Commitment Of Traders Weekly Report - The Future Of Futures, Hedge Funds Positions

Following futures positions of non-commercials are as of July 16, 2019.

10-year noteCurrently net short 347.2k, up 58.4k.

In its quest to justify a rate cut later this month, the Fed may be inadvertently creating a precedent that it may come to regret later.  For several months now, markets have priced in at least a couple of 25-basis-point cuts this year.  Not to mention President Donald Trump’s vocal resistance to higher rates.  The Fed is giving in.  Several times in the recent past, Chair Jerome Powell all but confirmed a cut, most recently during last week’s Humphrey-Hawkins testimony.

But data is not quite cooperating.  Several, including retail sales and the payroll report for June, point to an economy that is not quite ready to fall apart just yet.  Cornered, FOMC doves have come up with a new excuse.  Thursday, John Williams, New York Fed president, who is a permanent voting member, said “it’s better to take preventative measures than to wait for disaster to unfold”.  The same day, Richard Clarida, Fed vice chair, made similar comments.

The problem is, the bank’s conventional monetary quiver seriously lacks sufficient arrows.  The fed funds rate currently stands at 225 to 250 basis points.  This new line of thinking is bound to have at least two repercussions.  One, from now on, markets will demand an ‘insurance’ cut well before any visible weakness in the raw data.  Two, this ensures QE sooner than it would otherwise be possible.  It is only after it is done firing the fed funds bullet, the Fed will go the QE route, which is what markets are really after, come to think of it.

30-year bondCurrently net short 21.7k, up 10.6k.

Major economic releases next week are as follows.

Existing home sales (June) are due out Tuesday.  May sales rose 2.5 percent month-over-month to a seasonally adjusted annual rate of 5.34 million units.  The cycle high 5.72 million units was reached in November 2017.

New home sales (June) come out Wednesday.  Sales in May dropped 7.8 percent m/m to 626,000 units (SAAR).  The cycle high 715,000 units was recorded in November 2017.

Durable goods orders (June) are scheduled for Thursday.  In the 12 months to May, orders for non-defense capital goods ex-aircraft – proxy for business capex plans – rose 1.4 percent to $69 billion (SAAR).  Last July, orders reached a record $70 billion.

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