This Week's CoT - Futures, Hedge Fund Buying

Following futures positions of non-commercials are as of April 27, 2021.

10-year note: Currently net long 55.8k, up 40.2k.

As expected, nothing much of substance came out of the FOMC meeting this week. The fed funds rate was left untouched at a range of zero to 25 basis points.  As was monthly purchases of at least $80 billion of treasury notes and bonds and $40 billion of mortgage-backed securities.

The post-meeting statement did talk about the ongoing strength in the economy, but at the same time felt the need to remain easy, saying risks to the economic outlook remain. “It is not yet time to have a conversation about tapering,” Chair Jerome Powell said in the post-meeting press conference.

In the meantime, the first print showed real GDP expanded at an annual rate of 6.4 percent in the first quarter.

It is apparent the Fed wants to remain easy and is looking for reasons to do so. In the March meeting, a majority of FOMC members foresaw a hike in 2024. That is three years from now. The long end of the yield curve is beginning to hint a rate hike cycle will begin before that, but the short end is yet to make a move. Two-year treasury notes are currently yielding 15 to 16 basis points.

In Wednesday’s press meeting, Powell said it was unlikely that inflation expectations would rise before the labor market saw substantial improvement. The short end of the yield curve is on board with this thesis – so far. The question is how long before it will have a diverging opinion?

30-year bond: Currently net short 116.6k, up 9k.

Major economic releases for next week are as follows.

The ISM manufacturing index (April) is scheduled for Monday. Manufacturing activity in March increased 3.9 points month-over-month to 64.7.

Durable goods (March, final) will be reported on Tuesday. Preliminarily, orders for non-defense capital goods ex-aircraft – proxy for business capex plans – surged 11.6 percent year-over-year to a seasonally adjusted annual rate of $73.2 billion, which was a record.

The ISM services index (April) is due out on Wednesday. Services activity in March shot up 8.4 points m/m to 63.7.

Labor productivity (1Q21) is on tap for Thursday. Non-farm output/hour decelerated to growth of 2.4 percent y/y in 4Q20 from 3.9 percent in 3Q. In 1Q20, y/y growth languished at 0.8 percent.

Friday brings the employment report (April). In March, non-farm payroll jumped 916,000 m/m to 144.1 million. The post-pandemic low of 130.2 million was recorded in April last year. From the all-time high of 152.5 million in February 2020, jobs are still 8.4 million short.

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