Choppy Range Bound Trading Session. Stock Lever Influence Obvious

By: Matthew Graham •
  • 4.5's Go Out +0-06 at 101-07
  • MBS Current Coupon: -3.3bps at 4.303%. (we re-wieghted our blend today)
  • 10yr TSY 3.70 bps lower at 3.534%
  • Long Bond Auction Went Well
  • MBS spreads tighter on day but go out at wides. Volume Below Average
  • S&P closes down 1.21% at 1157.44. Consumer Stocks lead index lower. 
  • As the prophecy foretold, it really is all about Friday...

As AQ mentioned this morning, the sense of stocks recovering from their worst case EU discount and waiting for confirmation of current levels is abundantly clear in the charts.  Factoring out the major dip on the worst of the Greece drama, and the correction back upward after the EU bailout was announced, stocks are range trading right into tomorrow's retail sales data.


The late weakness did indeed give a lift to the bond market as the lower portion of the following chart shows.  In fact, the lower portion of the chart shows a couple things.  Stocks were down, then up, then down, then sideways leading into the auction.  But during this time there was an obvious bias up in yield for treasuries.  Classic auction concession being built in. 10yrs were setting up to form a triangle pattern right into 3.60 support when they got a pleasant surprise of a stock sell off letting 10yrs know they could reposition themselves prior to tomorrow's data at the next stop on the range-trade express at 3.54. 

Sorry to break it to you on a Thursday afternoon, but nothing so far this week has mattered much.  I'd caught whiff of the notion that this week was all about Friday early enough to sneak it into my writing once or twice, but I didn't really buy that wholeheartedly.  For my part, I wanted yesterday's 10yr auction to PROVE to me that it was not going to move markets.  And it did not.

But with another auction--today's 30yr looming--and with so many instances of past precedent suggesting that the hours after a thursday auction can release a lot of stored energy, I still entertained the possibility that today could be a mover, but at that point was already leaning toward Friday.  So when today's auction did effectively nothing for volume or directionality, the importance of Retail Sales et. al. was confirmed.  Want a factual anecdote to back that up?  How about consumer discretionary stocks being down an eye-watering 5.74% today!  (you know how bonds weaken a bit to provide a bit of a concession ahead of big bond-specific data like auctions?  Well, a brobdingnagian sell-off in discretionaries would be the stock market's version of a concession into Retail Sales numbers).

Yeah, so a magazine I read threw "brobdingnagian" at me last week, and shamed though I am to admit to looking a word up, I had to...  So now my pain is your pain.  Sorry.  (but if you like, just think "of epic proportion.") 

Why all the fuss over one word?  Well, let's just say with all the low volume, sideways crap this week, it's a word that may get some more use tomorrow if retail sales are far from expectations, and DOUBLE especially if the other moderately respectable data concurs with that direction.  Could go either way!  Get your popcorn!