all wrong on the Fed yesterday. USD stronger, curve flattened, fed path rate not downgraded.

A bit more elaboration on my yesterday's thoughts about Canada. Boc's reasoning is probably removing accommodation for the sake of it, not responding to inflationary pressures. As such, they could reverse the two cuts they made in 2015. Hiking above the 2010 level when oil was north of 70 seems stupid. Currently we have a hike priced in by Dec 17, and another one by Dec 2018. Pricing more than two would be too much, hence attractive to buy BA Z8 at 98.50. In theory Z7-Z8 could widen if the first hike is moved into 2018 too, but without a long string of poor data or more specific comments about timing I don't know why it would happen. If oil drops a lot, the whole hiking idea will be buried probably rather than postponed, so not sure fading Z7-M8-Z7 fly is a really good idea. Z7 is too steep, bid-ask is always fat with just 2 quarter gap between legs. Simply going long BA U7 would be a lot cleaner expression of this view as it prices 60% chance for a hike either in July or in Sep.

No strong opinion on BoE, but with conservatives no longer having the majority BoE can probably be more honest about its dovishness.
 
Probably more EURNOK volatility to stomach this week. At prev meeting Norges Bank removed clause about higher probability for a cut than for a hike, so I doubt they would make markets question their credibility and cut the rate now. PMI, IP, retail sales, unemployment, credit growth have been good, trade balance meh and inflation meh (but it’s only 1 bad data point). Oil has been marginally lower versus the previous meeting. FX forward implied and 2y swap rates suggest a chance of a rate cut was priced since, so no cut and no language change could reverse those bets and strengthen NOK. EURNOK is close to the level it was at the prev meeting, and it was a local high there. Quick googling shows that Danske/Handels expect no cut, economist surveys are all no cut with a chance of a hike later in the year. I am somewhat sceptical of forecast averages being representative of the real expectations by the punters. Anyway, reaction will answer who is right. If there is relatively neutral tone and NOK sells off, then hawkish forecasters are representative. If there is relatively neutral tone and NOK is bid, then it means punters were dovish unlike the forecasters. I don’t think Norges Bank will be hawkish, though.

Rates and FX outlook seem to have diverged in the NZD market. Since the last RBNZ meeting AUDNZD has been more than 4.5% down, but no signs of hawkishness in the swaps. AUD STIR’s have been stable, so I think the FX move is on the NZD side, not AUD side. The big question is probably who is right – Wheeler or the markets? Wheeler hasn’t been too happy about coverage of his service. I don’t know how to rank economies by strength, but both Australia and New Zealand seem alright to me. I don’t know which property market will blow up first either. NZ CPI is probably more robust than AU CPI is its non-tradeables CPI has been on an uptrend versus a downtrend for Australian services CPI and higher immigration increasing aggregate demand. I wanna see how the market reacts to further dovish comments from RBNZ (in case they are dovish). Is it going to stick to its narrative that RBNZ will have to hike or capitulate?

PNL for week 12/06/2017

  • EDU1-EDU2: -750 USD
  • Short EDH8: +250 USD (closed)
  • Short EURCZK: -115 USD
  • Short EURNOK: +4570 USD
  • Short GBP, short long gilt: -462 USD, +160 GBP
  • Long bund against long gilt: -280 EUR, +320 GBP
  • I Z7-Z8-Z9: -375 EUR
  • Long BA Z8: -5500 CAD
  • Steeper CAD / flatter AUD: -3135 CAD, +1474 AUD

Total: ~-1981 USD
 
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