Classical Monday

 30 minute atr
 daily pivots
 weekly pivots
 upside retracements
 downside retracements
 regression channels
price support and resistance levels
On the economic calendar:-
09:45 PMI Services Flash (Consensus 60.0 v Prior 61.2)
10:00 Pending Home Sales Index (Consensus 0.3% v Prior 6.1%)
10:30 Dallas Fed Manufacturing Survey (Consensus 12.0 v Prior 11.4)
11:00 4 Week Bill Announcement
11:30 3 Month Bill Auction
          6 Month Bill Auction
13:00 2 Year Note Auction
POMO:-
10:15 – 11:00 Outright Treasury Coupon Purchases between $1.00 – $1.25 billion

Why do it at all?

We received some interesting feedback on our FOMC choices. Sources tell us the “higher ups” on the Committee are skeptical of actions less than 25bps. The panel doesn’t believe smaller moves can/will make proper condition changes in the economy.

This begs the question : Then why raise rates at all? We were laying out a possible path to normalization. If the concern of the FOMC is slowing credit and thus economic  activity, then raising rates is a moot point. We believe our method would increase confidence and facilitate credit by signaling the end of ZIRP on a “principles” basis. The source information also means the first move will be even more attenuated.

the classical week in review

 30 minute atr
bit of a choppy week, with no follow through
 daily pivots
these were tagged multiple times
 weekly pivots
provided major support
 Mr Fib in town
 upside retracments
there is no fib resistance level at the moment
 downside retracements
bounced strongly off the 50% level
regression channels
looks like the upward sloping channel will be redrawn
price support and resistance levels
there is no price resistance above the current level on the September contract

Will It Float?

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David Lettermen has a running bit where he drops various objects into a pool of water and asks “Will it float?” After yesterday’s chat with Michael Sedacca and Vince Foster for Minyanville, I decided to run an experimental matrix of what FOMC movements may attempt next year. Spoiler Alert: It doesn’t look like it floats.

The problem comes from the flood of international cash and low demand for dollar borrowings in the unsecuritized/uncollateralized interbank market. Despite myriad regulatory changes the “old rule” (more like a guideline) that 3 month LIBOR is/should be 14bps over FF continues to calibrate in times of stability. However, as rates are moved upward – in my example with 2 small moves before a 25bp move – Interbank will price in multiple moves (denoted by ++ on chart)…PROVIDED DEMAND INCREASES as we move off ZIRP (a theory we have but could be wrong)

Also, it is reasonable to suspect that Fed attempts to create a soft floor would not be any better with a hard FF target (as before) rather than a range that I suggest here. The range essentially gives cover for the probable consistent downward pressure on FF from “other” sources.
Two possible unwanted outcomes are steady pressure that suppresses interbank rates lower and longer than desired OR a significant jump up in money rate term structures more accurately reflecting the new regulatory environment and the hash reality of the end of “free money.”
GC could continue to trade as if in shortage -like now – in either scenario and there is little support for the notion that heavy Death Star participation will change this.
No CB has successfully exited itself from QE. We are going to give it a go…cue Paul and the band for a drum role….Will it float???

Classical Thursday

 

 30 minute atr
 daily pivots
 weekly pivots
 upside retracements
 downside retracements
 regression channels
price support and resistance
On the economic calendar:-
08:30 Jobless Claims (Consensus 310 K v Prior 302 K)
09:45 PMI Manufacturing Index Flash (Consensus 57.6 v Prior 57.6)
          Bloomberg Consumer Comfort Index
10:00 New Home Sales (Consensus 475 K v Prior 504 K)
10:30 EIA Natural Gas Report
11:00 Kansas City Fed Manufacturing Index (Consensus 6 v Prior 6)
          3 Month Bill Announcement
          6 Month Bill Announcement
          2 Year FRN Announcement
          2 Year Note Announcement
          5 Year Note Announcement
          7 Year Note Announcement
13:00 10 Year TIPS Auction
16:30 Fed Balance Sheet
           Money Supply
POMO:-
None