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Mon, 29th August 2016

Anirudh Sethi Report

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Archives of “futures contract” Tag

Future Position in Forex ,Treasury-Crude :An Update

The summer lull for speculators in the currency futures market continued in the CFTC reporting week ending August 23.  Of the 16 gross currency futures positions we track, speculator adjustments were less than 3k contracts in all but three.
The bears added to their gross short sterling position for the eighth consecutive week.  The seven hundred contract increase was the smallest of the streak and lifts the gross short speculative position to 130.8k contracts, a new record.
More substantive adjustments were seen in the euro and Mexican peso, where the speculative bears ran for cover.  The gross short euro position was trimmed to 182k contracts, as 13.6k contracts were covered.   It is the fourth week in a row that shorts were covered.  They peaked at 221.8k before the short-covering streak.   The speculators covered 14.9k gross short peso contracts, leaving them with 55.4k.  It is the third week of short-covering that began with a gross short position of 76k contracts.
Despite the small changes in the gross positions by speculators, two pattern were clear.  First, speculators did not reduce the gross long positions in any of the currency futures we track.  Second, speculators mostly reduced gross short positions.  The exceptions were sterling, as we have seen, and the Australian and New Zealand dollars.   We suspect some of the late positioning was caught wrong footed and may help explain the dramatic reaction of Yellen (and Fischer) before the weekend.

Why The Fed Expects 2018 Rates To Be Between 0% And 4.5%

While the debate rages whether Yellen was “hawkishly dovish“, hiking in September just to unleash trillions more in QE once the curve inverts even more as a recent Fed staffer paper suggested, or “dovishly hawkish“, waiting until December or even next year, before making another policy error, there was at least some clarity provided by the Chairwoman’s speech, at regard to the Fed’s forecast for where the Fed Funds rate will be over the next two years.

This is what she said:

as ever, the economic outlook is uncertain, and so monetary policy is not on a preset course. Our ability to predict how the federal funds rate will evolve over time is quite limited because monetary policy will need to respond to whatever disturbances may buffet the economy. In addition, the level of short-term interest rates consistent with the dual mandate varies over time in response to shifts in underlying economic conditions that are often evident only in hindsight. For these reasons, the range of reasonably likely outcomes for the federal funds rate is quite wide–a point illustrated by figure 1 in your handout. The line in the center is the median path for the federal funds rate based on the FOMC’s Summary of Economic Projections in June.

So where does the Fed expect US rates to be in two years?

“The shaded region, which is based on the historical accuracy of private and government forecasters, shows a 70 percent probability that the federal funds rate will be between 0 and 3-1/4 percent at the end of next year and between 0 and 4-1/2 percent at the end of 2018.”

Shorts Throw In The Towel: S&P Short Interest Tumbles To Three Year Lows

Earlier today, we showed Barclays’ calculation how, in a market in which there have been a gargantuan $128 billion in stock outflows YTD, the stock market has seen an unprecedented surge higher. The buyers, as Barc calculated, were buyers of index futures, such as central banks (“net buying of US equity futures since March ($60bn notional) has surpassed the amount of buying between October 2011 and May 2013“), corporations buying back stock (“The biggest buyers of equities are corporates themselves with S&P 500 net buybacks rising to $500bn over the last four quarters from $375bn in 2013“), and last but not least: short covering.

As Barclays reported, for S&P 500 stocks, the flow to US equities from short-covering since March has been $60bn, and $26bn since June.

This means that as of this moment, the S&P500 short interest as a percentage of market cap is at three year lows, as most of the weak hands have been flushed out.

The flipside of shorts officially throwing in the towel, is that going forward it will be much more difficult to push stocks higher simply from squeezing shorts or forcing covers. Then again, with short interest at approximately 2.0%, there is still a chance it may fall further. In early 2007, just before the financial crisis emerged, short interest was just above 1.6%. In other words, while going forward the pain for shorts will be substantially lower than over the past year, it may still continue for a while should central banks continue to push everyone into stocks.

China marks time in march toward international yuan

In the year since China’s surprise devaluation of its currency, the yuan’s troubles going global have become all too apparent.

With the yuan continuing to lose strength as the Chinese economy slows, Chinese authorities have become reluctant to further expose the currency to market forces — a step necessary to achieve true reserve currency status.

 Last month, the People’s Bank of China gathered local bank executives here for a meeting to inform them of de facto regulations on transactions that could facilitate capital flight. Officials from the central bank reiterated administrative guidance on a prior reporting requirement for large foreign-currency purchases or outbound fund transfers by corporations.

This guidance would not be put in writing, but banks were expected to comply, the officials said, according to people familiar with what transpired at the meeting. Banks were also instructed not to sell foreign currency to companies not registered in Shanghai.

In its 2016 report on internationalizing the yuan, released Wednesday, the PBOC hails rising cross-border transactions and the currency’s progress toward global status. The Chinese leadership, under President Xi Jinping, has set a goal of having “a convertible, freely usable currency” by 2020.

But in a seeming contradiction to this aim, the central bank early this year introduced nationwide restrictions meant to block capital outflows, and has since tightened them. The yuan has been hit with bursts of activity that appear the work of short-sellers. Clearly afraid of letting the currency weaken or allowing capital outflows, the PBOC has put a halt to the liberalization on which the drive for a global yuan depends.

6 Trading Behaviours For Traders

1) Fresh Ideas – I’ve yet to see a very successful trader utilize the common chart patterns and indicator functions on software (oscillators, trendline tools, etc.) as primary sources for trade ideas. Rather, they look at markets in fresh ways, interpreting shifts in supply and demand from the order book or from transacted volume; finding unique relationships among sectors and markets; uncovering historical trading patterns; etc. Looking at markets in creative ways helps provide them with a competitive edge.

2) Solid Execution – If they’re buying, they’re generally waiting for a pullback and taking advantage of weakness; if they’re selling, they patiently wait for a bounce to get a good price. On average, they don’t chase markets up or down, and they pick their price levels for entries and exits. They won’t lift a market offer if they feel there’s a reasonable opportunity to get filled on a bid.

3) Thoughtful Position Sizing – The successful traders aren’t trying to hit home runs, and they don’t double up after a losing period to try to make their money back. They trade smaller when they’re not seeing things well, and they become more aggressive when they see odds in their favor. They take reasonable levels of risk in each position to guard against scenarios in which one large loss can wipe out days worth of profits.

4) Maximizing Profits – The good traders don’t just come up with promising trade ideas; they have the conviction and fortitude to stick with those ideas. Many times, it’s leaving good trades early–not accumulating bad trades–that leads to mediocre trading results. Because successful traders understand their market edge and have demonstrated it through real trading, they have the confidence to let trades ride to their objectives.

Copper sitting in warehouses jumped by 18 per cent this week to the highest level since February -LME

coppCopper has been flowing into warehouses in Asia, fuelling speculation about demand in China, the world’s biggest consumer of industrial metals, and the outlook for prices.

Copper sitting in warehouses licensed by the London Metal Exchange has jumped by 18 per cent this week to the highest level since February, totalling 234,750 tonnes, up from 140,000 tonnes in April.

Many fear the inflow of metal could weigh on copper prices, which recently touched a two-month peak of almost $5,000 a tonne partly on expectations of further stimulus from central banks.

Others say the increase in stocks reflects storage economics and will reverse once premiums for physical copper starting improving.

Here are the main arguments.

Weakness in China

Last month around 50,000 tonnes of copper left Chinese ports, according to data provider Shanghai Metals Market. A lot of the copper comes from the bonded warehouses in Shanghai, where the metal is stored before it enters the country, according to analysts.

It is a sign of weak downstream consumer demand and that copper-consuming industries have not benefited from the government-engineered credit surge that boosted construction activity and prices of steel and iron ore.

Some of the copper that has left China was sent out by Chinese smelters, which produce finished copper from raw copper concentrate, according to Matthew Wonnacott, analyst at consultancy CRU in Hong Kong.

Upcoming Week :Sources of Movement

Investors are under siege.  A growing proportion of bonds in Europe and Japan offer negative yields.  The German and Japanese curves are negative out 15-years, while one cannot find a positive yield among any tenor of Swiss government bonds.   Despite a string of robust data, US Treasury coupon yields are at record lows.

The UK referendum hit an already vulnerable banking system in the eurozone.  Italian banks are on the front burner, but the temperature is rising in Portugal, and this is not to mention the slow boil at some of the largest European banks, specifically singled out by the IMF as posing the greatest systemic risks.

Politics add an additional wrinkle.  Both of the two main parties in the UK are divided. The leader of the UK’s Independent Party resigned.   If Labour was not doing a fine job of destroying itself, Cameron, in among his last acts as Prime Minister, will give it a helping hand.  He will have parliament vote on the renewal of the UK nuclear deterrent (Trident), and it will further split Labour. Corbyn has been long opposed, while the Labour MPs typically favor.  There is an attempt by the Labour MPs to block Corbyn’s name from even appearing on the leadership ballot.  

The US political parties hold their conventions over the next few weeks, though it is possible that Trump announces his vice-presidential running mate in the week ahead.  Indiana Governor Pence appears to be edging out former Speaker of the House Gingrich.  Perhaps to prevent the Republican Party to dominate the news cycles, it would not be surprising if Sanders were to endorse Clinton either in the week ahead of the following week.

Saxo Bank Says : Chinese retail investors have ‘taken over silver’

Is China’s army of retail investors behind some of the recent surge in silver?

That’s the view of Saxo Bank, which reckons the recent advance of the Devil’s metal mirrors that seen in steel rebar and iron ore earlier this year

Silver has advanced more than 10 per cent over the past week and hit $21 an ounce for the first time since 2014 on Monday. In the year to date it is up more than 40 per cent, outpacing gold, another safe haven asset.

Saxo says the pick up in trading volumes on the Shanghai Futures Exchange over the past week and the decline in open interest suggest Chinese retail investors have “taken over silver for now”.

“As long this continues, we are likely to see bigger daily price swings with the Asian session seeing most of this,” Saxo said in a note to clients.

Commodity trading in China surged earlier this year as retail investors, high net worth individuals and yield hungry wealth mangers piled into the sector, using it as a quick and easy way to place leveraged bets on the outlook for the domestic economy.

ALERT- CME tweaks price-change limits on Brexit volatility

Futures exchange CME Group has taken “emergency action” as the UK casts votes in its historic EU referendum.

In a notice late Wednesday, Chicago-based CME said it had raised special price fluctuation limits in currency futures and benchmark interest rate futures

Fluctuation limits serve as circuit breakers in futures markets, temporarily locking trading after extreme price moves. Limits for dollar-sterling futures normally range from 400 ticks to 1,600 ticks, in escalating progression.

The emergency action, in place to Friday, will double limits for currency contracts, bringing the range for the pound from 800 ticks to 3,200 ticks.

“The exchanges determined that there is a strong likelihood that the ‘Brexit’ vote may result in increased price volatility in CME FX and CME and CBOT Interest Rate futures products,” CME said in a notice to traders. “The emergency action is being taken as a precautionary measure and is intended to ensure fair and orderly trading in all these products”.

As CME was taking emergency action, it was also using Brexit vote as a marketing opportunity. In an email blast sent out early Thursday London time, the exchange operator touted its contracts.

Silver Options Traders Follow Gold To Longest Bullish Bet Since 2009

Where gold goes, silver often follows, and in the options markets that is increasingly so…

3 month Puts have now been cheaper than Calls for more than 97 days…

As the chart shows, bearish options on exchange-traded funds tracking the metals have been cheaper than bullish ones for the longest time since at least 2009.