Commitment Of Traders For This Week: Futures Positions Of Non-Commercials

Following futures positions of non-commercials are as of June 25, 2019.

10-year noteCurrently net short 281.1k, down 121.9k.

Since peaking at 3.25 percent last October through the intraday low seven sessions ago of 1.98 percent, the 10-year Treasury yield (two percent) has priced in a lot of things, including easier monetary policy.  Fed funds futures currently expect a 25-basis-point cut in July to a range of 200 to 225 basis points, followed by another cut of the same magnitude in September, and maybe another in December.  This is aggressive.  The Fed has not quite shown its hand but has increasingly turned dovish.

The eight-month, 127-basis-point drop in the 10-year rate has pushed daily and weekly indicators into deep oversold territory.  Medium- to longer-term, rates are probably still headed lower, but it is possible they are in the process of basing near term.  Fed action could very well drive this near term.  Here are a few scenarios.

If in July (30-31), the Fed pulls a surprise and cuts by 50 basis points, this could initially drive the 10-year rate lower, but this likely gets faded as this could also mean substantially reduced odds of continued aggressive easing.  If the Fed continues its dovish posture but does not cut, this likely gets interpreted as policymakers’ conviction in the economy, resulting in higher yields.  If the Fed cuts by 25, yields likely rally as the move is already priced in.  If the Fed cuts by 25 and suggests that markets’ rate-cut expectations are too high, this probably is even more reason for rates to rally.

30-year bondCurrently net long 16.2k, down 2.1k.

Major economic releases next week are as follows.  Happy Independence Day!

June’s ISM manufacturing index comes outs Monday.  In May, manufacturing activity fell seven-tenths of a point month-over-month to 52.1 – a 31-month low.  The cycle high 60.8 – also the highest since May 2004 – was hit last August.

The ISM non-manufacturing index (June) and durable goods (May, revised) are scheduled for Wednesday.

Services activity in May rose 1.4 points m/m to 56.9.  Last September’s 60.8 was the highest ever, with the data only going back to January 2008.

Preliminarily, orders for non-defense capital goods ex-aircraft – proxy for business capex plans – rose 1.3 percent year-over-year to a seasonally adjusted annual rate of $69 billion.  Last July, orders peaked at $70 billion.

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