The Week's Commitment Of Traders: Non-Commercial Positions, Futures

Following futures positions of non-commercials are as of September 17, 2019.

10-year noteCurrently net short 230k, down 70.5k.

In the interbank lending market, there were two developments this week.  The Fed cut its policy rate by 25 basis points – its second since July – to a range of 175 to 200 basis points.  This was expected.  At the same time, there was stress in the funding market, with overnight borrowing costs soaring to 10 percent Tuesday.  This was unexpected.

Several times beginning Tuesday, the New York Fed conducted overnight repo, injecting billions.  In a repo operation, the Fed lends cash to primary dealers (24) in exchange for eligible collateral such as Treasury bonds or mortgage-backed securities.  This calmed the markets.

The bigger question is, why did the market gum up?

US banks’ excess reserves have been more than cut in half in five years – $1.3 trillion currently versus $2.7 trillion in September 2014.  The federal deficit is nearing a $1 trillion run rate.  Concurrently, the Fed has been shrinking its balance sheet, with SOMA (system open market account) holdings down from $4.3 trillion in April 2017 to $3.6 trillion now.  When it is all said and done, the stress – and the Fed’s response to it – may just be a prelude to what is to come in quarters to come, which is, expansion – once again – of the Fed’s balance sheet.

30-year bondCurrently net short 46.2k, down 5.5k.

Major economic releases next week are as follows.

The S&P Case-Shiller home-price index (July) is due out Tuesday.  Nationally, home prices rose 3.1 percent year-over-year in June, which was the lowest growth rate since September 2012.

New home sales (August) are scheduled for Wednesday.  Sales in July fell 12.8 percent month-over-month to a seasonally adjusted annual rate of 635,000 units.  June’s 728,000 was the cycle high.

Thursday brings GDP (2Q19, third and final) and corporate profits (2Q19, revised).

The second estimate showed real GDP grew at a two percent rate in 2Q19, slower than 3.1 percent in 1Q19.

Preliminarily, corporate profits with inventory valuation and capital consumption adjustments rose 2.7 percent y/y to $2.11 trillion (SAAR).  The cycle high $2.19 trillion was reached in 3Q14.

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