Advance and retreat

Ten-year Treasuries are making a new session low in front of the revised report on Q4 2015 GDP which is expected to show +0.4% growth v. an estimated of +0.7% in its initial update.

Equities hold strong for a second session and have come well above the destructive price action of last month, making new monthly highs. Global equities are also shored up despite a drubbing of -6% on China shares on Wednesday. In prior hard sells in China, global equity markets found sympathy declines, some quite impressive.

Crude oil is strong again also adding to gains yesterday and more importantly, showing some decent stability since mid-January after a year and a half of declining prices.

The dollar shows some signs of strength while gold is backing away from recent highs.

All of the above gives reason to expect lower fixed income prices. There was a bearish reverse on Wednesday (a ‘shooting star’), not unlike that seen on Feb 11th. This most recent formation was not confirmed by price action on Thursday. Still, we might not want to forget that bearish formation all together.

Two weeks ago, we saw a bearish reaction to the above noted Feb 11th reverse. That Friday fixed income sell-off was a rare ‘risk-off’ session in front of a long holiday weekend where the markets had been rather upset in the weeks before.

All said, there is some bearish price action that has not found any traction. Funny how these developments rarely find ‘response’ until later than many would imagine. Today, a ‘risk-on’ selling event in usfi, that is combined with higher equity prices and higher oil prices should not be ignored.

There has been a very protracted bullish run in usfi and a reverse from here need not be shallow. There has been a lot of belief in the notion that the U.S. economy was going into a recession and the Fed would need to move to negative rates. There is room for ‘rethink’, higher yields and further positive economic surprise.

GDP Q4 2015 just came out +1.0 v. expected +0.4. wow!


About the Author

Martin McGuire, managing director at TJM Institutional Services