German
bonds: Bunds have yet again been rejected from its all time highs. This to me
signals that we a witnessing the high in the bunds, they feel toppy to me. The
Schatz remained firm yesterday, despite a selloff in Bunds and Euribor it
remained strong, this to me signals that there are shorts trapped in the
market. The reason I am bearish these binds is due to the fact that yields are
too low, with all the liquidity now sloshing around the system thanks to the
central banks, should investors still be as cautious with their money? With
bunds currently yielding around 1.8% and inflation at 2.6%, surely the likes of
SPGBs, Oats or BTP yields look far more attractive. Roll over tomorrow.
Stock
market: Yesterday we saw one of the bigger sell offs we have seen for a while,
on juicy volume as well. To me it looked like it was US led. There were stories
going around that it was funds unwinding QE trades after Bernanke had a crap
all over the idea of more QE for now. This theory may well be true as the bonds
failed to gain much of a bid and gold to a kick in. I just think it was people
just getting stopped out. As well as being bearish binds I also remain bearish
of indicies, but I doubt there is much to the downside, and we are more likely to
enter a consolidation period caused mainly by a fierce rally in oil.
Euribor:
Yesterday we saw a rally in the morning and then new lows in the evening. I
have got a hunch, I can see Draghi being hawkish tomorrow, and I think some
people also have this suspicion. There was some funny option plays occurring
yesterday, which seemed to be moving the strip. I would rather be selling a
rally in Euribor, but will also feel fairly comfortable buying on any decent support.
Today’s fix is called -1.0bps.
Short Sterling:
The word mad springs to mind. We saw a very strong rally on Friday, then a powerful
sell off on Monday, then yesterday showed some indecision. I think this market
is being led by the Eurodollar curve and flattening out. I feel comfortable
trading both sides in Sterling as I see it doing bugger all in front of the
important data in the later part of this week.
Eurodollars:
The fix came in flat yesterday, this in my opinion puts a spanner in the works
and caught a few people out. I am surprised we bounced so far afterwards, but
this was mainly due to buying further out the curve as the fronts still
underperformed. Today’s fix will be important to see whether yesterday was a
one off or whether the trend has paused. Call is -0.1bps.
Good luck trading
