Interdum stultus opportuna loquitur...

Monday, November 29, 2004

Bonds Tank on "Flattening Unwinds"; Equities Soft on WMT.

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Economic Statistics

There was no economic data released during the US session - but tomorrow more than compensates any data-geek, with

  • ICSC-UBS Store Sales
  • Redbook Chain Store Sales
  • GDP/Corporate Profits
  • Consumer Confidence; and last but not least
  • Chicago NAPM.

The consensus estimates for these can be found by clicking on "Tomorrow's US Economic Data Calendar".

Forthcoming US Economic Data Tomorrow's US Economic Data Calendar

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 2 repurchase operations last night:

  • a $3billion, overnight repurchase with $0.2billion in T-backed collateral ; and
  • a $3billion, 2-day repurchase with $0.5billion in T-backed collateral.

See that? Loads of repo ($6 bill) but bugger-all in the "good stuff" from the point of view of equity market traders.

I mentioned last week that the Agency market (for Freddie Mac and Fannie Mae bonds) seemed to be the latest hotspot, and now the Fed has to be concerned more broadly with the mortgage market; the bulk of the repurchases last night were in mortgage-backed collateral.

Those of you who are unaware of my views on Alan Greenspan know that I think he is like Paul Simon's One Trick Pony... give him any form of dislocation and he will thrown money at it. Unlike the pony in Simon's masterful song, one thing Greenspan does not remind me of is the following lyric

He makes it look so easy

Looks so clean

He moves like God's immaculate machine

He makes me think about all of these extra moves I make 'n'

all these herky-jerky motions

and the bag of tricks it takes

to get me through my working day....

One Trick Pony.

But I digress...

Major US Indices

Wal-Mart was the big disappointment last night, withthe worl's greatest sseller of Chinese imports letting the market know that it didn't have a great Thanksgiving holiday sales period. The stock got smacked for almost 4% as a result, and dragged the Dow down hard.

By the clsoe, the DJIA was down 46.33 points (0.44%), closing out the day at 10475.9 points; the broader S&P500 lost 4.08 points (0.34%), to end the session at 1178.57.

Over at Times Square, the tech party continues as the Nasdaq Composite added 4.9 points (0.23%), to close at 2106.87, while larger-cap technology issues fared worse with the Nasdaq100 adding 2.18 points (0.14%), to end at 1580.44 points.

NYSE Volume was average, with 1.38 billion shares traded, while Nasdaq Volume was chunky, with 1.84 billion shares crossing the tape.

Nasdaq Composite2106.874.90.23%
NYSE Volume1.38bn--
Nasdaq Volume1.84bn--
US 30-yr yld4.98%0.09%1.78%

Market Breadth & Internals

On the NYSE declining Issues beat out advancers by 1904 to 1466, for a single-day A/D reading of -438; Nasdaq gainers trumped losers by 1780 to 1328.

On the NYSE declining volume was greater than volume in advancing issues by 789.51 to 574.51 million shares; Nasdaq advancing volume was greater than volume in decliners by 630.21 to 412.24 million shares.

319 NYSE-listed stocks rose to new 52-week highs, and 1 posted a fresh 52-week low, while on the Nasdaq there were 239 stocks that hit new 52-week highs, and 11 which fell to fresh 52-week lows.

Advancing Volume (m)574.51630.21
Declining Volume (m)789.51412.24
New Highs319239
New Lows111

Market Sentiment

Because of friday's short session, the put-call volume data are all over the shop; they will setttle down this week.

That said, the put-call ratio is still very stable at around 0.53/0.54 - far too effusive and call-o-centric... the CBOE, like many US services businesses, is becoming little more than a call centre (get it??).

CBOE Equity Call Volume (000)667.89388.01138.63%
CBOE Equity Put Volume (000)359.26208.97139.05%
CBOE Volatility Index13.30.513.99%
CBOE Nasdaq Volatility Index18.830.894.96%
Equity Put-Call Ratio0.5400.18%
10-day PCR0.540.00510.96%
SPX-VIX Ratio88.61-3.85-4.17%

Bond Market Analysis

Last night saw two short-term bond auctions -

  • the 3-month bill auction for $19bill, which cleare at a yield of 2.195% and a bid-to-cover of 2x - this was a 4-basis point increase in yield, accompanied by a drop in offer coverage (last week's bid-to-cover was pretty strong at 2.43x; and
  • the 6-month bill auction (for $17bill)which cleared at 2.395% with a bid-to-cover of 1.97x. That's a 3 basis point yield increase, but at least the bid-to-cover improved from last week's 1.83x.

I've been calling for 30-year bond yields to hit 5% for a while now - almost two weeks - and the damned things have not complied. But last night they got real close.

After a pretty tame early session, bonds fell off a cliff: by the close, the front-month futures contract (December04) was down 1&4/32 to 111&17/32 (recall that I'm notionally short his vehicle at 114&1/32). The yield on the benchmark 30-year Treasury bond rose 8.7 basis points to 4.975%... close... so close to 5%!!

The fall was a bitperplexing given the absolute lack of data - although technically and fundamentally the bonds have been a "sell-on-any-bounce" proposition for two years.

A partial explanation was a major Asian player unwinding so-called "flattening" trades - where a trader will sell short maturities and buy longer-maturities (say, selling 2-year notes and buying 10-year bonds).

This is usually undertaken when someone thinks the yield curve is "too steep" - i.e., that it is pricing in too much inflation and economic growth. To my mind, the market is pricing in too much economic growth but not enough inflation; bonds should continue their tank, with my intermediate objective (likely to be reached in the first quarter of 2005) being 102 on the long bond, then 100 even. That will see long rates in the US at 6.5%.

The 10-year is also at an important juncture - its yield is currently 4.326%, and any move above 4.41% will be dynamite (because 4.41% is a technically important yield point). A breach of 4.41% for more than 2 sessions will see the 10-years fall hard, with their yield also targetting 5%. People are getting sick of lending the US money - end of story.

UST 2Y (yld)3.0460.020.83%
UST 5Y (yld)
UST 10Y (yld)4.3260.12.32%
UST 30Y (yld)4.9680.0811.66%

The Banks Index declined 0.01 points (0.01%), ending the day at 101.92; within the index,

  • the Derivative King - JPMorganChase dipped $0.01 (0.03%) at $37.69; and
  • Citigroup shed $0.10 (0.22%) to end the session at $45.42

The Broker-dealer Index gained 0.13 points (0.09%), ending the day at 145.93; the ticket clippers lined up as follows -

  • Merrill Lynch lost $0.08 (0.14%) at $56.53
  • Morgan Stanley Dean Witter declined $0.23 (0.45%) to $51.12
  • Goldman Sachs shed $0.16 (0.15%) at $104.84
  • Lehman Brothers gained $0.28 (0.33%) closing at $84.80

The Philadelphia SOX (Semiconductor) index dipped 2.67 points (0.62%), ending the day at 430.98

  • Triquint advanced $0.04 (0.94%) closing at $4.31
  • Micron Technology lost $0.08 (0.7%) to end the session at $11.40
  • Intel slid $0.40 (1.69%) to $23.21
  • Altera slid $0.34 (1.47%) ending the day at $22.75
  • JDS Uniphase posted a rise of $0.03 (0.96%) to $3.16

Gold & Silver Markets

Gold strengthened by $4.50 (1%) to $453.80 per ounce. The Gold Bugs Index gained 6.18 points (2.61%), closing at 243.39 points.

Silver rose $0.17 (2.19%) to close at $7.78 per ounce. The Gold and Silver Index (XAU) gained 2.66 points (2.48%), at 109.87 points.

PHLX Gold and Silver Index110.030.160.15%
AMEX Gold BUGS Index242.93-0.46-0.19%

Oil Market

Oil was firmer, rising by $0.26 per barrel, closing at $49.70 per barrel. The Oil and Gas Index (XOI) advanced 6.68 points (0.9%), to 745.38 points.

The Oil service stocks (OSX) Index added 0.03 points (0.02%), ending the day at 127.02

Reuters CRB2901.250.43%
Crude Oil Light Sweet49.660.220.44%
AMEX Oil Index742.19-3.19-0.43%
Oil Service Index125.77-1.25-0.98%

Currency Markets

In line with my previous comments, the US Dollar is finding any downward movement to be "tough sledding" at 82; last night it made a marginally lower low, but stabilised and ended above 82 again.

US Dollar Index81.950.130.16%
Australian Dollar0.7829-0.0075-0.95%
Swiss Franc1.14260.00430.38%
Canadian Dollar0.8426-0.0073-0.86%

European Markets

France's benchmark CAC-40 Index slid 15.39 points (0.41%), ending the day at 3782.2; the German DAX-30 Index dipped 6.08 points (0.15%), at 4154.27; and in the UK, the FTSE-100 Index added 8.3 points (0.18%), to end the session at 4749.8 points.

For those interested in European markets, I will be launching "EuroRant" later this week, with a full wrap of major European markets (maybe even the MIBTel if I can be bothered) including a daily European Futures Preview.


Tonight's Pivots (US Futures Market)

R2106521195.331608.5113 8/32
R1105781188.171595.5112 11/32
Pivot104971180.331582111 27/32
S1104231173.171569110 30/32
S2103421165.331555.5110 14/32