Euribor spreads push up on the back of European optimism

After trading in a very narrow range, with hardly any volume, we broke up in these Euribor Spreads, with no real pull back on the way up. Jun14 Sep14 went from 6.5s to 8.5s, Sep14Dec14 went from 7s to 9s, and pretty much we had a 4 tick price movement along the mid part of the curve.
Now looking at a longer chart, it looks like a perfect trade, being long the bottom of the range, and now watching it push up. But as a day trader, with such a narrow range in the past week I have been inclined to sell it, and this got me in trouble as I had to average aggressively as it went up.
Thankfully we had a rally in the Bund today, after the large drop yesterday and this gave me my out in these spreads. In all ended up being a very roundtrip intensive day but its a nice change to see some action in the short end as its been dead recently.

Else where, as I thought last week this Bund has come off the channel at 141.50s and has pretty much gone down 200 ticks since, on the back of positive news from Europe and upbeat data from the US, including a positive Philly Fed report, all conveniently before the US elections. Its still up in the air who will win the election but I still think we will get good data out, but with the Bund in a range between 139-142, so I think we are likely to push up mid range sooner then we go down.

Not much more data out for the week, so the market will be dictated by Earnings, and the usual remarks out of EU officials.

Non Farm after thought

Well I said it in the last post that the way it was looking we would get a good non farm, but not in the way I would have thought. Rather then a good amount of jobs added we had a dramatic reduction in the unemployment rate from 8.1% to 7.8%. It is very timely actually but it lead to some volatility initially before it all faded before the close of the US session.
Theres no disguising that there is still a lot of problems, and with the run in to the US elections I wouldn't be surprised to see more and more good data, to give the President a boost, before the Americans go to the polls.
So going forward I would expect to see some pressure on the Bund, unless we have any major announcements out of the EU.
Spreads are very slow and static at the moment so best to wait for good levels and hold until it comes your way.
Other then that not much else to report.

Upbeat data points to a good jobs number?

A strong ISM manufacturing and ISM Non-Manufacturing coupled with a slightly stronger ADP reading bodes well for a potential upside surprise in this Fridays non farm payroll number. Although there has been discrepancies in the past between ADP and NON farm, I got a feeling we are going to get a good number this Friday, which coincides with the run in to the presidential elections...hmm conspiracy theorist say what you will!
Thus we have maintained these near high levels in the equity markets as Europe isn't creating many new headlines, so in that aspect there is no real reason to go down, and when ever we do we simply seem to be brushing it off.
Although I do feel we will come off cause the market doesn't represent the current state of the economy, near term I think we will continue higher.
STIRS have been fairly static lately, with low volatility meaning having to hold on to spreads for much long then usual. As the Bund keeps on rising, spreads have been gradually coming off, and as they're coming near the bottom of the range, (on many 3 months spreads) I've been inclined to buy them. Sep13Dec13s at 4.5 is a level which has held strong before so have been trying to load up on this as it comes.
Tomorrow we have ECB press conference, but this is likely to be a non event as the main actions were taken last month, but any surprise announcement will be welcome.

Stocks Rally Fizzling out?

After a huge run up in stock markets, on all corners of the globe, it seems now that Europe questions are being asked again, the optimism is waning  The Dow dropped 100 points yesterday despite good data out of the US regarding consumer confidence.
The Bund is always consolidated above 140, having been trading mid 138s last week.
The real question is has anything changed, we have assurances from central banks that they will fully support indebted nations, but the fact remains that we are still not growing, numbers look weak and without growth its hard to grow out of this mess, and for this reason longer term I dont see no other way to go then sell stocks, and buy Bunds. Stocks have been artificially bid on the back of the Fed Easing strategy, but there's no real macro fundamentals to really back this up.
Earnings next week will paint a better picture next week, but although we are likely to get better numbers, its more by being efficient, cutting costs rather then employing workers and growing rapidly.

Looking at STIR spreads they have been in a tight range as you would expect, and so just playing the small moves nicking half tick here and there seems best play. Nothing really notable to mention in the past week, but we have been seeing more volume in these STIRs which is good, with over 100k contracts trading on many contracts.

Been looking at Brent Oil Spreads, and that saw a breakout on Monday in the 1 month butterflies at the front of the curve, which was a bit nasty, although it has faded some of it. These spreads are moving quite a bit, so providing more opportunity but much more breakout prone lately.

As far as the rest of the week goes, not much on the calendar, and we look to next week as we get a raft of data to see where we go.

Lower Bonds higher Stocks on the back of QE3

So much for thought we wouldn't go below 139 in the Bund, but despite widespread anticipation of this move from the FED we reacted with a big sell of in the Bunds, which goes against what you would fundamentally expect, and we are trading multi month highs in all currencies against the dollar. The EurUsd is trading above 1.31, given that 9 days ago we were 1.25 which is a huge move!
Spreads are inching up as you would expect too, but not getting affected as much as the longer end of the Yield Curve.
So here is the facts, Nasdaq at decade highs, European Indices at year highs, Dow at 4 year highs, yet the economy is massively weak, this move by the FED was on the back of a very weak employment picture, and with the 3rd round of QE in the works, one has to be aware of the potential inflation risk down the line.
You can say that stocks are the only investment with yield given the low rate policies from the central banks, but do i think this is all massively overcooked! The answer is yes, and so I am expecting some correction going forward, although I dont think this will happen till next week as I cant see people wanting to be short over the weekend. Either way, its all exciting stuff! Have a good weekend

German Court ratify ESM Plan

The German Constitutional Court has ratified the eurozone bailout package. The bill will now be signed into law.
At issue was the legal matter of whether the permanent bailout fund which the eurozone nations had established (the European Stability Mechanism) was in keeping with the German constitution.
The ESM is a scheme which allows joint funds to be spent buying debt directly from governments. These governments would request help after finding it too expensive to borrow from the market. Unlike the OMT, its potential size is limited to €700bn. Germany will take on 27.15pc of these contributions, giving it a maximum liability of €190bn. Of this sum, €80bn (or €21.72bn for Germany) must be paid up front to the ECB.

We had quite a wild move on the back of this as the Bund initially went bid before selling of hard to reach a low of 139.24. The Euro also breached 129, as optimism has grown greatly. Couple this with likely QE out of the FED tomorrow, has led to dollar weakness and a big drop in the dollar index.

Spread wise we have steepened as you would expect with the big fall in the Bund, but the shorter end of the curve has stayed pretty stagnant with only a slight upward move in the Euribors.
Below is some video analysis on the past weeks moves.

Bullish ECB but bad NFP

So we got the expected volatility last week as the ECB delivered on the promise that the market was expecting, and this in turn lead to Euro strength, as we traded above 1.28. As far as Bonds are concerned, we had a big sell of and traded 139 handle, on the new Dec12 Bund contract, its been a long while since we have had sub 140 prints in the Bund, and is a definite sign of more risk appetite.
We dropped as low as 139.42 in the Bund, on the back of the proposed Bond purchases from the ECB, but we pushed up over 100 ticks on Friday as US Non farm payroll disappointed, and was a timely reminder that the Global Markets are still sluggish and there's still along time till things will really turn around.
Have bounced twice from 139s, I expect mid 139s to be a buy as I cant see us falling too much more in this Bund.
Points of interest in the Bund to the Upside is 140.94-141, 141.38 and 142.48 to the down side, 139.42, 140.63.
Its a similar way Spreads pushed up on the back of Draghi actions, but faded this move on the disappointing non farm payrolls. I was trading the Mar14Jun14 quite a bit and was selling it up the way up from 7.5s to 8.5s, and this worked out as it came back down to 7-7.5s.
It was a similar story along the curve.
Looking forward, we have gone back to the sideways low volatility markets but looking for further progression out of Europe as well as FOMC press conference and projections on Thursday.