“I like a low interest rate policy, I must be honest with you,” Donald Trump told the Wall St Journal yesterday. His comments have further fired up already strong US government bonds, with the effects spilling over into European debt this morning. Like their US counterparts, German 10-year bond prices are now around their strongest point of the year.
Mr Trump’s new comments are not the only weight on global bond yields. Among other things, geopolitical nerves and the failure of his healthcare plans have also imposed a longer-term weight.
Still, 10-year Bund yields have sunk by 0.02 percentage points so far today to 0.175 per cent. (Yields fall when prices rise.) That’s the strongest level for Bunds since late December.
US yields, which exert a strong gravitational pull on other core markets, now stand at 2.32 per cent, the lowest since mid-November.
Some have doubts this will last.
One week after we observed the biggest monthly short squeeze in 10Y TSYs in history, it was a relatively calm week in the longer-end of the Treasury curve.
According to the latest CFTC data, spec net shorts in aggregate Treasury futures was little changed from the previous week at 612K contracts in TY equivalents. While, they continued to pare net shorts in TU and TY by 18K and 14K contracts, respectively, they increased their net shorts in FV and TN by 35K contracts and 6K contracts, respectively. Spec net shorts as share of open interest was unchanged at -5.8% over the week and was at about -2.0 standard deviations away from neutral.
While net Treasury futures shorts are now back to the lowest levels since early December 2016, traders continued to pile into the short-end betting massively on further rate hikes as Eurodollar shorts push on beyond $3 trillion: in the last week specs sold another 73K contracts in Eurodollar futures, taking their net shorts to the seventh successive week of record high of -3,129K contracts.
weaker than expected US non-farm payrolls data left bulls disappointed
- Fed funds futures imply 61% now see June rate hike from 70% yesterday
- 2year treasury yields hit 5 week low of 1.198%
- 30yr yields touch lowest since 18 Jan at 2.939%
- 5year yields 1.784% lowest since Nov 2016
So who thinks a rate hike is imminent now? Ok, so one swallow doesn’t make an summer but if the Fed is data dependent then this will have them scratching their chins at the very least
USD buyers returning though as I type as befits a market that’s chasing shadows with Syria and Trump/Xi talks also in the mix as I highlighted earlier.
GBPUSD back to 1.2428 after failing at 1.2450 again. USDJPY 110.44 from 110.16. EURUSD 1.0624 from 1.0667.
As we were then before the data came out but I hope you took the opportunity to take some profit or enter into fresh trades.
The stage is set for the first official summit between two of the world’s most powerful leaders as China’s president Xi Jinping travels to Florida to meet his US counterpart Donald Trump next week.
Also competing for investors’ attention will be minutes from the Federal Reserve’s March 14-15 meeting, the second televised debate of the French presidential election and the release of the closely watched US jobs report.
Here is what to watch in the week ahead:
The leaders of the world’s first- and second-largest economies will meet at Mr Trump’s Florida retreat, Mar-a-Lago, April 6 and 7. According to the official White House release, the agenda will include “global, regional, and bilateral issues of mutual concern”.
That vague description belies the complex backdrop against which the two men will meet. Mr Trump pledged during the presidential campaign to label China a currency manipulator, and within weeks of his election prompted a formal protest from China after his phone call with Taiwan’s leader (Mr Trump has since said he will back the ‘One China’ policy to ease tensions.)
A piece from BNP says analysts there are bearish on gold due to a stronger USD expected as the Federal Reserve hikes rates
- An average price of USD1,245 for Q2 of 2017
- $1220 for 2017 as a whole on average
- $1120 for 2018 as a whole on average
- BNP hedge that demand may increase on European political uncertainty though
- Longer term trend remains down though
- Expect a total of 3 Federal Reserve hikes this year
- And more over the coming year, says market is too complacent on the potential 2018 hikes also
Reuters poll of banks that do business directly with the Federal Reserve, these are the US ‘Primary Dealers” banks:
- Most US primary dealers see 2 more Fed rate hikes in 2017 and at least 3 in 2018
- 16 of 17 primary dealers expect federal funds target rate to rise to 1.25-1.50% by year end (vs. 0.75-1.00% now)
- 11 of 17 dealers see next Fed rate hike by end of Q2; 6 see next move by end of Q3
- 12 of 15 dealers see at least 3 hikes in 2018; 7 see 3 increases while 5 forecast 4 hikes
- -8 of 15 dealers see the Fed announcing its balance sheet reduction plan later this year; 7 see it happening in 2018 or later
- On near-term risks to the economy, 6 cite trade policy as greatest threat, 5 cite fiscal policy, 2 cite us dollar strength
Following the massive ADP employment beat (but productivity disappointment), March rate hike odds finally upticked to certainty. Fed Funds futures now imply a 100% chance that The Fed hikes next week.
Up from low 20s to 100% in a month…
Jeffrey Gundlach, chief executive officer at DoubleLine Capital, said on Tuesday he expects the Federal Reserve to begin a campaign this month of “old school” sequential interest rate hikes until “something breaks,” such as a U.S. recession.
Gundlach, who oversees more than $101 billion at Los Angeles-based DoubleLine, said U.S. economic data support a rate increase as soon as the next Fed policy meeting on March 14-15, and further rises this year, after a series of false starts in 2015 and 2016.
“Confidence in the Fed has really changed a lot,” Gundlach said on an investor webcast. “The Fed has gotten a lot of respect with the bond market listening to the Fed” now that economic data support the tough rhetoric from Fed officials.
New York Fed President William Dudley, whose branch of the U.S. central bank serves as its eyes and ears on Wall Street and who generally spends a couple of hours a week planning policy with Fed Chair Janet Yellen, played a key role in orchestrating the messaging of a March rate hike.
Stocks inched upward Friday after remarks by Federal Reserve Chair Janet Yellen pointed to a rate hike later this month.
The Dow and S&P 500 posted fractional gains. The blue chips barely finished higher on the day, up 3 points and staying above 21,000, ending at 21,005.71.
Climbing 0.2% was the Nasdaq composite, to 5870.75.
“At our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” Yellen said in a 1 p.m. ET speech at the Executives’ Club of Chicago.
While Yellen couched her remark in conditional terms that depend on economic data, she preceded it by citing a job market that has been “strengthening” and inflation that has been “rising toward our target” of 2% annually.
Several other Fed officials in recent days have indicated the Fed’s policymaking committee is likely to raise its benchmark short-term rate at a March 14-15 meeting.