Today started with a modest 290k ESU and 1.6k SPU traded on Globex, trading range was 1678.50 – 1666.00. Tuesday’s regular trading hours (RTH’s), pit session trading range was 1666.50 – 1679.20 before settling at 1671.20, down 6.3 handles. BoE minutes a bit more hawkish than expected, disappointing some bulls, but global equities hold in front of Fed Chairman Bernanke's testimony. Bernanke's prepared text released premarket as the housing data checks in below expectations as both bonds and equities find a modest bid. Bernanke: Pace of Purchases Could Be Reduced More Quickly if Conditions Improve Faster. HOUSING STARTS IN U.S. FELL 9.9% IN JUNE TO 836,000 RATE, exp +5.0% - most of the weakness was in multi-family units (down 87K). Carley_Garner shared: Retail traders must be comfortable on the sidelines. Things are very slow in this space. Not much trading going on at most retail brokerages we communicate with. Long summer?
Today’s pit hours gapped 6 handles higher to open at 1677.50 – 1677.00 marking the initial high before fading to 1673.70 and bouncing back to new intraday high of 1680.00 during Bernanke’s replay of his prepared text. The [BKX] [XLF] firmed early and backed off before climbing back up the wall of worry. Jim_M (10:47) well someone’s flapping their jaw - the EU fell off cliff > anybody got news? Albie said, the best I've got for EU, it returned to it's place of comfort, 3100, actual HVN is 1.3087, a place that is very well defended by the europeans. [BAC] call volume was very heavy following earnings, shares up 24 cents to $14.16- 200,000 calls in first 90mins of the day, nearly a third of that in front term that expires Friday. Also, iceChat (09:00) that July call guy (an institutional account that has been maintaining large core positions and rolling their position up and out over the past several months) this week - has been rolling up. Sold july 1640c 20k and 1600c 9k buying august 1660c 13k and 1670c 7.5k - right now he is selling july 1620 2x to buy aug 1670 3x.
The equities were trading near their daily highs as Bernanke’s Q&A started at 9:35ish. By 9:50 the SPU was quietly trading a Bernanke Q&A low of 1674.50 area - holding the pit trading hours low of 1673.70 before bouncing to retest the opening range, then slowly fading back to print a new low by two ticks, 1673.50 at 10:51. A light volume rally pushed back up to the opening range and died in sideways trade midsession. Also, iceChat (10:46) call guy update - sold 18k july 1600c and bought 27k aug 1660c -- 6k x 9k to go.
Expectations summary after Bernanke testimony-most firms simply reiterated prior expectations:
Barclays- September taper of -$10b Tsys/-$5b MBS
BNP- December taper and September 2014 ending
Pierpont- September taper
BMO- September taper
RBC- September taper likely
The [BKX] continued to grind higher through the midday, printing a series of higher highs. However, the broader market was still punching the opening range as the Beige Book was released. U.S. Economy Grew at 'Modest to Moderate' Pace. Price Pressures Remain Stable. Hiring 'Measured', some Reluctance About Full-Time Workers. Housing Market Grew At 'Moderate To Strong' Pace Nationwide. Consumer Spending Increased In Most Districts. All 12 Regions Report Improved Economic Activity. The data looks good in black and white, but somehow it just does not seem to be that way on Main Street. By 1:45 the SPU was retesting the lows and did print a new low of 1673.00 heading into the closing imbalance. The SPU clawed its way back to 1674.50 area before the closing imbalance showed a modest $773mil to the buy side. On the cash close 1675.50 area traded before settling at 1676.60, up 4.4 handles on the day. That call guy update...bought 53k aug 1670 to sell 17k july 1620 and 17k july 1640c.
THE US MARKETS HAVE BEEN FOCUSED ON BERNANKE. ONE OF THE STRATEGISTS AT A PRIMARY DEALER MADE A POINT THAT STEIN AND BERNANKE HAVE A GAME PLAN TO TRY TO KEEP THE BOND MARKETS FROM LEVERAGING UP BAD ASSETS..OTHERWISE, THEIR GAME PLAN IS LETTING AIR OUT OF THESE MARKETS, WHICH IS WHY THE BERNANKE'S TESTIMONY HAS BEEN VERY CONFUSING... HE GOES ON TO SAY THAT THE STREET IS WAY TOO BEARISH ON RATES AND THAT WILL CHANGE THIS WEEK... GOOD LUCK... THE TREASURY DEPARTMENT ASKED PRIMARY DEALERS AT THE LATEST MEETING WHY TIPS HAVE BEEN SO VOLATILE. THEY ARE THINKING THAT THEY MIGHT REDUCE TIPS ISSUANCE DRAMATICALLY AS THEY MAY HAVE SATURATED THE DEMAND...
Brian Shepard is a 20-year exchange member of the CME Group.
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