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!

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.

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!

Treasury prices have climbed back to within striking distance of the recent highs in the overnight trade. Part of the rise in prices in the last 24 hours came in a delayed reaction to the 2 Year Note auction result as the regularly scheduled US economic data on Tuesday was somewhat countervailing. However, it would seem as if slowing economic views are providing Treasuries with at least part of their ongoing lift and the overnight flow of news from Japan, Germany and the UK would seem to contribute to that type of thinking.

The US Treasury market might get an additional lift from news overnight from S&P who warned China that tightening monetary policy further could lead to an increase in Chinese bank credit losses and a profit squeeze for Chinese banks and that in turn could result in US Treasuries getting a lift off Chinese banking concerns. With slightly weaker equities to start today and softer energy price action, the bull camp would seem to have the benefit of the outside market environment. However, the Treasury market will be confronted with slightly more important scheduled US data flow today in the form of US durable goods, which are generally expected to show some weakness.

Later in the trading session, the market will see $35 billion in 5 Year notes auctioned and after the generally favorable reaction to the 2 Year notes yesterday, the auction is probably something that could generally support Treasury prices. In short, seeing evidence of slowing from durables, weaker equities and lower energy prices could embolden the bull camp again, especially if Fed dialogue today confirms the track of recent slowing fears with comments or references to the softening US economy.

There is talk that the US government is poised to get a deal on extending the US debt ceiling but it is unclear how that news will impact the Treasury market, until the full details of corresponding spending reductions are known. So far, the US credit rating hasn’t been directly threatened, but in the event the international community is unhappy with the US debt reduction effort that could dramatically alter the flow toward the US Dollar and US Treasuries that has been in place over the last month.