US markets have traded amazingly calm overnight after a troubling trade in the US yesterday, while the rest of the globe seemingly just repriced to match yesterday’s late-day moves in stocks and bonds (love that line). Today is a very important technical day for equities: close positive and everything is fine, but a repeat of yesterday (higher overnight and then collapse) would be very bad. And then there is the politics of Europe rearing its ugly head again (below). As of 8:30 AM ET, Treasuries have given up their overnight gains to sit 1-2 bps higher in yield, while US equity index futures are currently 1% higher ahead of the all-important cash open.
The thematic selling, albeit on lighter volume, we talked about out of Asia yesterday in Treasuries took quite the break today, with very little selling, and actually small buying interest. Japanese real money accounts bought US 7s and 10s now that the reopening was done in 10s, while Asian central banks sold 3s and 5s to buy 10s and mortgages in their seemingly daily trade, while RV account was a buyer of 2s to sell 5s after the Tokyo lunch. Ahead of the European open, Asian bank was buyer of US 5s and received in USD 5y swaps.
Locally, it was a calmer day in Asia as well, with JGBs barely registering a trade, as JGB 10s closed flat on the session, with a small flattening as JGB 30s and 40s outperformed the belly by a bp. AUD 2BN 3y auction stopped through and was supported by aggressive bidding, but Aussie rates came under pressure when RBA did not increase buybacks as had been rumored in market, leaving Aussie 10s 4.25 bps higher on the session. Finally, New Zealand rates were supported on RBNZ buybacks, rallying 3 bps on the session. Equities were mixed to lower in Asia after the disappointing US day on Tuesday, as most indices were down between .5% and 1%, the lone exception being the NIKKEI that was up 2% on hopes that COVID-19 rate of spread may be declining.
Don’t kid yourself about the European session; it has again been all about funding the crisis, and there is nothing that causes more rancor in Europe than getting these people to agree to backstop each other even after they agreed to a common union some 20+ years ago. Bunds have been treated like a red-haired stepchild all week; after a decent early morning, they are getting treated as such again today. A meeting of the EU Finance Ministers produced no plan to underpin the region’s economy as the ministers can’t get past this dispute between Italy and the Netherlands on the use of credit lines from the EU bailout fund. Of course, bunds wear it: after being up .90 early in the session, they are now down .10 as all the negative news rolls out. Equities in Europe are coming under pressure as well here. Interesting, sovereign supply in Europe has all gone well today: UK 10y was strong, UK 6y was solid, and German 10y went well. I think there is a message here. Corporate supply has lessened today in Europe, but the focus has shifted away from supply and onto EU politics. There was Asian real money buying of bunds early in the session, RV buying of schatz (2s) to sell bobls and bunds mid-morning in London, along with hedge fund selling of bunds and bank selling of bobls. Gilts have traded steady all day on very light volume, almost watching the show across the continent. Peripherals are widening to core on the inability of the EU FMs to get anything done, while European equities have given up ALL their early gains to trade down .5% to 1.5% across the continent.
Treasuries traded quietly in Europe, making their highs of the session after the European open, dragged higher by bunds, but have followed bunds down the slick slope to trade back at yesterday’s 3 PM marks since New York arrived. Japanese real money account received in social sizes mostly in USD 30y swaps ahead of and through the European open. There was some macro receiving in USD 10y swaps mid-morning in Europe that was said to be against paying in EUR 10y swaps, along with some RV interest in 10s30s steepeners in Treasuries ahead of today’s 30y supply. New York has seen deal-related paying in USD 5y swaps, along with some London macro account paying in USD 3y swaps. Today’s US corporate calendar should grow quickly this morning as well.
Today in the US, we will get the FOMC meeting minutes from the emergency meeting on March 15th at 2 PM ET. I suppose it’s important, but given that Jerome will speak on a webcast tomorrow morning (10 AM ET), I think all the fizz is out of this bottle today. The Fed will conduct the normal POMO starting at 9:50 AM ET and ending at 1:10 PM ET. 20-30y sector will lead off at 9:50, with $5BN being the zone for purchases. Then we can focus on the real even of the day for you vigilantes, as Treasury will reopen $17BN in 30s ($1BN more than recently) at 1 PM ET.
Okay, so yesterday…..strong day for stocks, until after lunch. As Bianco research points out, the last time (and only other time) that stocks were up more than 4% and closed lower was October 14, 2008, the day Secretary Paulson forced banks to take TARP money. Okay, that covers worthless trivia, but it is a good reminder. Thought you still had another 15-25 handles in SPX, but close counts. Now you bounce in equity futures overnight. If you give it up, you will be setting up as classic a bear trap as we saw six weeks ago. You really need to get above 2700 in SPX here and hold today. And it’s REALLY bad if you take out 2575 in the SPX index.
As for fixed income, this week has been about shorts wanting the European session to never close, while the longs would love to see Europe take a long holiday. Yesterday, Treasuries were under good pressure into the 10y auction, and then found conviction late in the day and right through the Asian session, only to hit the wall when Europe showed up. Darned German bond vigilantes!!! If stocks do roll over, it won’t matter. And this continuous widening to libor is seeing ever increasing flows into USD space until the long-awaited tightening of spreads comes through, even if no one can really explain when or how that will happen. We’ll see. Enough of my hump day bitterness. As for choice today in TYM, let’s call the range in TYM 138-14+ to 137-06+, after an overnight range of 138-09+ to 137-22+. Support comes in at 137-15, 137-10, 137-06+ objective, 136-25, 136-20+; resistance shows up at 137-31/138-00 (so tired of this level back and forth!), 138-08+, 138-14+, 138-19, 138-24+, 139-00, 139-09. Look, dealers have the market trapped and will get a better concession for these 30s, looking for something in the 1.45% zone. When that happens, the supply will go well and risk is to a good rally for Treasuries. If stocks can’t put out some good signals early in the day, would look to buy some conditional calls in 30y space. Probably the only place one can do that is US Classic options on the Board. Look at a USM 169 put with delta (15% delta here, but a point lower and it’s a 17% delta, 44 days to expiration on USM futures). Enough for today…. Have a good hump day!
And for those celebrating the Passover Holiday beginning this evening, a blessed and safe holiday to you and your families,
mjc