US Treasuries Selling Off And More To Come
Submitted by Nic Lenoir at ICAP
We have very convincing arguments for further selling off in US
Fixed Income. On the daily chart we see that ever since June the market
had been stuck in a triangle consolidation. Well at last we have broken
and the downside target now is 113-25 at the minimum. In terms of
standard Elliott wave extension we are in a wave 5 that has a 110-25
target, however 113-25 is the neckline of a H&S and we would not
favor a break just yet, though it is a potential risk. Still this
represents a 50bps move almost from here to 113-25.
The
sub-structure on the 180-minute chart shows we have 2 perfect 50% and
61.8% retracements on the way down which would indicate we are now in
the sub-wave 3 of wave 3 so the market should show rapid pace on the
way down. (See chart for sub-wave structure). The intermediate support
is 115 now.
We have a lot of supply
next week in a relatively low year-end volume to support our technical
analysis from a fundamental standpoint, and China and the US have been
clashing over climate talks the past week. Now we have statements by
Chinese officials saying that if the US does not blow its trade deficit
back out to its widest levels they will stop buying treasuries. In an
environment where people are trying to correct imbalances, China
demands more imbalances, and intends growing at a 10% pace without
developping demand from its middle class. Irrespectively of whether
China will follow suit or not, these open discussions in the media are
enough to add fuel to the firesale. We will come back at a diferent
time on China's economic policy as the country has proven to be nothing
but a foe economically speaking. For now we focus on our expectations
of lower US Treasury prices, and in turn it should boost USDJPY which
correlates very positively to the changes in 10Y note / 10Y JGB yield
spread. I should also continue to bring a bid behind the USD, and
commodities will suffer from it. Equities remain impervious to any form
of external pressure as the market remains deadlocked in the oh so
boring 1,085/1,112 range. Note however that a future close above
1,108.60 would be the highest this year.
Good luck trading,
Nic
(3 votes)
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on Mon, 12/21/2009 - 17:13
#171180
Toss in world wide food shortages and 2010 could turn out to be a very interesting year. Everyone looks to the Chinese to increase consumer demand on their end but they don't have many social safety nets (unemployment, Social Security etc) so have to actually save money to look after themselves (what a shock). Saving rates are above 30% so that doesn't leave a ton of room for what we'd consider to be consumer goods. Interesting how governments everywhere are trying to solve a debt problem with ever more debt.
on Mon, 12/21/2009 - 17:18
#171185
All your imbalances are belong to us.
on Mon, 12/21/2009 - 18:06
#171221
Tis the season to be jarry!
Fa Ra Ra Rah...
on Mon, 12/21/2009 - 17:28
#171198
0% yield on short term treasuries now, so why not have minimal return on furture sales. Let's buy more time of course. Debt counted on and towards the GDP is a plus too. They should have raised the federal deficit limit to 24.1 trillion instead, just double it. I am amazed at the purchases at auctions now. Who knows what future auctios will transpire.
on Mon, 12/21/2009 - 17:29
#171199
No problemo. All the money that flees bonds will migrate to the safe haven of the Equities...
on Mon, 12/21/2009 - 17:31
#171200
And I thought I was helping the US when I decided to not buy any more Chinese products, whenever possible.
on Mon, 12/21/2009 - 21:37
#171329
Welcome to Bizarro-land! Where the dollar rallies and treasuries sell off, and the equity market strengthens on both dollar weakness AND strength. If excess liquity can't gun the market, maybe ol' fashioned inflation is the prescription for 'growth'?
Another strange but true factoid: the US had a current account surplus in 1991 (year might be incorrect but it was during the early 90s recession). Although I don't expect a surplus, I do think the deficit will decrease whether the Chinese like it or not. People are saving and trying to deleverage. People don't want any more gizmos (unless of course they actually start exporting Gizmos (ie Gremlins). If you recall, it was a Chinese guy in the opium den that sold it in Gremlins!)
on Mon, 12/21/2009 - 18:01
#171219
great note, Nic. thanks for sharing it with us.
n hats off for accurately detailing the Euro, Swissie & Aussie tops. nice work, sir.
on Mon, 12/21/2009 - 20:34
#171297
Hello, World War III, within five years.
on Mon, 12/21/2009 - 20:38
#171299
Isn't "Chinese Middle Class" an oxymoron?
on Tue, 12/22/2009 - 00:00
#171401
So is " American middle class high interest rates"
on Mon, 12/21/2009 - 20:43
#171303
The TBT break out was a tell. I wish I had bought more after the open but got seized up as everything moved up so rapidly. The best I could come up with was bgz when the Dow was at +127. It was not a good day to be short. Volume, was pathetic.
Tomorrows plan may include more TBT..
Thnxfor your post ....
on Mon, 12/21/2009 - 21:02
#171313
Supply is bullish. Is this your first day ever in the bond market? Dumb, dumb, dumb.
on Mon, 12/21/2009 - 22:05
#171348
I find it hard to believe the Chinese would say this publicly ... at least in those terms.
So, there goes our 401k which the government will now confiscate and use to buy treasuries to fund their deficits and pay us 4% return with a guaranteed retirement income.
on Mon, 12/21/2009 - 23:34
#171392
But Tyler, don't you get it. WSJ: Bonds Signaling Stronger Recovery
It has nothing to do with deficits, money printing or laundering. So we spend a little more than we take in.
No big deal. It is growth, just plain and simple. That's why AMZN ramps and is on its way to 160 and beyond.
There are no words to describe this crap.
on Mon, 12/21/2009 - 23:36
#171394
I'm getting tired of the US vs China bickering. It's street theater and should be regarded, at best, as just a distraction. It's so obvious by now that US corporations fuel China's expansion by exporting jobs, destroying western manufacturing and importing junk. China returns the favor through deflation importation (labour arbitrage) and higher profit margins for the US corporations. COP15 will only cement this relationship further. With people like George Soros and Maurice Strong at the global helm, don't expect much of a recovery for the US.
Long $USD, short everything else.
on Tue, 12/22/2009 - 10:45
#171613
Where is china supposed to find dollars to buy more dollars and treasuries? Once the foreign CBs offload their MBS paper to the fed for the lessor of two evils US Treasuries there won't be any market for treasuries left.
China is only using the US for its technological assets and expertise. Until it revalues the rmb don't expect any chinese consumption.
on Tue, 12/22/2009 - 14:35
#171910
China keep the RMB-USD peg by buying US treasuries. Once this stops, China will fall into deflation (global trade slows rapidly) followed by high inflationary (not hyper since the authority will not allow their people to lose confidence in the Yuan). It's hard enough that the majority of Chinese cannot afford their own products now.
Chinese, like the Japanese, are savers. They have to in order to plan for their retirement. China however, unlike the Japanese, owe their entire success to the US government, unemployed US citizens and most notably, US corporations. Japan's now defunked economic boom came from within with Japanese companies like Hitachi, Toshiba, Toyota etc.
Point is, the US can return to prosperity with a simple strike of a pen but it wont because the US is not governed by people for the people. This is a global economy right? This is treason at the highest level but they call it capitalism and democracy not unlike the way Mouseland is governed.
http://www.youtube.com/watch?v=GEYwVb-6TeE
on Tue, 12/22/2009 - 04:04
#171448
U.S. TREASURY 10 YEAR :
Daily trend - neutral to bearish now ...
Weekly trend - neutral
Monthly trend - neutral
The dollar rally I forecast some months ago continues to trend up but is still overbought after it's big run.
Is the dollar assuming higher interest rates ?
http://www.zerohedge.com/forum/market-outlook-0
on Tue, 12/22/2009 - 04:37
#171452
I have come come to think of the US/China relationship as that of two parasites feeding off of each other.
China sucks the blood (cash) of the US and the US eats the shit (goods) that China produces.
I have also been looking at the trade data and have found something that I as a European consider to be very interesting: China and the US are almost exclusive trading partners.
This makes me wonder just exactly what real world effect a collpase of both countries would really have in general. A collapse of China would take out the US and Japan, the collapse of the US would take out China and Japan, but unless there was panic in the European markets (probably would be, floor traders are mindless herd animals on the best of days) there would be minimal impact on the rest of the world in comparison. I qualify that with the "in comparison" because it would of course screw everything up for a bit, the collapse of any countries as large as these two is bound to cause chaos, but relatively speaking it will be the US, China and Japan that come out worse for the wear.
http://www.uschina.org/statistics/tradetable.html
http://dataweb.usitc.gov/scripts/cy_m3_run.asp
on Tue, 12/22/2009 - 10:55
#171633
PR China has always been a dictatorship loyal to mao, it is only using the capitalists (china is now 'market socialist') to obtain tech transfers and technical skills from the capitalists.
on Tue, 12/22/2009 - 13:13
#171809
who would've guessed they'd sell us the rope with which to hang ourselves?