Commitment Of Traders This Week: How Hedge Funds Are Positioning

Following futures positions of non-commercials are as of August 4, 2020.

10-year note: Currently net long 92.1k, up 18.9k.

The Fed’s balance sheet peaked in the week to June 10 at $7.17 trillion, up nearly $3 trillion in three months. Since then, it has slightly trended lower, to $6.95 trillion as of Wednesday.

On the surface, this could be viewed as a bond negative, as this would mean less demand for treasury notes and bonds.  Not quite. SOMA (System Open Market Account) holdings show the central bank continues to amass these assets – from $2.03 trillion in the week to March 11 to this week’s $3.65 trillion.

Of course, the pace of increase has moderated – from a week-over-week increase of $335.7 billion in the week to April 1 to $8.4 billion this week.  The bigger question is, can this deceleration continue, given the soaring budget deficit?  The long end of the Treasury yield curve has doubts.

The 10-year yield (0.56 percent) lost support at 0.57 percent last week, tagged 0.5 percent intraday Thursday this week, before rallying Friday post-July jobs report.  In fact, on Monday, bond bulls (on price) showed up at the falling 10-day moving average when rates tagged at 0.57 percent.  Regardless what happens near term, the bias remains down.  Non-commercials are positioning themselves this way. 

30-year bond: Currently net short 149.6k, up 27.3k.

Major economic releases next week are as follows.

JOLTS job openings (June) will be published Monday.  May non-farm openings rose 401,000 month-over-month to 5.4 million.  The series peaked in January last year at 7.5 million. 

NFIB job openings (July) are due out Tuesday.  In June, they increased nine points m/m to 32.  In three separate months between December 2018 and July last year – the other being March last year – the metric hit 39, which was a record.

The consumer price index (July) comes out Wednesday.  In the 12 months to June, core CPI rose 1.2 percent, which was the slowest pace since February 2011.

Friday brings retail sales (July), productivity (2Q20), industrial production (July) and the University of Michigan’s consumer sentiment index (August, preliminary).

After three straight y/y decline, retail sales increased 1.1 percent in June to $524.3 billion (SAAR).  Sales reached record high $529.6 billion in January. 

In 1Q20, non-farm output/hour rose 0.65 percent from the year-ago quarter.  This was the weakest growth rate since 1Q16. 

Capacity utilization in June rose 5.4 percent m/m to 68.6 percent.  Utilization was 64.2 percent in April.

In July, consumer sentiment slid 5.6 points m/m to 72.5.  April’s 71.8 was the lowest since December 2011.

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