FX UPDATE : The EURO looks poised to stall and that will be confirmed with a close sub the 23.6% ret 1.1723. I do think EURO weakness will help BUNDS rally.

  • The EURO looks poised to stall and that will be confirmed with a close sub the 23.6% ret 1.1723.

  • **Chart 2 continues to forecast EURO DEMISE with 1.2141 as the near-term target.**

  • USD strength from here is ONLY JUST THE START.
  • USD EM has seen many BLOW OUT scenarios but a TOP might be in for USD BRL.

    USD CAD continues a SLOW but effective GRIND.

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EQUITY UPDATE..Yet another VERY sideways market BUT and to a lesser degree than bonds we have VERY over bought status on quarterly and monthly.12.06.2018

Equities :

Yet another VERY sideways market BUT we have VERY over bought status on quarterly and monthly.

Dax is one of the MOST over stretched European markets but does need to close the end of the quarter SUB 12599 bollinger average.

 

FTSE is currently a very positive chart but that will change on a close sub the 123.6% ret 7531.00.

US stocks continue to grind higher this DESPITE ALL quarterly and monthly RSI’s being 1896, 1999 and 2000 extensions.

 

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BOND and EURO UPDATE : ALL quarterly and monthly forecasts well and truly remain for MUCH lower yields.

                             

BOND and EURO UPDATE : POST the Italian crisis markets have suffered from very sideways performance and liquidity issues.

ALL quarterly and monthly forecasts well and truly remain for MUCH lower yields. This quarter end is VERY key to continuation of lower yields and that move could only materialise in the last few days. It seems the market and market participants need time out from recent events BUT certainly the LONGTERM RSI dislocations will not ERODE!

Ideally be patient and trade closer to month end.

 

MAJOR RSI dislocations remain.

**LIQUIDITY : NOT TO BE OVERLOOKED**

Liquidity certainly does now seem to be an issue as Italy remains void of any decent cash flow and the futures ranges are extensive on light volume.

I don’t normally venture outside the technical space BUT to me a major concern is LIQUIDITY and lack of it, certainly if another Italian situation arises. Most orders now are generated or routed via a system, markets are made-quoted by a system. None of these have been really tested in a 2007 type situation, DESPITE many RSI’s predicating a REPEAT. Last week proved liquidity in Italy to be appalling due to circuit breakers and management reluctant to quote on MTS-Tradeweb.

IT can be argued, “there is still futures” BUT some contracts are NOW made up of 75-90% ALGOS, this is not a good statistic, especially when they were ABSENT post the big USD SWISS move. Also margin increases are possible. This lends itself toward MORE OPTION plays, achieving longevity on IDEAS and not get stopped on an illiquid blow out.

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PLEASE READ ...BONDS and EURO UPDATE : Yields to HEAD lower with some VERY compelling FORMATIONS, LIQUIDITY the NEW WORRY.

                  

BONDS and EURO UPDATE : Yields to HEAD lower with some VERY compelling FORMATIONS, LIQUIDITY the NEW WORRY.

The EURO also a key  focus today.

**LIQUIDITY : NOT TO BE OVERLOOKED** I don’t normally venture outside the technical space BUT to me a major concern is LIQUIDITY and lack of it, certainly if another Italian situation arises.

Most orders now are generated-routed via a system, markets are made-quoted by a system. None of these have been really tested in a 2007 type situation, DESPITE many RSI’s predicating a REPEAT. Last week proved liquidity in Italy to be appalling due to circuit breakers and management reluctant to quote on MTS-Tradeweb.

IT can be argued, “there is still futures” BUT some contracts are NOW made up of 75-90% ALGOS, this is not a good statistic, especially when they were ABSENT post the big USD SWISS move. Also margin increases are possible. This lends itself toward MORE OPTION plays, achieving longevity on IDEAS and not get stopped on an illiquid blow out.

 

US 10yr 50 period Moving Average resistance.

 

The EURO should track LOWER from here

 

 

 

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**SPEACIAL UPDATE ..INTERMARKET SPREADS AND CURVE DISLOCATIONS, SOME REASONABLE TECHNICAL DISLOCATIONS WORTH A CLOSER LOOK.**

Given the recent ranges some technical chart formations are at extremes.

Some TECHNICAL cross market spreads and curves to watch for as the week end approaches.

  1. US curves have spent a long time over sold on a MONTHLY horizon BUT the daily charts are hinting a BASE is FINALLY forming, we should know more by end of play tomorrow.

 

Possibly a BASE going in

 

2. Canada versus UK is at previous highs but the RSI could be BETTER.

3. US – Germany 2yr, 5yr and 10yr have significant RSI dislocations on monthly and weekly horizon.

 

4. UKT 42 & 44 vs UKT 60’s. All are sitting on sizeable levels and DISLOCATED RSI.

HAPPY TO DISCUSS ANY INDIVIDUAL BONDS.

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*** EXTRA UPDATE : BONDS AND EURO. Bunds to start the next leg higher TODAY and options ideas enclosed. ***

EXTRA UPDATE :  BONDS AND EURO. Bunds to start the next leg higher TODAY and options ideas enclosed.

Stops are cheap, below this week’s low and LONGTERM charts remain calling for lower yields.

The BIG picture still remains LOWER yields over all.

 

RXQ8 TRADE IDEAS : Several options to ponder.

RXQ8 ref RXU8 161.12

163/164.50 call spread 25/27

163/164.50 1x2 call spread flat/1.5

163.50/165 call spread 20/21

165/170 1x2 call spread 9/11

20k long in 170call helps cheapen this 1x2

 

 

Bund VAP shows solid support and a reasonable STOP location.

 

 

 

This is the likely BUND target if Italy fails.

 

 

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Taking a quick profit: Tactical trade for Italy relaxation: EUR bear-flattener via 1m mid-curve payers

Last week I set a tactical EUR 2y1y/10y10y bear-flattener through mid-curves in my shadow portfolio. The trade has made 4.5bp in a few days, so I am booking this now. The chart shows the intraday pricing for 2y1y and 10y10y. Initially the curve was flattening as the Italy effect receded. However today’s price action has seen the short end stationary while long rates have continued to sell-off. This switch (though it might be temporary) to a bear-steepening mode has prompted me to book the profit early on this.

 

https://www.astorridge.com/wp-content/uploads/2018/06/image004-1.png

 

Best

David

 

Original writeup:

 

Bottom line: Italy is driving a bull-steepening of the EUR curve in forward space, which makes the pricing of the reversal bear-flattening trade attractive via mid-curve options.

 

Trade:
Buy EUR 995mm 1m2y1y mid-curve payer atmf (k=0.264%)
Sell EUR 120mm 1m10y10y mid-curve payer atmf (k=2.03%)
Premium take out of 0.7bp (indicative mid)

 

Atmf strike at 176.6bp vs 179.8 spot.

 

Rationale: The recent explosion of Italy risk has driven a bull-steepening of the EUR curve in forward space, as the dampening of ECB rate hike expectations outpaces yield moves at the long-end. It is therefore reasonable to anticipate that any relaxation of the stress surrounding the Italian political situation will provoke a general sell-off in rates and a re-flattening of the curve.

 

https://www.astorridge.com/wp-content/uploads/2018/06/image002.png

 

Clearly for the past 3m of history, the effect of the crisis has been much more marked for the 2y1y rate than 10y10y.

 

https://www.astorridge.com/wp-content/uploads/2018/06/image003-1.png

 

This kind of dynamic favours conditional curve trades: in the near term, any flattening of the 2y1y/10y10y spread should go hand-in-hand with a sell-off in rates. Similarly a further steepening should see rates rally further, putting payer swaptions out of the money. Currently the implied vol on 1m2y1y is 51bp/y compared to 58bp/y implied on 1m10y10y, which allows a zero (negative) cost structure. The downside is the 3bp of negative roll on the flattener.

 

Risks: The main risk is an exogenous event (eg Trump / China) which drives global rates higher. In that scenario, longer rates could sell-off while short end expectations remain muted ie: a bear-steepening of the curve. Currently Italy is centre-stage, and I expect that to be the driver for the next month, which is the main reason for such a short expiry.

 

What do you think?

David

 

 

David Sansom

 

 

cid:<a href=image001.jpg@01D21F13.B69A4950">

 

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This marketing was prepared by David Sansom, a consultant with Astor Ridge.  It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and that it should be treated as a marketing communication even if it contains a trade recommendation. A history of marketing materials and research reports can be provided upon request in compliance with the European Commission’s Market Abuse Regulation.  Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail.  The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains opinions or recommendations, those opinions or recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the those who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of, and income from, any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. 


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BOND UPDATE . KEY confirmation day for yields to continue LOWER. Germany is less of a driver than the US now . 04.06.2018

BONDS UPDATE : Yields lower.

THE LONGTERM YIELD LOWER call has taken “time out” but today is a KEY DAY to confirm continuation of the NEXT LEG LOWER. ALL MONTHLY AND QUARTERLY CHARTS CONITNUE THE LONGTERM YIELD LOWER CALL.

PAGE 11 and 14 KEY test levels for US 5yr and US 2yr.

The GERMAN yield DROP MAY have gotten TOO oversold in the short-term BUT overall sub the 0.466 will be terminal.

US yield charts CONTINUE to HIGHLIGHT SIGNIFICANT RSI YIELD dislocations, i.e. WAY too OVERBOUGHT historically. This dislocation is most prevalent in the 2, 5 and 10 year area, those RSI dislocations transpose over ALL chart durations. 

US CURVES continue to frustrate despite the LOW RSI’s.

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The EURO HELD short-term support 1.1554 and should fade at the 23.6% ret 1.2032 area.

  • The EURO HELD short-term support 1.1554 and should fade at the 23.6% ret 1.2032 area.
  • **Chart 2 gives a very MAJOR clue as to how BAD the longer-term EURO DEMISE might be.**
  • USD strength from here is ONLY JUST THE START.
  • USD EM has seen many BLOW OUT scenarios but a TOP might be in for USD RUB and USD TRY.

    USD CAD has been a major call and bounced well, it now

    looks poised for its next bout of CAD weakness.

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Gilts-UK 4q49s Too Cheap Too early-New Jan 2049s September.s46/b49s/s52

The Gilt market seems to have taken the old 4q2049s to it's cheapest level since 2015 likely too early after the publication of the July-Sep issuance calendar (which is attached )with a new January 2049 to be launched,though not until September,looking at older issues close to 4q49s it looks worthwhile selling uk4q46s & uk 3t52s into 4q49s with the spread a small pick up especially as most of the June & July coupon payments favour the over 15 year maturities & only 1t57s are scheduled for mid July & the 30 year matiurity bucket looks too cheap with the 4q49s likely benfitting with 1t47s as the new 2049s won't really pick up a premium until the issue is aroudn £8/10bn a few qtrs away. Entry anywhere close to hear current mid +0.5bp.. Target-2.5bps

This marketing was prepared by George Whitehead, a consultant with Astor Ridge. It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and that it should be treated as a marketing communication even if it contains a trade recommendation. A history of marketing materials and research reports can be provided upon request in compliance with the European Commission’s Market Abuse Regulation. Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail. The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains opinions or recommendations, those opinions or recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the those who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of, and income from, any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results.

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Astor Ridge NA LLP is a member of the National Futures Association (NFA): Firm ID Number 0499303
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