Commitment Of Traders This Week: What Hedge Funds, Futures Are Doing

Following futures positions of non-commercials are as of March 19, 2019.

10-year noteCurrently net short 164k, down 12.5k.

The Fed Wednesday held interest rates steady at 225-250 basis points.  This was expected.  What was not expected was the dovish turn it took, which was much sharper than markets expected.  It now expects no hike this year.  Last December, when it last raised, the FOMC dot plot expected two rate increases this year.  That was the ninth 25-basis-point increase since the Fed began raising rates in December 2015.

Concurrently, the Fed plans to end the ongoing balance-sheet wind-down in September.  It began to run it down in October 2017.  Currently, up to $60 billion a month can roll off.  As of Wednesday, System Open Market Account (SOMA) holdings stood at $3.76 trillion, down from a peak of $4.24 trillion in April 2017.  Prior to three iterations of quantitative easing (QE), these holdings were $500 billion.

The bank expects 2.1 percent growth this year, down from the 2.3 percent it forecast in December.  At the same time, it is essentially ending the tightening cycle.  The conventional wisdom would argue that this is good for risk-on assets – a la late 2008 and early 2009, when the Fed unleashed its stimulus bazooka, using both conventional and unconventional means.  The main difference between now and then is that the US economy is just three months short of completing a decade of recovery/expansion.  It is at the top of the cycle, not the bottom.  Hindsight is 20/20, but all that QE only brought about a sub-par recovery, during which overall leverage went up not down.  Stocks’ – and other assets’ for that matter – reaction function can be different this time around.  As the saying goes, fool me once, shame on you; fool me twice, shame on me.

30-year bondCurrently net short 30.2k, up 7.6k.

Major economic releases next week are as follows.

Housing starts (February) and the S&P Case-Shiller home price index (January) are due out Tuesday.

Starts shot up 18.6 percent month-over-month in January to a seasonally adjusted annual rate of 1.23 million units.  December’s 1.04 million was the lowest since March 2015.

Nationally in December, home prices rose 4.7 percent year-over-year.  Price has been decelerating since last March’s 6.5-percent increase.

On Thursday, corporate profits and revised GDP – both for 4Q18 – are on tap.

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