The Hightower Report

Below is a sample of The Hightower Report’s Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!

The Treasury market forged a quasi downside breakout overnight but the market was able to reject that move and partially regain its footing into the US Thursday trade action. Once again overnight economic news from the Euro zone fostered fears of weakness, as Euro zone manufacturing technically returned to a contracting status with its decline back below 50.0. However, the focus of the trade is likely to shift fully toward the US economic report slate, with claims, Productivity, Construction spending and an ISM manufacturing Index released this morning. The market will also be presented with Federal Discount rate window borrowings, foreign central bank holdings, A Fed speech and a flurry of domestic auto sales figures and therefore the market is likely to come away from the next 48 hours, with a more definitive view toward the US economy. With today’s data also coming in just ahead of monthly payroll data on Friday morning, price action today might be partially restricted, as some traders wait for the government’s primary monthly measure on Friday morning. While the market has alternatively embraced expectations of additional easing from the US Fed at some point in the near future, the trend of the data over the last two weeks has clouded the expected timing of additional easing. In fact, with a divided Fed apparent from the last meeting minutes and recent dialogue reiterating that conflict, there are some “fence sitters” in voting positions at the Fed and therefore it could take a below expectation non farm payroll reading just to give the easing stance the upper hand again. With a quasi downside breakout in ongoing claims last week, putting that measure at the lowest level since September of 2008, the continuing claims reading this morning could preempt the monthly reading on Friday morning. However, some economists are discounting the downside breakout in ongoing claims and that could leave the initial claims as the key event of today’s action. On the other hand, Productivity readings could take on added importance, as some Fed members might want the added cushion of strong productivity trends, to go ahead and add further easing to the equation. It does seem as if QE3 is regaining some credence, but given the political and economic stigma attached to that form of support, it could still take clear cut recession fears to see a quick implementation of fresh easing from the Fed. In the end, seeing ISM manufacturing readings this morning fall back into a contractionary posture could be enough to convince traders that more easing is on the way.

Below is a sample of The Hightower Report’s Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!

The rumored downgrade of the US has echoed around the globe over the weekend and at least initially equities are down hard, gold has exploded and most commodities are being deflated. While September bonds are times were almost as much as 4 full points below last Friday’s highs, in the wake of the ratings cut, they have partially recovered, despite the threat of yet another downgrade for the US in the coming 6 months in the event that more spending isn’t cut. With 2 year notes at times reaching record low yields, in the wake of the post Friday close downgrade, the trade saw some flight to quality flow toward US Treasuries.

In addition to the downgrade, the US will have to contend with a series of auctions and an FOMC meeting this week. At least to start the week, the US scheduled data flow will be limited, but the markets might still be a little shell shocked in the wake of the better than expected US Non farm payroll report from last Friday. The market also sees some minor confidence off news that the ECB launched a program of buying of certain Euro zone bonds, which for the time being has reduced the threat of a breakdown in Euro zone debt instruments.

From Washington, the blame game has made it clear that many legislators still don’t hear what the ratings agencies are saying, which is that even more deficit reduction is required. In fact, until the Special Committee is heard from and the US offers up more credible deficit reduction moves, the threat of another downgrade and a risk off environment might be expected to prevail. In short, the markets seem to equate further slowing with US financial turmoil, but according to recent Fed statements, it will take signs of falling inflation for the Fed to make any fresh policy moves. However, sentiment for the Tuesday FOMC meeting is already expecting the Fed to soften its official stance, with its “low rates for an extended period of time” mantra back in the spotlight.

The Commitments of Traders Futures and Options report as of August 2nd for U.S. Treasury Bonds showed Non-Commercial traders were net short 49,773 contracts, a decrease of 8,913 contracts. The Commercial traders were net long 34,391 contracts, an increase of 5,212 contracts. The Non-reportable traders were net long 15,381 contracts, a decrease of 14,125 contracts. Non-Commercial and Non-reportable combined traders held a net short position of 34,392 contracts. This represents an increase of 5,212 contracts in the net short position held by these traders. The Commitments of Traders Futures and Options report as of August 2nd for US Treasury 10 Year Notes showed Non-Commercial traders were net short 41,765 contracts, an increase of 55,352 contracts which represents a change from a net long to net short position. The Commercial traders were net long 55,580 contracts, an increase of 32,236 contracts. The Non-reportable traders were net short 13,816 contracts, a decrease of 23,114 contracts. Non-Commercial and Non-reportable combined traders held a net short position of 55,581 contracts. This represents an increase of 32,238 contracts in the net short position held by these traders. Given the net spec short positioning in bonds and notes some of the buying in the market of late could have been classic short covering.

Below is a sample of The Hightower Report’s Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!

A fresh lower low for the move overnight in September Bonds would seem to be the result of ongoing concern for the lack of a US debt ceiling deal. However, a 50 basis point Indian rate hike overnight, slack German Consumer sentiment readings, a very minimal gain in a UK GDP reading for the 2nd quarter and generally weaker global equity market action seems to have provided a mostly supportive environment for US Treasuries this morning. However, the news cycle from the Washington arena will probably crank up again well ahead of the scheduled data flow this morning, which as we have mentioned will be fairly active from the US today. In addition to the headline readings of New Home sales and Consumer Confidence, the markets will also see a private home price survey and a regional Fed manufacturing survey.

While expectations call for minor declines in Home prices and Consumer Confidence readings, the trade is somewhat mixed on the New home sales result. The market will also see some supply flow today and that might be one of the more effective measures of confidence, or the lack of confidence toward US Treasury Instruments available today. However, some traders are still suggesting that the capacity to make a new low for the move overnight was the result of increased concern of a possible credit rating agency downgrade of US debt, which in turn was directly related to the exchange from the Speaker of the House and the President of the United States last night. In other words, some traders think the lack of a strong deal, which raises the debt ceiling and then promises to come up with more spending cuts down the road, might not satisfy those making the decisions on the US credit standing.

Furthermore, if the President were to unilaterally raise the debt ceiling, with a debatable legal move that could simply pressure the credit rating agencies into acting because that increases the political conflict in the US. Another issue that might have contributed to some pressure in Treasury prices over the past 24 hours, is the raising of futures margins and a tightening of margin credit rules. With the debt deadline directly ahead and Washington generally giving off the impression that the US government is in a dysfunctional mess, it makes sense to prepare for a significant and perhaps ongoing increase in volatility in Treasury prices ahead. In fact, a number of noted Treasury analysts seem to be in conflict on what they think will happen to Treasury prices under various upcoming scenarios.

Some widely followed analysts think that the lack of deal will provide a lift to Treasury prices from flight to quality angle, while others think that that outcome will hammer Treasuries because of credit rating concerns or the threat of a technical default. Similarly, other analysts think that a deal on the debt ceiling will take away a negative stigma from Treasuries and that a rally will be seen. Lastly some analysts think that a deal will cause a washout in Treasury prices, as the flight to quality flow toward US Treasuries will be reversed.

In short, even mainstream opinion is highly divided within the Treasury market and the market appears to be facing one of the most significant historical junctions ever and given the trend of events from Washington, Treasury prices could become the main focal point of the world. All things considered, the flow of scheduled data from the US might carry less significance, until the spotlight on Washington is extinguished.

Below is a sample of The Hightower Report’s Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!

The Treasury market enters the new trading week sitting modestly above last week’s spike down washout lows, with September bonds also resting roughly 4 points below the June highs! Apparently Treasuries saw a measure of support from weekend concerns toward Chinese bank exposure to local government debt, which were in turn generated by a Moody’s report. The market also saw some support from residual Euro zone debt concerns and perhaps from some weak Euro zone May retail sales readings, which came in much weaker than year ago levels. In fact, the retail sales decline in the Euro zone this morning was a noted drop and that has sparked concerns of even more slowing evidence ahead from the Euro zone.

Restraining the upward tilt in Treasuries off the news of slowing overnight, is the fact that the US Treasury has weighed in with predictions that Congress has roughly 1 month left to come to a compromise on the deficit/debt ceiling issue. The somewhat weak Euro zone macro economic outlook was balanced by a minor up tick in UK June Services PMI readings and perhaps because of generally positive action in global equity markets.

The Treasury market will take some guidance from a US Factory orders report due out later this morning, with expectations calling for a slight improvement. With the market fresh off some pressure late last week, from an up tick in an ISM manufacturing report, the bear camp probably feels like they have the edge from the macro economic front into the scheduled report flow later today. The focus of the trade will probably quickly shift to the week ending US monthly payroll report, as the flow of scheduled data early in the week, doesn’t look to offer up much of a distraction to the key monthly payroll report.

Early estimates for the non farm payroll report, call for only a gain of 100,000 jobs and that might be a low enough number to provide some underpin to bonds and notes prices throughout the week. At least in the short term, the ebb and flow of concerns toward the debt ceiling might remain in the background, as the market instead looks to verify last week’s shift toward a better economic outlook.

The Commitments of Traders Futures and Options report as of June 28th for U.S. Treasury Bonds showed Non-Commercial traders were net short 53,618 contracts, an increase of 1,933 contracts. The Commercial traders were net long 38,424 contracts, an increase of 15,206 contracts. The Non-reportable traders were net long 15,194 contracts, a decrease of 13,273 contracts. Non-Commercial and Non-reportable combined traders held a net short position of 38,424 contracts. This represents an increase of 15,206 contracts in the net short position held by these traders.

The Commitments of Traders Futures and Options report as of June 28th for US Treasury 10 Year Notes showed Non-Commercial traders were net short 11,794 contracts, an increase of 58,691 contracts which represents a change from a net long to net short position. The Commercial traders were net long 71,485 contracts, an increase of 65,051 contracts. The Non-reportable traders were net short 59,691 contracts, an increase of 6,360 contracts. Non-Commercial and Non-reportable combined traders held a net short position of 71,485 contracts. This represents an increase of 65,051 contracts in the net short position held by these traders.

Below is a sample of The Hightower Report’s Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!

Apparently the Treasury market was lifted in the lead up to and through comments from the Fed’s Bernanke late in the prior trading session. While there didn’t seem to be a specific definition of the duration of easy money policies from the US Fed Chairman yesterday afternoon, he did suggest that the need for easy money policy was going to be in place for some time to come. It is somewhat difficult to measure the impact of any decision by OPEC to raise production of oil, as that could dampen inflation pressures, but at the same time that might be seen as a development that takes some of the drag off the global economy. Talk from another Fed member yesterday, suggesting that tightening doesn’t make sense in the face of an ambiguous recovery track also seemed to set the US Treasury market up for the low to high rally in September bonds yesterday of roughly 3/4 of a point. With at least two Fed members yesterday weighing in somewhat dovish, a speech by the Fed’s Hoenig later today might take on some added importance, as the equity markets yesterday afternoon seemed to be disappointed that Bernanke wasn’t more forthcoming with talk of additional easing. Given past views from Hoenig, many traders doubt that Treasury prices will be able to garner much lift in the wake of his comments into the last half hour of the pit trade today. Once again, there will be little scheduled report impetus in the morning trade, with the action likely to pick up pace into the mid day 10 Year auction results and into the early afternoon release of the Fed Beige Book. With the decline in Treasury yields yesterday that might raise the bar slightly on the 10 Year note auction today, which in turn might be hindered by Chinese comments yesterday, that they would be careful not to have too much exposure to US denominated investments. In short, the Treasury market has increased its attention to any reports on the slow pace of the US economy, as a portion of the Fed this week has acknowledged a measure of slowing in the US economy. In the absence of scheduled data from the US, the Treasury market is likely to take its direction this morning from the US equity markets, with the trade in the afternoon looking to Fed dialogue and the Beige book for guidance.