Commitment Of Traders, Futures And Hedge Fund Positions, Sunday Jan. 24

Following futures positions of non-commercials are as of January 19, 2021.

10-year note: Currently net long 46.6k, up 96.8k.

A two-day FOMC meeting begins on Tuesday. This is the first meeting of the year – one of the eight scheduled meetings. Markets do not expect any firework. They know what to expect.

Speaking to the press at the end of the December 15-16 meeting, Chair Jerome Powell said they would purchase $120 billion/month in mortgage-backed securities and treasury notes and bonds. The 10-year treasury notes yielded just under one percent back then. Then came Georgia Senate runoff elections held on the 5th this month. Democrats won both seats, giving them control of both chambers of Congress as well as the White House. Markets immediately rerated inflation/growth expectations. On the 6th, the 10-year (1.09 percent) broke out of one percent. This was 12 sessions ago. Some market participants began to wonder if the Fed still needed to support this market.

The central bank responded. Last week, several Fed officials, including Powell and Vice Chair Richard Clarida, made it clear they intend to continue to buy these securities. At the current pace, they are on course to owning $6.8 trillion worth in six months, from the current $6.1 trillion (as of Wednesday this week). If anything, next week, they will reiterate their commitment.

Because of the leverage in the system – be it federal, corporate and household – their hands are tied. They cannot afford to let rates rise on a sustained basis. If nothing else, interest payments will break the back of borrowers (more on this here). The Fed will do all it can to maintain the status quo.

30-year bond: Currently net short 199k, up 2.6k.

Major economic releases for next week are as follows.

The S&P Case-Shiller Home Price Index (November) is due out Tuesday. In October, US home prices jumped 8.4 percent year-over-year – the fastest pace since March 2014.

Durable goods orders (December) will be published Wednesday. November orders for non-defense capital goods ex-aircraft – proxy for business capex plans – increased 6.8 percent y/y to a seasonally adjusted annual rate of $71 billion – a new record. In April, sales languished at $61.3 billion.

GDP (4Q20, 1st print) and new home sales (December) come out Thursday.

In 3Q, Real GDP shot up 33.4 percent at an annualized rate. This followed contraction of five percent in 1Q and 31.4 percent in 2Q. The Atlanta Fed’s GDPNow model forecasts 7.5 percent growth in 4Q.

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