Monthly Archives: September 2012

The MorningSnapshot- 09/18

As many of you are already aware, CME Group decided yesterday to make several cuts due to low volumes and thin margins, and I was one of them. Thank you all for the kind words and show of support. Because of that, and my passion for the markets, The MorningSnapshot will live on. Please keep me in mind for future openings within your respective organizations.

I’m working with Bloomberg representatives today, and should have the full edition of The MorningSnapshot out each morning starting again tomorrow. Today was a bit stressful without my Bloomberg Launchpad.

The MorningSnapshot- 09/17

Sentiment is negative this morning, with European stocks declining from a 15-month high, U.S. equity futures pointing lower, and Asian stocks little changed as concern of a deepening economic slowdown in China overshadowed optimism resulting from the Fed’s third round of easing. U.S. Treasuries were steady overnight after yields on the long-end of the curve surged last week amid concern QE3 may spur inflation; the 5yr breakeven is at its highest level since July 2008 and 10s at the highest since April 2011.

QE3: Bernanke Expands The Fed’s Holdings of Long-Term Securities
The Fed said it would expand its holdings of long-term securities with open-ended asset purchases of $40B in MBS each month as Bernanke seeks to boost economic growth and reduce unemployment. “If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate,” the Federal Open Market Committee said yesterday in a statement at the end of a two-day meeting in Washington. As almost everyone had anticipated, the FOMC said it would likely hold the federal funds rate near zero “at least through mid-2015.”

S&P Downgrades Ignored (Again)
When Standard and Poor decided to strip America of her AAA debt rating, the risk markets’ reaction was muted to say the least. When S&P cut the rating for France in January, along with eight of its euro-region neighbors, it said policy makers were failing to stem Europe’s debt crisis and the refinancing costs for certain countries may remain elevated. However, French President Francois Hollande has seen the cost of servicing his nation’s debt fall since taking office in May. Yields on 10yr French bonds fell to a record-low 2.002% on Aug. 3, from 3.08% at the time of the downgrade. The drop is greater than the fall in the German 10yr bund yield, which fell 52bps to as low as 1.25% Aug. 3, and yields on Treasuries, which fell less than -40bps during the same period. By almost any measure, France is more creditworthy borrower eight months after losing their AAA rating with S&P. Price/yield action on French debt shows investors have determined the analysis done by ratings firms on the world’s largest nations to be irrelevant.

The MorningSnapshot- 09/13

The euro rose +0.35% to a four-month high and stocks rallied for a second day after a German court allowed the ratification of Europe’s long-term bailout fund the ESM, and as investors awaited today’s Federal Reserve policy decision. The S&P 500 rose 0.21% while the Euro Stoxx 50 climbed +0.28%; the VIX fell for the first time in three days by -3.7%. U.S. 10yr Treasury note yields rose to a three-week high as the U.S. sold $21B in debt while investors speculate the Fed will add more stimulus at the conclusion of its two-day policy meeting tomorrow.

Morning Commentary
The dollar has weakened to a seven-month low versus the Yen and Treasuries rose amid speculation the Fed will announce new stimulus measures today. Euro-area stocks dropped from a 14-month high with the Euro Stoxx 50 down -0.74%, led lower by Spanish and Italian equities.

The Fed is expected to announce a third round of quantitative easing, according to almost two thirds of economists in a Bloomberg survey, and is even more likely to extend the duration of its zero-interest-rate policy into 2015. “Markets are slightly nervous in anticipation of quantitative easing,” Lim Say Boon, chief investment officer at DBS Private Bank, said on Bloomberg Television in Singapore. “If we get QE3 then the markets, beyond this period of nervousness, are likely to rally even further.”

PIMCO’s Bill Gross Cuts Treasury Holdings to Lowest Level Since October
Bill Gross, manager of the world’s largest bond fund, reduced his holdings of U.S. Treasuries to the lowest since October while warning that more stimulus from the Fed will lead to a resurgence of inflation. Gross cut the proportion of U.S. sovereign debt in PIMCO’s $272B Total Return Fund to 21% of assets in August, from 33% in the previous month. “QEs lower real interest rates and raise nominal rates because their intent is to reflate,” Gross wrote in a Twitter post earlier today, referencing the two rounds of bond purchases conducted by the Fed since 2008 to keep borrowing rates low that have become known as quantitative easing.