ANNOUNCEMENT:

Normally, I send the Digest out on Wednesdays, but this week’s Forum post was on some of the things I do to keep on top of the markets.  One of the resources I mentioned was RealVision.com.  They have $100 off for Valentine’s Day (net $264/year), which is today (in case you forgot).  They have a 7 day trial if you just want to take a look – it’s what’s known in trading as a free option.

 

QUOTATIONS:

  • Apparently the markets are unsure of direction as well.  It seems like the largest driver of rates right now is the perceived future course set by our new President.  (CA, Feb 8, 2017)  Note that we could move a lot if Trump surprises on his tax plan (in either direction).  Unfortunately, we have no competitive advantage trying to guess what the details are.  So some caution is warranted.
  • I think we DID get that January buying.  It’s just the data has been very strong and the Fedspeak has sounded hawkish earlier in the month, so having the greens be unchanged in January can only be considered a “win” for the bulls.
    (CA, Feb 8, 2017)
    Watch for new features in coming weeks.

Weekly Essay – A Divided Nation (aka Take My Wife, Please!):

…I fear the concern and anger could get worse before it gets better.  And for it to get better, we have to assume what Trump does is actually successful.  This remains to be seen.  Those are some high hurdles.  I am cautiously optimistic that Trump can eventually improve many sectors of the economy.  But it’s a long road from here to there, and here are the things I think we need to keep a watch for, in case we head towards a negative path:   CLICK TO READ THE REST OF THIS ARTICLE FROM THE CA WEB SITE

Next Week: I discuss a post-Tarullo FOMC.

Other Delayed Market Comments from the CA Newsletter:

From the News Takeaways Section

  • The Trump Administration implied China, Japan and Germany were manipulating their currencies.  Where have I seen that list of countries before?  Oh!  Right!  On the Trade Balance Diplomacy table from just last week, those were the three countries in orange!  To be fair, they are all manipulating their currencies.  China directly and the BOJ and ECB indirectly via their monetary policies.  Nein!
  • The US GDP grew at 1.9% in 2016 and the EU grew at 1.7%.  That last stat surprised me.  CNN is claiming the US grew at 1.6% – not sure where that number came from.  But whatever – it’s in the ballpark.  One country just hiked and is looking at 3 hikes this year and the other has negative rates and is still engaged in QE through the end of the year.  Holy still-manipulating currency, Batman!  Bill Gross says he is picking up 50-60bps “arbitrage” on buying Treasuries vs Bunds, hedging for FX.  If you think Trump is not going to be able to get much passed and the ECB may taper, I suppose this is not terrible.  He’s been talking about this trade for what seems like forever, but as per my New Year’s resolution to look at other currencies, I’m going to mull this over.
  • The UK Parliament approved Brexit.  I am a bit disMAYed at how smoothly Brexit seems to be going.  Banks seem to be slowly transitioning staff to the continent.  We may have to discount our thesis about Article 50 being disruptive or being a short squeeze catalyst.  This is going to have some implications for the curve, and I will discuss further in a future CA.  Fortunately, we have a volatile Trump to act as a suitable replacement for a short squeeze catalyst.  

Trade Summary from the Delayed CA Newsletter:

FLIP TRADE UPDATE: Still no strong views.  It doesn’t make sense to force ourselves to try to scalp a basis point in this environment when a Trump stimulus headline can easily move us 10+bps.

OFFICIAL TRADE UPDATE: The Official Trade List continues to chug along.  I make a few interesting comments regarding the ER and L curves.  In particular, the lowest flies are centered around ERU8.  This does make sense from a “central expectancy” perspective.  Assuming the “status quo” for Europe, you expect ECB QE to go through the end of the year and maybe some kind of taper thereafter.  If nothing terrible happens, you figure QE will end some time in 2018 and they may hike shortly thereafter.  Note that the hurdle for the first few hikes should be very low, since rates are negative.  This will keep the flies around ERU8 low.

Forum Update:

The most notable posts from the Forum were:

I discuss some of the things I do to get a pulse of the markets.  In a zero-sum game, you need to get a feel for what the other market participants are thinking.  You don’t play chess not looking at your opponent’s pieces.  (Actually, that would be pretty funny)  So don’t trade without knowing what others are thnking and doing.  CLICK TO READ THE REST OF THE POST ON THE CA FORUM

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