What They're Buying: Commitment Of Traders This Week

Following futures positions of non-commercials are as of July 20, 2021.

10-year note: Currently net long 88.9k, up 32.9k.

Next week, the FOMC meets. This is the year’s fifth policy meeting, and three more remain. A lot has happened since the last meeting on June 15-16. On the 16th last month, the 10-year yield closed at 1.57 percent. This Tuesday, rates touched 1.13 percent, with the week closing at 1.29 percent. All the while, the US economy continued to churn out strong numbers and inflation continued to perk up.

In the 12 months to June, headline and core CPI jumped 5.3 percent and 4.5 percent, which was the steepest price rise since July 2008 and November 1991 respectively (chart here); as recently as February, they were growing at a rate of 1.7 percent and 1.3 percent, in that order.

In the meantime, the Fed continues to stimulate the economy by expanding its balance sheet, buying up to $80 billion/month in treasury notes and bonds and $40 billion in mortgage-backed securities. As of Wednesday, it held $8.2 trillion in assets, up from $4.2 trillion in early March last year, when it began to aggressively print money.

To many, this is not making sense. It made sense in the early months of last year when the economy was grinding to a halt, but it no longer does to stick with the same emergency policy.

The chorus of voices wondering about the rationale behind this is getting louder, even within the FOMC, although the hawks are in the minority. In next week’s meeting, tapering will be a hot topic for sure. Odds favor the doves will begin to recognize the changing environment and give ground.

30-year bond: Currently net short 100.6k, up 8.7k.

Major economic releases for next week are as follows.

New home sales (June) are on deck for Monday. Sales in May were down 5.9 percent month-over-month to a seasonally adjusted annual rate of 769,000 units. In January, sales hit 993,000, up from a post-pandemic low of 582,000 in April last year.

Durable goods orders (June) and the S&P Case-Shiller Home Price Index (May) will be published on Tuesday.

Orders for non-defense capital goods ex-aircraft – proxy for business capex plans – jumped 23 percent year-over-year to $75.4 billion, which is a new record. In April last year, orders languished at $59.9 billion.

Nationally in April, US home prices surged 14.6 percent y/y – the steepest rise since October 1979.

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Disclaimer: This article is not intended to be, nor shall it be construed as investment advice. Neither the information nor any opinion expressed here constitutes an offer to buy or sell any ...

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