Most Recent CoT: What It Says About What Funds Are Buying And Future

Following futures positions of non-commercials are as of December 10, 2019.

10-year noteCurrently net short 178.9k, down 43k.

As expected, the Fed stood pat.  This week’s FOMC meeting – the year’s eighth and last – left the fed funds rate unchanged at 150 to 175 basis points.  This year, the benchmark rate was reduced three times in 25-basis-point increments.  The last easing was late October.

Next year, it is not until November the odds in the futures market of a quarter-point cut rises above 50 percent.  By December, this rises to north of 60 percent.  This runs in contrast with what the FOMC dot plot showed this week, with the median member expecting rates to remain between 150 and 175 basis points by the end of next year.

Be that as it may, historically, the Fed tends to cave in to market demands.  As far as macro is concerned, anything could happen between now and the next 12 months, meaning these odds are obviously not set in stone.  For markets to be on the right side of this – that is, for rates to head lower – the US economy should at least continue to send mixed signals.  In this scenario, the 10-year Treasury yield (1.82 percent) will be unable to rally much.

The 10-year rate dropped all the way to 1.43 percent early September.  The rally since that low ended November 7 at just under two percent.  Nevertheless, there has been a pattern of higher lows the past three months, but no higher highs yet.  For that to happen, the 10-year has to eclipse 1.97 percent.

30-year bondCurrently net short 107.1k, up 16.6k.

Major economic releases next week are as follows.

The NAHB housing market index (December) and Treasury International Capital (TIC) data (October) are due out Monday.

Home builder optimism fell a point month-over-month in November to 70.  The index has dropped from the cycle high 74 reached in December 2017 but hovers near that high.

In September, the 12-month total of foreigners’ net purchases of US stocks was minus $76 billion.  This is an improvement considering they were selling as much as $214.6 billion worth as recently as April.

Tuesday brings housing starts (November), industrial production (November) and JOLTS job openings (October).

October housing starts jumped 8.5 percent year-over-year to a seasonally adjusted annual rate of 1.31 million units.  The cycle high 1.38 million units was reached in August.

Capacity utilization shrank 3.2 percent y/y in October to 76.7 percent.  The current cycle peaked at 79.6 percent in November last year.

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