CoT: Looking Into The Future Thru Futures, Hedge Fund Buying

Following futures positions of non-commercials are as of February 9, 2021.

10-year note: Currently net long 79.5k, up 20.9k.

Minutes for the January 26-27 FOMC meeting – the first of eight scheduled meetings this year – will be out Wednesday. Markets are hardly on pins and needles; they do not expect the unexpected.

On December 16 last year, at the end of a two-day FOMC meeting, Chair Jerome Powell made it clear the Fed would buy $120 billion/month in mortgage-backed securities and treasury bonds. Then early last month, as soon as the 10-year treasury yield crossed one percent, several Fed officials, including Powell and Vice Chair Richard Clarida, tried to jawbone the bond market saying they would continue to aggressively purchase these bonds. On Wednesday (this week), Powell played down inflation worries, emphasizing policymakers should instead focus on restoring maximum employment.

The message is clear. The Fed wants to continue to expand its balance sheet – $7.44 trillion as of Wednesday, up from $4.24 trillion in the first week of last March – and rates will not be allowed to rise too much. Wednesday’s minutes will nothing but reiterate this message.

The problem is, rates are perking up, with the 10-year (1.2 percent) currently attempting to stage another mini breakout, which, if successful, will open the door toward 1.4 percent. Should things transpire this way, more interesting will be the Fed’s reaction function.

30-year bond: Currently net short 203.2k, down 11.2k.

Major economic releases for next week are as follows. Markets are closed Monday for observance of Presidents’ Day holiday.

The Treasury International Capital data (December) will be published on Tuesday. In the 12 months to November, foreigners’ purchases of US stocks reached a new high of $316.2 billion – quite a reversal from April 2019 when they sold record $214.6 billion worth.

Wednesday brings retail sales (January), industrial production (January) and the NAHB Home Price Index (February).

After rising to a new record high of $552.8 billion (seasonally adjusted annual rate) last September, retail sales weakened three months in a row to December’s $540.9 billion. Earlier in April, sales languished at $412.8 billion.

Capacity utilization in December rose 1.6 percent m/m to 74.5 percent – a 10-month high. Utilization dropped to 64.2 percent in April.

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