I like looking at the CoT reports that come out on Friday’s like everyone else. They have a nice layout that I find relaxing in some weird masochistic way. Nevertheless, I’ve just started down the path of building out my own models for worldwide PMI’s and the like so I apologize ahead of time for “free-rider” programming this report on the Commitment of Traders this week. I will be working to gather the historical data from the CFTC to measure and map the data myself.
However, this week I will be using Hedgopia ‘s charts and adding screenshots of the CoT report below to begin to develop my own framework, to make this a weekly piece here on Notes From Owl Creek Farm.
Righto, steady on. (I’ve been watching too much of The Crown on Netflix. It’s making the Anglo-file in me come out).
To wit (Heisenberg),
TNX: 10-year note: Currently net long 14.3k, down 109.6k.
On Tuesday next week, a two-day FOMC meeting begins. This is the eighth – and last – meeting this year. A hike is priced in, with the futures market assigning 90-percent odds to a 25-basis-point increase. This will be a third 25-basis-point increase this year, and fifth since December 2015.
Next year, the dot plot expects three more. How likely?
There are seven seats on the Federal Reserve board. (This, plus seven Fed district presidents make up the FOMC.) President Trump has so far nominated three, including Jerome Powell, who, once confirmed, will replace Janet Yellen as Fed chair. Randal Quarles has already been confirmed as a member, while Marvin Goodfriend’s awaits confirmation. There are three more seats needing to be filled.
The FOMC next year will look a whole lot different.
If, however, the Powell-led Fed continues to tighten next year, 10-year yields (2.38 percent) will probably continue to rebel.
The long end of the curve has refused to go along with the short end. The last time 10-year yields tried to break through 2.6 percent was in March this year – which is where these yields will break out of a three-decade-old descending channel.
This Tuesday, the yield curve (10s/2s) narrowed to merely 53 basis points – the lowest since October 2007 – before rising a tad to 58 basis points by Friday. At this rate, it does not take long for it to invert, which then will get reflected in stocks – lower, of course. This is precisely what is likely to lead the new FOMC to begin to look for excuses not to go down the path forecasted by the current dot plot.
TYX: 30-year bond: Currently net long 74.5k, up 10.6k.
Major economic releases next week are as follows.
JOLTS for October will be published Monday. In September, non-farm job openings inched up 3,000 month-over-month to 6.09 million. A record 6.14 million was reached this July.
The NFIB optimism index (November) and PPI-FD (November) come out Tuesday.
In October, small-business optimism increased eight-tenths of a point m/m to 103.8. This was the 11th consecutive reading of 100-plus. Optimism reached a 13-year high 105.9 in January this year.
Producer prices rose 0.4 percent m/m in October. In the 12 months through October, the PPI-FD jumped 2.8 percent. Core PPI rose 0.2 percent m/m and 2.3 percent in the 12 months to October.
November’s consumer price index is scheduled for Wednesday. CPI and core CPI in October inched up 0.1 percent and 0.2 percent m/m, respectively. In the 12 months through October, they respectively rose two percent and 1.8 percent.
Retail sales for November are due out Thursday. October inched up 0.2 percent m/m to a seasonally adjusted annual rate of $486.6 billion. Year-over-year, they rose 4.6 percent.
Friday brings industrial production (November) and the Treasury International Capital system data (October).
U.S. capacity utilization rose 0.9 percent m/m to 77 percent in October. Utilization has been creeping up since bottoming at 75.4 percent in March 2016. The cycle high of 79.2 percent was reached in November 2014.
On a 12-month rolling total basis, foreigners switched from net sellers to net buyers of U.S. stocks in January. As of September, their purchases totaled $78.4 billion. This is quite a turnaround from February 2016 when they were net-selling $145.3 billion worth.
- Mr @hedgopia
WTI: Crude oil: Currently net long 654.7k, up 3.7k.
The ‘buy the rumor, sell the news’ phenomenon is likely playing out in oil.
Spot West Texas Intermediate crude ($57.36/barrel) was not able to rally on OPEC’s (and Russia’s) extension last week of their existing crude production cut of 1.8-million barrels per day beyond March next year to December.
Nonetheless, support at $54-55 is intact, which the bears need to take out to build downward momentum. On the weekly chart, there is plenty of room for the crude to continue lower.
Pressure builds once non-commercials – the most bullish ever – decide to reduce net longs.
The EIA report for the week of December 1
showed continued increase in U.S. crude production, which rose another 25,000 b/d to 9.71 mb/d. Since the OPEC deal in November last year, U.S. production has gone up by one mb/d.
Both gasoline and distillate stocks increased, up 6.8 million barrels and 1.7 million barrels to 220.1 million barrels and 129.4 million barrels, respectively.
Crude stocks, however, dropped 5.6 million barrels to 448.1 million barrels. As did crude imports, which dropped 127,000 b/d to 7.2 mb/d.
Refinery utilization rose 1.2 percentage points to 93.8 percent.
SPX: E-mini S&P 500: Currently net long 166.9k, up 54.4k.
The bulls put money where their mouth is – likely in anticipation of seasonality-driven strength. Non-commercials’ net longs rose to a 12-week high.
In the week through Wednesday, SPY (SPDR S&P 500 ETF) took in $5.5 billion (courtesy of ETF.com). Another $1.1 billion went into IVV (iShares core S&P 500 ETF), while VOO (Vanguard S&P 500 ETF) lost $258 million.
- R.W.N II