CoT: The Future Through Futures, How Hedge Funds Are Positioned

Following futures positions of non-commercials are as of July 27, 2021.

10-year note: Currently net long 164.5k, up 75.6k.

This week’s FOMC meeting was big yawn except for one thing. Members obviously left the fed funds rate at the current range of zero to 25 basis points. No one expected them to do anything with benchmark rates, and they did not.

Of late, the number of hawkish voices within the FOMC has been getting louder, although they continue to be in the minority. The likes of St. Louis Fed President James Bullard have begun to argue that the Fed should begin to taper its bond purchases.

Every month, the Fed buys up to $80 billion in treasury notes and bonds and $40 billion in mortgage-backed securities (more on this here). As of Wednesday, it held $8.2 trillion in assets, up from $4.2 trillion in early March last year.

Unlike the early months of last year when the economy was grinding to a halt and in response the Fed adopted an aggressive monetary policy, conditions have changed. The economy no longer needs an emergency policy.

During the June 15-16 FOMC meeting, members brought forward their projections for interest rate hikes into 2023, with 11 of them penciling in at least two quarter-point increases for 2023. Some are even calling for rate increases to begin next year.

With this as a background, this week’s FOMC statement further said that progress has been made towards the economic goals the Fed hopes to achieve before slowing down its bond buying. Previously, it had said it wanted to see substantial progress.

The slight tweak in the language suggests the Fed is probably getting ready to curtail the pace of purchases toward the end of this year. If so, repercussions will be felt across assets, not only US but global.

30-year bond: Currently net short 82.9k, down 17.7k.

Major economic releases for next week are as follows.

The ISM manufacturing index (July) is due out on Monday. Manufacturing activity fell six-tenths of a point month-over-month in June to 60.6. This was the fifth consecutive monthly reading of 60-plus – and in six out of the last seven.

Durable goods orders (June, revised) will be published on Tuesday. Preliminarily, June orders for non-defense capital goods ex-aircraft – proxy for business capex plans – jumped 18.3 percent year-over-year to a seasonally adjusted annual rate of $76.1 billion, which was a new record.

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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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