ZeroHedge reports, “S&P futures are higher, maintaining overnight gains as most Asian markets advance with the MSCI Asia Pacific index 0.5% higher, as sentiment was boosted by President Trump unexpected reversal on China telecom giant ZTE over the weekend when in a Sunday morning tweet, Trump vowed to get the Chinese telco back to business in a surprising policy U-turn after the company announced a halt to major operating activities following a US 7-year supply ban order.

Europe was broadly, if modestly, in the red as a result of the EUR rising to session highs just shy of 1.20, the highest in over a week, after the ECB's Villeroy said the first rate hike could come quarters, not years after the end of asset purchases, while political strains in Italy outweighed optimism over waning global trade tensions. Thanks to the weaker dollar, emerging-market stocks built on their first weekly advance in four weeks.”

VIX futures are higher, but not above the mid-Cycle resistance at 13.87. Above that level may be considered an aggressive buy signal.

TNX is elevated, but no breakout here. A collapse in yields is likely….

ZeroHedge observed, “A roller-coaster week for rates and the dollar did not stop large speculators adding to their already record-high short positions across the entire term structure.

USD Shorts have started to cover aggressively...

Driven mostly by additions to EUR shorts...

BUT, record bond shorts keep getting record-er...

From the shortest-end (ED futures) to the belly (5Y at record shorts...)...

And the longest-duration 'ultras' also at record shorts...

Interestingly, as the Treasury curve has collapsed, it is clear from the chart below that large speculators are betting on curve steepening (reducing their shorts in 2Y TSY and adding to shorts in 10Y TSY) - so far it is failing miserably as the curve crashes to new cycle lows...

Putting this all together, large speculators have never been more short across the entire interest-rate curve - over $4 trillion notional bets in Eurodollars (short-term rates going higher) and around $117 billion notional equivalent short across the Treasury futures curve...

USD futures have made a new low this morning at 92.14 with a probable target near the mid-Cycle support at 91.72.

I’m a little under the weather, but will be in touch as the market develops.

Regards,

Tony

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