10 Aug
Pre-open eMini S&P 500 Morning Report for August 10, 2010
Posted in Pre-open Analysis by Bob English at 9:15:56 18 CommentsThe Precise Take – Equity futures down on strong Dollar ahead of FOMC Announcement
Big Picture Analysis: August has been in a trading range that should break soon, and by Friday at the latest. There are still strong signs of institutional support, so our bias is bullish, but a close below 1103.50 would probably turn us bearish.
Leaders Analysis: The 10 Year Yield is down marginally overnight, but we won’t read into to it until this afternoon’s news is digested. The US Dollar is the big mover overnight, up against all the major crosses, with the Index up to trendline resistance. If it backs off from 81.34 to 81.44 resistance, it should be supportive of equities, and if it powers through, look for more equities weakness.
Trading Today: Today should gap down materially, which is rare on FOMC day. In fact, the last such instance was September 18, 2008, and before that, September 24, 2002, then August 13, 2002. The sample size is small, but for what it’s worth…
ahmedm
on August 10 2010 at 10:43:41
I guess the news from China (commodities imports down), sterngth in USD and JPY (no stimulus) overwhelmed FOMC Day today.
Bob English
on August 10 2010 at 11:01:27
Yes, seems to be carry unwind. EURCHF has held up well, so I don’t think it’s fundamental Euro weakness. Since everything seems to be backward today, maybe the last hour will be the strongest of the day. I’m out of the prediction business until tomorrow morning, but I will say that Bernanke doesn’t like to put in tops.
ahmedm
on August 10 2010 at 11:23:11
Oil keeps on marching higher since the morning
Bob English
on August 10 2010 at 12:15:43
Someone asked why we stopped at 1108.25. Basically, because several of the cash indexes were at support. Also, testing out a new feature that will allow commenters to upload images.
Bob English
on August 10 2010 at 12:24:43
Trying to upload another image from Bespoke Investment Group. Mar 18 09 is an interesting analog as that was the day the original QE package was announced.
tester
on August 10 2010 at 12:42:21
Trying once again…
tester
on August 10 2010 at 12:43:17
…
ahmedm
on August 10 2010 at 12:54:12
dds are about 50 percent that the
Federal Reserve will buy additional assets to keep its balance
sheet stable and stimulate a slowing U.S. economy, said Vincent
Reinhart, a former director of monetary affairs at the Fed.
“I think it is about a coin toss,” said Reinhart, a
resident scholar at the American Enterprise Institute in
Washington, in an interview today on Bloomberg Radio’s
“Bloomberg Surveillance.” “If Chairman Bernanke wants it
done, he could get it done,” he said.
Jeff
on August 10 2010 at 12:56:11
In the same vein, received this via twitter from Sentimentrader:
Only 3 other -1% gaps on FOMC days: 6/26/02, 9/24/02, 9/16/08. All led to +4% gains over next 2-3 days.
ahmedm
on August 10 2010 at 14:30:16
FED: RECOVERY TO BE `MORE MODEST’ THAN EXPECTED IN NEAR TERM
*FED TO REINVEST MATURING AGENCY, MBS SECURITIES IN TREASURIES
Fed to Reinvest Mortgage Proceeds Into Long-Term Treasuries
*FOMC: RATES TO STAY `EXCEPTIONALLY LOW’ FOR `EXTENDED PERIOD’
*HOENIG SAYS RATE LANGUAGE COULD LIMIT RATE-RAISING FLEXIBILITY
*HOENIG DISSENTS IN FOMC DECISION, SEES MODEST RECOVERY
*FED SAYS INFLATION `LIKELY TO BE SUBDUED FOR SOME TIME’
*FED SAYS BANK LENDING `CONTINUED TO CONTRACT’
FED SAYS PACE OF RECOVERY HAS SLOWED IN RECENT MONTHS
FED SAYS PACE OF RECOVERY IS LIKELY TO BE MORE MODEST IN NEAR TERM THAN HAD BEEN ANTICIPATED
FED SAYS WILL MONITOR OUTLOOK AND EMPLOY POLICY TOOLS AS NECESSARY TO PROMOTE RECOVERY
Bob English
on August 10 2010 at 14:59:13
Now govvies and equities can rally together forever
Let’s not forget that in March 2009 it was actually long bonds that were wrong on FOMC/QE day.
ahmedm
on August 10 2010 at 15:21:02
Equities are not doing much. It seems more symbolic, about $100b a year?
Also Fed is keeping the balance sheet constant – admitting we are like Japan?
Bob English
on August 10 2010 at 15:24:40
Yes, this is exactly what was hinted, except that they’re totally shunning the poor long bond. I am seeing some de-risking, but we’ll have to wait until tomorrow to see if it’s merely post-FOMC hedge unwinds.
ahmedm
on August 10 2010 at 15:56:09
I saw the UBS economist on CNBC this morning saying Fed won’t do anything today. This is what he wrote afterwards:
We were surprised by the Fed’s move to “keep constant the Federal Reserve’s holdings of securities” by reinvesting in Treasuries. In our opinion, the change in stance could have a significant effect on Treasury yields, even if some folks may
not consider it a full blown resumption in quantitative easing. In our view, the 4-5bp rally in 5-10yr Treasuries is pretty modest; we think yields could fall at least another 5bp today/tomorrow in response to the Fed’s move. The Fed indicated that it “will concentrate its purchases in the 2- to 10yr sector.”
We calculate that bond maturities and prepayments through July on the Fed’s Large Scale Asset Purchase (LSAP) portfolio totalled approximately $150 billion.
Mortgage redemptions (mainly prepays) accounted for nearly 90% of the total. It seems clear that mortgage prepayments will determine the volume of Treasuries the Fed buys.
The 30yr is getting hit as the Fed appears to skip the long end. Why not go all the way to the 30yr? The 10s/30s area of the US curve appears extraordinarily steep by historical standards, yet many players who might consider flatteners have been shell-shocked by the volatility of the spread. The Fed clearly can withstand the volatility, and if it bought the long end it might reduce corporations’ long-term borrowing costs.
ahmedm
on August 10 2010 at 16:01:56
http://www.zerohedge.com/article/feds-total-2-10-year-ust-monetization-over-next-12-months-340-billion
spainconsultant
on August 11 2010 at 05:05:46
Worldwide FED´s (central banks) have a lot less power now, you can´t surprise the same the second time, Ben will hardly multiplied again the balance sheet figure from here, monetary impulse works better matched with fiscal (budget-deficit) stimulus, at 7 % GDP Europe deficits and 10 % USA we probably won´t see another 5 % GDP deficit adding that wouldn´t even match the original one…………… FED have to move careful to reach and equilibrium between avoid ten years of sashimi and liquidity trap; I wonder how they decide this in August a non impact month while the thing was officially not going so bad and now everybody is going to keep asking if we aren´t worst of it looks…….. guess 2 possibilities: political (white house et all) pressing with November in their mind, and a promise to the big boys in the ugly picture June days when risk of breaking down the psychological 1.000 line, promises to the bankers are to be fulfilled (not the opposite of course) ………..Bob maybe in “la pomada” because he comment pointed to this in the first days of July when we where going the 1036 down……point for Bob!
Europe unruly boys (we at front run but not alone) were instructed and properly cut public expending and planned more presentable fiscal figures……….USA didn´t, not big deal as is the world´s central bank and safe haven but if Doctor doom gets its second moment of glory how we are going to fast exit this mess? I mean Europe for political and systemic reasons can barely expand the public expending and USA could, 20 % GDP deficit with no war? (though another war maybear maybe in study according to some things I read, let´s assume a peaceful approach) ……….but they alone? So seems we need average Joe and specially average Mary to keep spending and the equivalent to average person in Europe (no name for it with so many languages……) to equilibrate expending and saving for lending the governments in a theoretical point that economist can´t agree. So in the short term economical sensus (1, 2 years) we need luck, confidence and see some tricks (twisting statistics, telling other to think the opposite you think, encorage to risk invest while you flight to Zurich in private visits……. )………….. in the mid term (3-10 years) we need some innovation and a lot of productivity gains (the energy revolution? the infotech-knowledge-economy expansion? the *care sector?) in the long run………….. all bald, as Keynes say
For the markets, Fed et all need actives value to sustain confidence and wealth sentiment that helps to improve the outlook and at some point the credit and the expending…………… bubbles are criticized, but bubble bursting are much feared, what makes them kind of a circular problem. The central banks can, probably will, go nuclear if things go deeper …………but if we were at an asset bubble at 1500? it´s been corrected going to 666 and back to 1400 next year, so everything purged in some 3 years? Maybe but sometimes even governs and central banks and his friends can´t sustain the markets……….otherwise they never fall hard
Well, I used Bob´s place …….as the speakear corner in Hyde Park
spainconsultant
on August 11 2010 at 09:09:22
When Bernanke get up he is going to be very upset with all this pessimism, after a FOMC …………. Today Europeans are even worst that US futures, and Ibex is 2% down, which is significant because kind of started advancing moves again since June………. But Bernanke can call everybody to order when market opens…….
Bob English
on August 11 2010 at 09:52:21
Thanks for the thoughts, spainconsultant. Long term, I’m pessimistic on most fronts.