Market Commentary

During my trading years, I used to write a Daily Commentary on the markets as part of our reporting back to the Bank’s senior managers and for our sales to sent on to their SME and corporate clients. For the sake of memory, I wanted to put some down:

18th of July 2014, soon after the downing of MH17:

Another very quiet session to finish off the week with the attention continuing to be in developments in Ukraine. Wires continue to point to the fact that it was indeed the pro-Russian rebels who shot down MH17 which sparks concerns as to how Putin might react to this situation. Core bonds continue to be bid on the back of the worries with equities finding some support back after yesterday’s sharp sell-off post-news. The geopolitical movements over the coming weekend will determine how the market will face the coming week as any escalation of US/Europe vs Russia situation will continue to support UK and German bonds whilst depressing equities…

6th of June 2014:

Bunds continue their LTRO boosted yield grab surge despite the sold NFP report this afternoon, it seems apparent banks are again loading up on the carry trade (particularly in peripheral bonds) and this is helping to support global markets, with gilt futures up 20 cents. Short sterling look heavy but are struggling to come off given the ECB support and it seems for now 10y globally will remain supported while the strength of the data will weigh on front ends which should lead to flatter 2x10s in major currencies. We are focusing our shorts in short sterling particularly with the jobs data to come next Wednesday – typically we have sold off into the data on anticipation of strength. At some point 10y will buckle (central banks are really stoking up a big bubble in bonds) and with equities hitting record highs on an almost daily basis, policy makers are increasing the chances we see a painful unwind from ultra-loose policy. What again is apparent in today’s price action is the size of shorts on the street which was evidenced in the aggressive rally post the strong payrolls print. Flows in GBP swaps today were wafer thin and are likely to remain so over the summer.

20th of Feb 2014:

As we mentioned yesterday, the market looked heavy and seemed to have run out of steam on the face of the un-interesting MPC minutes published yesterday. We were surprised that the BoE failed to mention any of the changes to the forward guidance framework and were looking for speakers to come out and start showing the wide-ranging views within the committee. Martin Weale was the man of the hour, stating that the first rate hike could come in Spring of 2015 with a possibility of it coming even earlier if growth is stronger than expected and productivity exceeds expectations. He also pointed out that any hike would be gradual and no ‘shock jump’ would occur. The curve took notice, with the greens down 8bps, steepening 2x5s by 3bps as gilts were suddenly under extreme pressure (coming off 80 ticks going into London close). The market continues to trade heavily, with good payers of 5y outright taking advantage of the sell-off, pushing the 2x5x10s fly 3.5bps higher. We think this is the correct path and would expect the market to continue in this direction albeit subject to shocks elsewhere. Chinese data overnight was very disappointing whilst the US releases continue to be dampened by severe weather (Phily Index at -6.3 vs exp of 8)…

26th of Sep 2013:

A choppy session in the UK saw the release of a mixed bag of economic numbers, causing assets to trade sideways even if the moves seem sticky upwards. Gilts never looked like really getting some sell-off momentum and any weakness was quickly met with some solid buying. UK paper continues to outperform its German and US counterparts and with the 10y part rallying 25bps in the last week (10 more than GE and 15 more than US). UK GDP came in slightly worse than expected on a YoY basis (1.3% vs 1.5% exp) whilst the healthy employment data in the US helped pin the upward move. US budget concerns are still creeping up but we still like shorts here…

16th of July 2013:

Some comments from uber-dove Fisher pointing to low rates for the foreseeable futures and highlighting that any further upswing in interest rates would only delay any unwind of QE launched another relentless rally in the stg market. Fisher, in what was an unusually direct statement, said that the market had gotten itself into a premature position regarding future rates and that we are still a long way out from any rate hike. The market took notice as such statements is being perceived as part of the communication strategy of Carney’s newlyfangled forward-guidance. The strip was obviously extremely well supported with greens climbing 12bps going onto the London close with the next rate hike now bring priced around September 2015. Gilts, which outperformed Bunds by 5bps, rallied aggressively as the curve front end of the curve flattened (2x5s 4bps lower) as the eyes are now fully on tomorrow’s MPC minutes with the market looking for any further hint on forward guidance and QE unwind. Also in the UK, the CPI and RPI measures were released in the morning with both print undershooting expectations and coming in at 2.9% and 3.3% respectively thus saving Carney the trickiness of having to write a letter to the Chancellor in his first month in charge at the BoE.

More to come…



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