Short Sterling Spreads Flatten.. Stocks still going up!

The action in the STIR space has been a snooze fest to say the least. I started getting short spreads mid October, admittedly at what was in hind site pretty bad prices. Over the next couple of weeks Sep15Dec15 pushed up from a low of 9 to printing 19s, and I was naturally shorting all the way up, but the action was so slow that it was probably the most tedious trade I have ever been in. For the next 2 weeks and coming into the first week of November, prices grinded higher, and all I could do was try to improve basis, as the Spread then topped around 18s, Finally a week later, 3.5 weeks after getting into the trade, the curve flattened and my over riding feeling was just to get out as I was so fed up holding for so long, and so I got out at 17s and a few at 16s, having been short from 14s up to 18s. Now the Sep15Dec15 trades at 14/15. Had I managed to hold would have been a great trade but although I had the patience to hold for a month, a week more and would have made the whole trade worth it.
The take away from this is that this type of trade a few months ago would have lasted a few days, or a week, but to day trade these markets now is pretty much impossible, and by the looks of it rate hikes seem to be pushed back further on the back of falling inflation, which is not likely to help the day trading action in STIRs.

On the Equity front, its like Ground Hog day every day, we have a bit of early weakness and then the buy the dippers, (who now buy on 2 tick dips) push everything back up, and this is purely funds trying to generate performance as many are under invested. So regardless of news, fundamentals or anything else, the word is Buy. In the past this kind of cheap money fueled rally has nasty consequences, so lets see how much they will push this up before rationality sets in.

1 Week Later...

Looking at the way this market is right now, you would have thought last week didn't mean anything. After crashing down Equities have crashed back up, with the ES posting 3 back to back 1% plus gains which is the first time since 2011 this has happened, and the VIX index has dropped over 10% in each of the past 3 days which has never happened in the history of the VIX.
So the buy the dippers are out in force, and it is safe to say this was the pullback everyone was waiting for and soon as support was found it has raced up super fast.
The FED and other Central Banks are still throwing around QE rhetoric, and with China growth sluggish, the PBOC are looking at further rate cuts, so as the economies around the world remain sluggish, this is the best conditions for the US markets as they continue their rapid accent to new highs. European Indexes are still way off their highs and are reliant on more from the ECB to push it higher.

When the day comes that central banks do have to unwind, it will be a real test to the market!
Bonds have come of their highs as the correlation with Equities seems to be the best its been in a while, Spreads have come back in Short Sterling and Eurodollar also and is now sitting mid range, which is making it a bit tougher to pick direction.
We have BoE minutes later today, as well as US CPI, so looking for that to bring some volatility to the mix.
Main event for the week is the UK GDP figures on friday, so hoping to get flat before that.

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Bulls and Bears Battle as markets are becoming more Volatile

Although it was pretty dry week for Bonds, Stocks have had a real tussle at these levels, although it seems that the bulls seem to have the upperhand, as anything the bears throw at them is countered the next day with pretty much an equal move back up. This is not surprising as its been this way for the past two years. Bears have not been able to get any traction as demand for Yield still persists as rates are at record lows. Although a meaningful pullback is due, it doesn't look like the Bulls will let this happen for the time being. However we know things can happen when you least expect it so always be prepared for this eventuality.

In other markets the Dollar remains extremely strong, which is having a big effect across the commodity space as well. Corn, Wheat, Iron Ore, Gold, Silver, Soya Beans and countless others are trading at multi year lows, and its hard to see where the support is at this moment. It is said that buying these around these levels is a once in a generation moment, but as it stands there seems to be no let up in the downward price action for these commodities. Commodity currencies have also been hit hardest with NZD/USD down from a peak a few months back of 0.89 to 0.78 which is a 1000 pip move in a relatively short amount of time.

Whilst Spreads have been a tough trade lately, I have focused more on directional picks on some of these Commodity plays, which my main focus on Corn. I have been using options to give me time to be right in these trades hoping for any pullback. As you can see from the Chart below the move down has been pretty steep and in my opinion looks over done, Similar charts are seen for other Commodities too.  I have been buying futures and puts, whilst selling puts below as it keeps going lower. We shall see if this continues.

Looking to next week, we have ECB meeting and month US Job figures which will provide further insights into the likely path of monetary policy from the FED and ECB.