Bad Inflation has little Effect on Short-term Bond Market

  • October 18, 1999
  • Manuel Ochoa








PREVIOUS POSITIONS
Market

Long/Short

Enter
 size=2 color=000000>Exit size=2 color=000000>P/L (per contract)
Dec. 99 T-bonds Long 113-10 113-17 $218.75
Dec. 99 S&Ps Long 1340 1350 $2500
Dec. 99 Swiss franc Long .6705 .6800 $1187.50






CURRENT POSITIONS (AS OF 10/18/99)
Market Date Long/Short Enter Stop size=2 color=000000>Target
Dec. 99 T-bonds 10/13/99 Long 111-25 110-20 112-16
Sep. 99 S&Ps – Flat – – –
Dec. 99 Swiss franc 10/15/99 Short .6900 .7000 .6810



Note: All price levels are approximate.

T-bond futures

There is a good probability that bad inflation news has been discounted by the bond market
The December futures [USZ9>USZ9] sold off today as the Dow stabilized after Friday’s sell-off. The Consumer Price Index (CPI) will be released tomorrow (Tuesday) morning; there is a good probability that bad inflation news has been discounted by the bond market for the short-term future. We are keeping our profit target and stops at the same levels (see “Current Positions” table, above)

Stock index futures

The market looks close to making a short-term bottom here, but technical patterns and government reports are clouding the picture
The December S&P [SPZ9>SPZ9] has continued to be extremely difficult to read. The market made new lows today, followed by a late round of buying (triggered by some bullish earnings reports that came out late in the day).

The market looks close to making a short-term bottom here, but the technical patterns and government reports (e.g., CPI tomorrow) are not blending together to create a low-risk entry point. And as we all know, this is the key to achieving superior risk-adjusted returns in the long run. Once again, we continue to wait on the sidelines.

Currency futures

The December Swiss franc [SFZ9>SFZ9] and Euro [ECZ9>ECZ9] declined moderately today as the U.S. stock market stabilized. Also, European Central Bankers suggested they might not be biased to raise rates any time soon. (The market has been expecting some type of increase in the future as global economic activity picks up.)

These two factors helped push this market lower today. With the CPI out tomorrow morning, we are going to take our profit tonight on the Globex session at the .6860 area, as we are not willing to sit through a report at this point.



Figure 1. December Swiss franc futures (SFZ9), 15-minute bar. Source: Quote.com.

Next update: Wednesday, October 20, 1999.

(Check “Today’s Schedule” every day on our home page to find out about additional updates.)