Commitment Of Traders - What They're Buying

Following futures positions of non-commercials are as of August 24, 2021.

10-year note: Currently net long 113.3k, down 31.9k.

It turned out to be quite an anticlimax – Federal Reserve Chair Jerome Powell’s virtual speech at the Jackson Hole symposium, that is. On Friday, he indicated that the central bank is getting ready to taper its bond purchases by the end of the year.

Currently, the Fed buys up to $80 billion in treasury notes and bonds and $40 billion in mortgage-backed securities. It is sitting on $8.3 trillion in assets, nearly twice what it held in March last year.

Powell’s speech confirmed markets’ fears that tapering would begin later this year. But their reaction function on Friday was anything but disrupting. Both bonds and equities celebrated, with the ten-year treasury yield dropping three basis points to 1.31 percent and the S&P 500 rising 0.9 percent to yet another record high. These assets probably paid more attention to something else Powell said – that rate hikes are not imminent. He said there is “much ground to cover” before that happens.

But tapering – or QE removal – surely is stealth tightening. Currently, the Fed is using its balance sheet to put downward pressure on the long end of the yield curve. Once this support gets gradually removed, it will be influencing only the short rates. Now that tapering is nearing, the next step logically is a rise in the fed funds rate – timing notwithstanding. Markets are forward looking and should begin to reflect these new dynamics sooner or later.

30-year bond: Currently net short 99.3k, up 19.1k.

Major economic releases for next week are as follows.

The S&P Case-Shiller home price index (June) is due out on Tuesday. Nationally, US home prices surged 16.6 percent year-over-year in May. Going back 45 years, this is the steepest y/y price appreciation ever.

The ISM manufacturing index (August) will be published on Wednesday. In July, manufacturing activity fell 1.1 points month-over-month to 59.5. This was the first sub-60 reading in six months.

Thursday brings labor productivity (2Q21, revised) and factory orders (July, revised).

Preliminarily in 2Q21, non-farm output/hour increased 2.3 percent, down from 1Q21’s 4.2 percent.

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Disclaimer: This article is not intended to be, nor shall it be construed as investment advice. Neither the information nor any opinion expressed here constitutes an offer to buy or sell any ...

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