Commitment Of Traders - Futures In The Near Future; Hedge Fund Positions

Following futures positions of non-commercials are as of December 11, 2018.

10-year noteCurrently net short 393.8k, up 100.6k.

Next week – on Dec. 18-19 – the FOMC meets.  This is the last meeting this year.  A 25-basis-point raise is expected, with the futures market assigning 77-percent odds.  If the Fed holds up on a hike, equity markets in particular will be pleasantly surprised.  At the same time, they will be immensely disappointed if there is no dovish shift in the Fed’s language.  Until the last meeting, the dot plot expected three hikes next year.  Markets expected just one and would like FOMC members to shift downward.  As things stand, this looks like the path of least resistance.

On November 28, Jerome Powell, Fed chair, in a speech said interest rates were “just below” neutral.  Stocks rallied.  This was a U-turn for him.  On October 3, the same day the S&P 500 large cap index began its waterfall dive, he had said rates were still “a long way” from neutral, suggesting continued tightening in the weeks/months ahead.  If he misspoke two weeks ago, he would have the opportunity to make a correction next week.

Except for stocks in the midst of a selloff and a flatter yield curve, there has not been much change in macro variables since the aforementioned speech early October.  Most data had been in deceleration even before that.  And stocks were doing fine.  But from the intraday high early October to this Monday’s low, the S&P 500 gave back 12.1 percent.  In the meantime, the spread between 10- and two-year Treasury yields narrowed to 11 basis points twice this month.

The long end of the curve continues to warn the Fed not to get too tight.  Now, equities have joined credit.  Odds favor softening in the Fed’s tone/language.

30-year bondCurrently net short 62.2k, down 10.4k.

Major economic releases next week are as follows.

December’s NAHB housing market index and Treasury International Capital System data for October are due out Monday.

Builder sentiment collapsed eight points month-over-month in November to 60.  Last December’s 74 was the highest since July 1999.

Foreigners continue to reduce exposure to US stocks.  In the 12 months to September, they sold $26.8 billion worth.  As recently as January, they were buying $135.7 billion worth.

Housing starts for November come out Tuesday.  Starts increased 1.5 percent m/m in October to a seasonally adjusted annual rate of 1.23 million units.  January’s cycle high 1.33 million units was the highest since July 2007.

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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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