Friday, January 16, 2015
For Professionals Only
It is not easy to digest all that is put on our plates this week and conviction may be difficult to muster at this stage, but these markets are as exciting as they have been in a very long time. If you have a sense for changing sentiment on deflationary implications of oil in addition to the prospects for U.S. led global growth, you are in an enviable position. This dynamic is the current driving force, holding sway over the Fed and its implementation of policy.
With SBN’s relinquish of currency defense following a Euro constitutional check on QE eligibility for ECB, the limits to ECB’s balance sheet advance upset status quo. The difficulty in interpretation led to ‘flight’ at all cost.
We would note that oil continues to show some relative stability and may not be terribly lower on the week. The plunging copper prices looked at the other day also has shown some new stability despite stories of China selling stores. Even plunging equity prices appear to have found some friends.
A lower close today in TYH5 would still mean that long positions from last Friday’s close did extraordinarily well. Even with a strong pull back on the day, they will likely have captured well over a point from last Friday’s settle of 128-18. Technically speaking, an unchallenged daily high and lower close today would leave a ‘tweezers top’ at 130-30. The implications are unconfirmed and not enough to build a position around, though possibly an important chink in remarkably resilient bullish armor.
We should expect a bit more confidence to attend next week’s trade, or maybe that confidence will more readily show following the ECB announcement next week. We would expect greater confidence, all else equal to temper flight buying of Treasury Long Bonds. In any event, it is difficult to imagine a similar chase of safety as has been seen these last days.
If Treasury prices finish lower today we shall see the word ‘key’ bandied again in reference to a bearish reverse. And while we may tire in its consistent use, we should note that any turn from here toward higher rates would doubtless leave many without ample hedge.