Commitment Of Traders: Weekly Peek At Futures, Hedge Fund Buying

Following futures positions of non-commercials are as of May 18, 2021.

10-year note: Currently net long 31.7k, up 30.4k.

Apparently, some FOMC members at the April 27-28 meeting signaled that they were ready to discuss scaling back the Fed’s bond purchases “at some point.” This was somewhat of a surprise. The post-meeting statement did not mention this, nor did Chair Jerome Powell during a press conference immediately after the meeting.

The central bank currently buys up to $80 billion in treasury notes and bonds and $40 billion in mortgage-backed securities every month. It holds $7.9 trillion in assets, up from $4.2 trillion in early March last year. Tapering – or talk of tapering – has the potential to reverberate through all kinds of assets, including both equities and bonds.

The April meeting took place after a blockbuster March jobs report, showing the economy produced 770,000 non-farm jobs. The momentum was expected to continue in April, but the actual 266,000 jobs was much weaker than expected. This for now should buy more time for policy doves within the FOMC.

Markets will now be keenly watching May’s report. Resumption of strength in job creation is bound to decisively impact rate hike expectations. As things stand, Fed projection is to stay on hold through 2023 – a bias that increasingly becomes indefensible.  

30-year bond: Currently net short 83k, down 13.6k.

Major economic releases for next week are as follows.

Tuesday brings the S&P Case-Shiller Home Price Index (March) and new homes sales (April).

Nationally, US home prices in February shot up 12 percent year-over-year. This was the fastest pace of appreciation in 15 years.

Sales of new homes jumped 20.7 percent month-over-month in March to a seasonally adjusted annual rate of 1.02 million units – the highest since August 2006. Post-pandemic in April last year, sales slumped to 570,000 units.

GDP (1Q21, 2nd estimate), corporate profits (1Q21) and durable goods orders (April) are due out on Thursday.

The first estimate showed real GDP expanded at an annual rate of 6.4 percent last quarter, coming on the heels of 4.3 percent increase in 4Q20 and 33.4 percent jump in 3Q. Before that, the economy contracted 31.4 percent in 2Q and five percent in 1Q.

In 4Q20, corporate profits with inventory valuation and capital consumption adjustments fell 1.4 percent sequentially to $2.29 trillion. The prior quarter’s $2.33 trillion was a record.

Orders for non-defense capital goods ex-aircraft – proxy for business capex plans – jumped 11.6 percent y/y in March to $73.2 billion – a record. This was the steepest y/y growth rate in nine years.

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