It was business as usual in the S&P futures yesterday. The S&P 500 futures (ESM15:CME) failed to hold the 2113 area early, and then fell through the big figure of 2100.00 late in the day as the the yield on the US 10-year Note rose to its highest closing level in more than five months, and the German bunds took a dive. With the US Treasury set to sell $64 billion in Treasuries over the next 3 days, the global interest rate markets have become front and center.
SELL IN MAY AND WALK AWAY
Yesterday the S&P futures fell 10.75 points or -0.5% as it reversed lower from its early morning highs. Early in the day the Dow Jones futures (YMM15:CBT) had their biggest one day advance in over 3 months. The reversal came after the S&P posted a +1.5% gain last Friday, and despite the cash study for the S&P showing the Monday of the May options expiration week up 22 / down 9 of the last 31 occasions. After the early run up the ESM15 got hit by several small index arbitrage buy programs. While there remain several moving parts. there have been some major bets going on.
S&P cash study for the May expiration
Longtime readers of MrTopStep know that we don’t guess what the market’s motives might be for a selloff or rally. But when we see money flowing from one place to another, we pay attention. It fits our approach of trusting order flow and price. We follow the money.
Right now, some of the money that was put into European debt markets on optimism about the ECB’s quantitative-easing plan is coming back out. Most of that is flowing across the Atlantic to the relatively attractive US Treasury bonds. Goldman Sachs Group reported this morning:
Overblown expectations for the European Central Bank’s quantitative-easing plan helped push global debt valuations to extreme levels, triggering a “large and vicious” selloff in European bonds that’s infected other markets.
Two unusual events will coincide this summer and fall: the ECB will continue and expand its quantitative easing and zero borrowing cost policy, and the US Federal Reserve will raise interest rates for the first time since before a near-Depression. We haven’t seen this particular movie before, which means we can expect some volatility and uncertainty as Europe and the US get through this together.
This week is “Sell Europe, buy the US” in the credit market, but we think we can expect more of this transAtlantic flow back and forth through the rest of the year. We sometimes describe these waves of price activity using PitBull’s “water in the bathtub” analogy. To some extent, that may be what’s happening in the German bund’s decline. Only the bathtub is the whole Atlantic ocean, with Europe and the US pushing the money back and forth. It’s no wonder we’re seeing some big waves.
In Asia 6 out of 11 markets closed lower, and in Europe 12 out of 12 markets quoted are trading lower this morning. Today’s economic and earnings scheduled starts with earnings before the bell from : ABY ACT AER AKRX AU ENDP EVEP ICPT LGND MBLY MNKD NAT RDNT RTRX RBC SSYS W, and after the close from : BDE BOX CLNE DEPO DRNA DPLO FMC FMI HALO IPXL LWAY MDR MIDD MR PAHC PINC PBYI RAX SCAI SCLN SF VRTU YY.
Our View : If it’s not this it’s that and if it’s not that it’s this. How stupid is that? No volume on the up or downside. They say it’s risk off going back to risk on but it sure doesn’t feel that way. Getting above 2100.00 and holding for a few days will be key to my idea that we grind higher this week, but that’s not how it looked on the close of this morning. There is not much in the way of economic news and the earnings season is starting to wear down but the e-mini S&P futures market is still running in circles.
MrTopStep is Back!
- In Asia 6 of 11 markets quoted closed lower : Shanghai Comp. +1.56% , Hang Seng -1.12%, Nikkei +0.02%
- In Europe 12 out of 12 markets are trading lower : DAX -2.07%, FTSE -1.75%, MICEX -0.09 , GD.AT -0.38% at 7.00 CT
- Fair Value : S&P -4.57 , Nasdaq -4.03 , DOW -52.27
- Total Volume: 1.1mil ESM and 4.4k SPM traded
- Economic Schedule: Redbook, NFIB Small Business Optimism Index, JOLTS, John Williams speaks, 3-Yr Note Auction and the Treasury Budget .
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