Commitment Of Traders This Week: What Hedge Funds Are Buying, Future Peeks

Following futures positions of non-commercials are as of March 16, 2021.

10-year note: Currently net long 4.1k, up 50.2k.

The FOMC left the benchmark rate between zero and 25 basis points this week. Also left unchanged was the asset buying program at $120 billion/month. This was expected. What was probably unexpected was members’ expectation not to raise rates through 2023. They concurrently raised real GDP growth forecast to 6.5 percent this year, up from 4.2 percent last December; core PCE inflation forecast went from 1.8 percent to 2.2 percent. The Fed continues to believe the pickup in inflation is transitory; it is expected to moderate next year.

It is hard to put two and two together, but it is what it is. Markets are confused. On Wednesday, the S&P 500 reversed early losses to close up slightly higher, but only to get smacked down on Thursday as the 10-year yield rose as high as 1.76 percent. Long rates have been perking up for a while. Short rates are behaving but are likely to force the Fed to change its interest rate forecast at some point in the future.

It increasingly feels like the Fed is looking for reasons to remain easy. It has a dual mandate – maximum employment and price stability. Under Alan Greenspan, whose era lasted from August 1987 to January 2006, policy focus also shifted to financial markets, which both Ben Bernanke and Janet Yellen gave continuity. The tradition has continued under Jerome Powell. Of late, we are increasingly beginning to hear members talk about income inequality. They are juggling too many balls in the air, and are already walking a tightrope (more on this here).

30-year bond: Currently net short 143.2k, down 35.6k.

Major economic releases for next week are as follows.

Existing home sales (February) are due out Monday. Sales in January inched up 0.6 percent month-over-month to a seasonally adjusted annual rate of 6.69 million units – a three-month high.

New home sales (February) will be published Tuesday. In January, sales rose 4.3 percent m/m to 923,000 units (SAAR) – a three-month high.

Durable goods orders (February) are scheduled for Wednesday. Orders for non-defense capital goods ex-aircraft – proxy for business capex plans – jumped 9.1 percent in the 12 months to January to $72.9 billion (SAAR) – a record.

GDP (4Q20, final) will be printed on Thursday. The second estimate showed 4Q20 real GDP grew 4.1 percent. This followed back-to-back contraction of five percent in 1Q and 31.4 percent in 2Q and growth of 33.4 percent in 3Q.

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