Why Not? from anonymous

August 23, 2015 |

In such a technologically influenced trading environment, one is used to instant co- and counter movements in markets.

Without thinking too deeply about it and with respect to Arnold Zellner's 'keep it simple' mantra, one is compelled to ask the following:

Why the heck didn't TYU5 and USU5 trade way higher on Friday given the SP500 move?

anonymous writes:

During a run on Thursday night east coast time I thought about the market and the potential opportunities and pitfalls that may lie ahead in the next 24 hours. Basing my thesis on several factors, the most direct I will elaborate on below, the others too long to espouse upon at the moment. My conclusions consisted of some of the following all of which I acted upon reaching a telephone after reaching my phone:

1. the front end of the curve in the US, namely EDH8 or the like, should rally and have minimal short term downside risk as a continuation lower in equities, the general drift higher in the front end over the past several years, lower commodity prices, stronger dollar, sub-par US growth, etc. supported the view…this is in my view is a slightly cleaner trading on expectations of Fed to less than market expectations based on recent data and markets than the back end, particularly given the flattening in place since around July 13 led by the back end, looking at a simple regression I don't see a meaningful difference between the US 2yr or US 10yr to SPX either

2. the U.S dollar would probably weaken and be led by the JPY given market positions, albeit correlations are not that great to the Nikkei or US 2 year rates, but one thing to consider is newly dirty float of CNY which is somewhat based on "market rates" so I expect that to stabilize or strengthen possibly next week allowing some downward pressure off of Asian FX, including the JPY, I also sold the British Pound on the thesis that there is too much tightening priced into the front end of the curve and the market is long GBP on expectations of the BOE and FED leading the tightening charge, let alone the somewhat mixed UK data of late and the "economic surprise indices" I watch are on the high end of expectations of the past few months

Having said this I made the large mistake of not hedging properly my Euro puts versus the US dollar over the past few weeks and that is a greater lesson of many mistakes to be improved upon.


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