Seeing The Future Thru Futures: This Week's CoT

Following futures positions of non-commercials are as of November 27, 2018.

10-year noteCurrently net short 284.2k, down 83k.

Jerome Powell, Fed chair, moved markets on Wednesday.  A whole host of asset classes reacted to his Economic Club of New York speech.  Early October, he had suggested that interest rates were still “a long way” from neutral.  After three 25-basis-point hikes this year, December (18-19) is all set to witness another hike.  The FOMC dot plot expects three more next year.  Markets are nowhere near that.  So when Powell made that comment on October 3, an overbought equity market took it as an excuse to sell off.  From an intraday high of 2939.86 in that session through a low of 2603.54 on October 29, the S&P 500 large cap index collapsed 11.4 percent.

Wednesday, he said rates were “just below” the neutral range.  Markets took it as a shift downward in his prior hawkish stance.  The 10-year Treasury rate (3.01 percent) moved lower by a basis point.  The US dollar index shed 0.6 percent.  Stocks ripped higher.  But was this a case of oversold stocks looking for an excuse to rally or is there a genuine change in his stance?  In the speech, he said nothing to the effect of inflation and the economy growing less than the central bank’s forecast.

That said, of late, there is definitely a decelerating trend in the macro data.  In the 12 months to October, for instance, core PCE – the Fed’s favorite measure of consumer inflation – rose 1.78 percent, much slower than the 2.02-percent pace in July.  Other data, such as ISM manufacturing and GDP, are similarly softening.

Thus, if he thought markets read him wrong, he will have an opportunity to correct himself in a little over two weeks, when the FOMC meets.  How the dot plot shifts – if at all – will be a tell.  Until then, markets will be on pins and needles, with this weekend’s G20 meeting the most likely catalyst near term.

30-year bondCurrently net short 92.8k, up 7.8k.

Major economic releases next week are as follows.

On Monday, November’s ISM manufacturing index is on tap.  In October, manufacturing activity dropped 2.1 points month-over-month to 57.7.  August’s 61.3 was the highest since 61.4 in May 2004.

Labor productivity (3Q18, revised) and the ISM non-manufacturing index (November) are scheduled for Wednesday.

Preliminarily, non-farm output/hour over the last four quarters grew 1.3 percent.  Productivity remains suppressed.

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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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