Trader Training blog for Pyne Trading

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[pynetrading-blog]

Day 50 - Rate expectations and weekend rumbles...?

A fairly quiet one in the markets today, with the real event of note being the rolling of equity futures contracts to June (or M4 contracts in trading terminology).  Days like today, with the expiry of index futures, index options, single stock futures and single stock options, are known in the industry as 'quadruple witching' and can be very volatile - today, however, was an uneventful example.

Interesting to note the relative interest rate expectations now built into the Euribor and Eurodollar curves - so representing interest rate expectations for the Eurozone and the US respectively:

All eyes are still on the situation in Crimea, the actions being taken by the U.S. and Europe, and what Putin's next move will be.  Could there be incursions into Eastern Ukraine over the weekend, which in turn would trigger the '3rd step' of EZ sanctions against Russia - these would be economic in nature, damaging to Europe also, but far more punitive than the current sanctions which are against individuals.  We'll find out soon...

On a brighter note, we'll be taking a blog holiday to focus on our current trainees and their experience with live markets.  We are currently looking to run a further training programme in June of this year.  If you would like more information about Pyne Trading or our training then please do get in touch with us at [email protected], or visit our website at http://www.pynetrading.com/

You can read a day by day account of our previous training programme here: http://storify.com/PyneTrading/training-programme-1

In the meantime, all the best and happy trading!

[pynetrading-blog]

Day 49 - post FOMC Federal Funds futures curve repricing

The Fed tapered by $10bn yesterday - in line with expectations.  There was, however, an increase in the FOMC's consensus forecast for the federal funds rate (main reference rate, at which banks lend to each other, usually overnight) to 1.00% from 0.75% by the end of 2015.  In addition to this, Yellen suggested that the term "considerable time" (in reference to the Fed's rate hike timing after the complete withdrawal of QE3 stimulus) was about 6 months in her estimation.

The markets, which had (at this current rate of withdrawal) pegged taperng to conclude in October 2014, simply added 6 months to this, to put a rate hike at around April 2015.  (Much sooner than the previous market consensus of 0.25% hike to 0.50% by November 2015.)

The diagram below shows the post-meeting steepening of the yield curve in reaction:

The implied pricing of future hikes (from the current curve shape) can be seen below:

[pynetrading-blog]

Day 48 - Yellen's first FOMC meeting as Fed chair

Whilst the situation in the Crimea continues,

we say goodbye to Ben and hello to Janet as head of the Federal Reserve:

The Fed and Yellen have continued apace with another $10bn reduction of their monthly asset purchases.  The progression and expected finish are illustrated in the following graph.  Most assume there will be a constant progression of $10bn per meeting as the Fed strives to regain some of the credibility it may have lost with the initial flip flop on commencement of tapering.

[pynetrading-blog]

Day 47 - FTSE fat finger and Putin

The big event of the day was Putin's televised address to Russian lawmakers regarding events in the Crimea.  His comments seemed initially placatory, and indeed risk-on trade resumed, with strength coming into equity markets and bond hedges being disposed of.  His address made use of friendly rhetoric and mostly non-confrontational language, whilst striking a nationalistic tone, alluding to Western misdemeanours and implying that the Russian loss of Crimea was a mistake that had needed rectifying since 1954. In short, no backing down, and his actual (if translated) words, were that Crimea is an "inalienable" part of Russia.

Still, sanctions would seem to be coming into effect (with potential staged increases), rather than any sort of military conflict, and this seemed to be well interpreted by the markets.  Ukraine, however, was quick to state they do not recognise Crimea's secession and, in the first public remarks by a U.S. official after Putin's announcement, Vice President Joe Biden called Russia's move into Crimea "a land grab" that will be met with global opposition and result in Russia's isolation.

Equities continued their moves up into the afternoon, until at 15:10 there seemed to be a fat finger trade in FTSE futures, with the market spiking up around 80 ticks to hit 6700:

As can be seen from the ladder below, volumes traded on the highs were minimal, with many prices not trading, and indeed volume was relatively light from 6630 upwards - according to the exchange all trades 'stand'.

Coming into the stock market close we're getting reports of gunfire in Ukraine though.  This situation would seem to be far from over...

[pynetrading-blog]

Day 46 - Crimea votes to join Russia.

The main story for the markets this morning was the referendum held in Crimea on Sunday.  96.8% of voters in the Black Sea peninsula backed seceding from Ukraine and joining Russia.  The United States and the EU have called the vote illegal, condemning the Russian occupation and proceeding with sanctions (which will initially target individuals).

Putin's approval rating is high amongst the domestic Russian population, with 2 surveys both giving him an approval rating of 72%.  Russian pride would seem to be a factor in these unfolding events, and many educated Russians are reportedly aghast at Putin's policy over Ukraine.

Equity markets both here and in the US were up on the day, with the FTSE100 closing at +0.62%.  The Russian Micex equity index also recovered by 3.27% to close up at 1,277.94.  See graph of Micex below:

[pynetrading-blog]

Day 45 - Ukraine tensions continue...

Big equity sell-offs yesterday on the back of continued Ukraine tensions and further economic uncertainty in China.

Chinese Industrial Production data missed, at 8.6% y/y vs an expected 9.5%.  The worst start to the year since 2009.

Chinese Retail Sales missed at 11.8% vs an expected 13.5%.  The worst Jan/Feb print since 2004.

Investment in fixed assets missed, at 17.9% vs 19.4% expected - the lowest since 2001.

We’re going in to the weekend on the back of a London meeting between US secretary of state, John Kerry, and Russian foreign minister, Sergei Lavrov.  The talks broke up without resolving the standoff, and the referendum to determine the future of the Crimea is due on Sunday.  The referendum seems almost certain to result in a vote for Crimean union with Russia, and will therefore trigger the imposition of sanctions against Russia on Monday…

[pynetrading-blog]

Day 44 - off for training

Day 44 saw us off-site for some more training in the charting and data platforms we use.  Always good to learn more about the tools of the trade and how to put them to even more effective use.

[pynetrading-blog]

Day 43 - China defaults looming? Manhattan building collapse.

Early starts with the overnight research as per usual - equities were off overnight, with the Nikkei closing down -2.5%, the Hang Seng -1.4% and the Shanghai Composite -0.3%.  A continuation of the pressure felt in the US session yesterday, and clearly reflected in the Dow and S&P closing down -0.4% and -0.5% respectively.

The USD slid below ¥103 (¥102.885 pre-open) and this yen strength helped weigh on the Nikkei (a stronger yen is negative for Japanese exports).  The 2 major causes of concern for global markets were centred around China and Ukraine though:

The US states that Russia's intervention and troop presence in the Crimea is illegal, whilst Russia declares that the financial aid Ukraine is petitioning the States for would be illegal.  The international standoff continues, with sanctions against Russia being prepared - it would seem that business people in Moscow are becoming increasingly concerned on this score, and indeed Citi commented today on the chaos in the OFZ market (Russian government bonds effectively), with numerous stops being hit.

A repricing of domestic (high yield/junk) debt in China continues, following on from the default by Chaori Solar last week (- they are apparently now selling plants and infrastructure to raise cash to pay debts).  The focus of this new concern is now on a company called Baoding Tianwei Baobian Electric Co. whose shares sank over 5% yesterday whilst its debt was suspended for a second day.  The tip of a default iceberg?  Sentiment is turning this way...

The slowing of growth in China is also of major concern, and some feel the country could go from helping lift the rest of the world out of a global recession, to dragging us back into one...  Copper was sharply  lower yesterday on the back of Chinese demand (along with iron ore), and additionally is seen as a barometer of global health.  Contributing to this, is that copper (in the form of bonded warehouse warrants) is often used as loan collateral, and the unwinding of trades and agreements where this is a factor are also weighing on the price of copper.

We had additional surprise news in the form of a reported explosion and building collapse in East Harlem, New York.  Bond markets spiked on this, but when the event looked to be genuine misfortune, rather than some form of attack, the markets subsided.  Reports suggested that the building was some form of technical college, and tragically there were people trapped inside at the time.

[pynetrading-blog]

Day 42 - market reversals and our shiny new office!

A busy day in the markets - innocent enough starts with an a.m. equity sell off, a mid morning turn which rallied to make new highs, and then a mid afternoon sell-off to undo most of the work.  News light and pretty much technically and flow led.  A frustrating day for some, a good day for others...

Meanwhile, we're all still enjoying settling into the shiny new office after all the prep work and anticipation...

Before:

After:  (trainees hard at work)

[pynetrading-blog]

Day 41 - NFP hangover and bund technicals.

A fairly quiet morning - not an unusual occurrence after Non-Farm Payrolls - and indeed Bund volume was only 524,000 contracts by 16:30 GMT.  A tight morning with a couple of false breaks, first down, then up, from the small 142.30/35 range that the German 10-year was drifting sideways in.  The sell off then continued and we formed a lovely channel which then broke dramatically to the up-side before reacting against the 50% Fibonacci level at 142.41 on the retrace.

Surprise news came over the squawk about the situation in Ukraine.  Russian troops were reported as having opened fire which caused a few small market jitters.  Soon shrugged off by equities though, which have proved remarkably sanguine about the whole thing.  The standoff continues...

[pynetrading-blog]

Day 40 - NFP reversal

A beat on the Non-Farm Payrolls numbers sent the bonds down this afternoon (175k vs an expected 149k, although the unemployment rate ticked up to 6.7% against an analyst consensus of 6.6%).  We had the expected sell off on a strong headline number, a retrace which then turned south to re-explore the lows, but was only able to make a new low by 1 tick - spot more sideways ranging, but then the break up through 93/94 signalled a possible reversal which did indeed see the majority of the down move erased:

[pynetrading-blog]

Day 39 - ECB and Ukraine

Markets today were waiting on the BoE and ECB rate announcements, the afternoon press conference with Mario Draghi, and of course further developments in the Ukraine.

The Bank of England kept rates on hold at 0.5% and QE unchanged at 375bn - all as expected, and indeed the monthly announcement could be seen as something of a non-event of late.  A key aspect of trading though, and something we drill into our trainees, is being well prepared, and so our guys were at their desks, fully prepped and with hands on mice.  Surprise announcements (from Central Banks and geopolitically) can provide trading opportunities, and also catch out the unwary (and/or ill-prepared) market participant - we ensure that our trainees are both aware and well-prepared.

An interesting press conference with Draghi today - although there was no concrete action taken from a monetary policy perspective (all rates unchanged, no end to SMP sterilisation, no further LTRO, and no mention of QE), he did talk about the situation in the Ukraine with regards to contagion; prospects for the Eurozone and the need to regain prosperity, rather than just stability; the strength of the Euro, its implications and ramifications; and the difference between Japan and the Eurozone with respect to deflation and the inherent uncertainty of medium-term inflation projections (in response to a truly excellent question from a Japanese reporter and BoJ watcher of 15 years).

We did of course have further news from the Ukraine - Crimea's parliament apparently voted unanimously "to enter into the Russian Federation with the rights of a subject of the Russian Federation".

The Deputy PM of the region later came out to say that the decree came into force at the moment of adoption, and that the Ukrainian forces in Crimea were now the occupiers, and the Russian troops legitimate!

Alongside our news wires, analyst squawk and television news, carefully selected twitter feeds can provide early warning of breaking events:

[pynetrading-blog]

Day 38 - indecision all round - pre-ECB, and ongoing Ukraine news

An interesting start to the day, and a few overnight developments to be taking into account: 

- BRC (British Retail Consortium) Shop Price Index figures were out overnight and showed a deflationary drop to -1.4% (YoY) vs an expected -1.1%, not perhaps a huge event on the surface of it, but this is the lowest print since the data series began in 2006.  (The official UK CPI rate fell to 1.9% in January, its first time below the BOE's 2% target since November 2009.) Deflationary tendencies emerging in the UK too??

- it looks like there may be an onshore bond default in China.  Shanghai Chaori Solar Energy Science and Technology looks unlikely to meet interest payments on bonds due this Friday, depositing only 4 million against the 89 million ($14.5 million) required for March 7 coupon payments.  The bond is junk/high yield, and the sums involved are (relatively) small - sentiment seems to be that a default of this nature could actually be a healthy step towards more open markets, and improved pricing of debt and bond products in the future.

- China's service sector PMI rose to 51, against a January reading of 50.7.  There seem to be some divergent trends at play with regards to the manufacturing and service sectors.  Watch this space...

- developments in Ukraine continued, accompanied by much speculation and guessing of motivations and likely courses of action.  A surprise announcement was squawked mid-morning about the Russian seizure of Ukrainian missile emplacements, causing some short-lived market volatility.  Later news came our regarding blockading of Ukrainian ships in Sevastopol Bay, and the possible capitulation of parts of the Ukrainian navy - soldiers without insignia can be seen here in close proximity to ships...

An interesting, and much anticipated, ECB rate announcement and press conference set for tomorrow afternoon, and surely there will be further events and speculation to monitor in the Ukraine...

[pynetrading-blog]

Day 37 - short on data, uncertainty over Ukraine still key.

There looked to be an element of risk-on from the open this morning, with European equity markets opening up from their Monday closes, and with bonds a little softer as the flight to safety bid dissipated.  Russia was reported to have withdrawn some troops overnight, but these forces had been on manoueuvres outside the border, and were not part of those currently occupying the Crimea.  Regardless, markets seemed to interpret the situation more positively, and moves in equities implied that the fear of imminent escalation was abating.  Putin held a relatively informal press conference later, and whilst his views were not necessarily in line with a Western interpretation, he did appear to hold out some olive branches.  I quote from a Guardian article by Julian Borger:

Vladimir Putin sought on Tuesday to squeeze out maximum political leverage from his Crimean adventure by pointing the way to an escape route from conflict, while stressing that Moscow's military power, so dramatically unleashed, remained a constant option if Russian interests were threatened.

As for what would constitute a threat, the Russian president made clear that definitions of such words would very much be at his discretion. He defined the military takeover of Crimea as a "humanitarian mission" to save all Ukrainians from mortal peril, although no such danger had been apparent to the great majority of Crimea residents at the time of the incursion.

As for the heavily armed, tightly co–ordinated groups who took over Crimea's airports and ports at the start of the incursion – they were merely spontaneous "self-defence groups" who may have acquired their Russian-looking uniforms from local shops.

  His comments certainly encouraged the continuation of the risk-(back)-on sentiment the markets had been displaying earlier in the session. 

Trading-wise we're having ongoing discussions with trainees, on a more individual basis, to hone their approaches and prepare them for the approach of live trading.  Trading account opening processes to gain live trading privileges are underway!  An example of a homework exercise which then acts as a discussion point:

[pynetrading-blog]

Day 36 - ISM and Ukraine

First day of the month, a Monday, Core PCE & ISM Manufacturing figures from the US, and developments in Ukraine, with Russian troops active in the Crimea!  Mondays can have some unusual activity, and we had all the above factors to consider, along with the added volume from the roll in futures contracts.  Added volume is a result of longer-term players exiting their position in the back (outgoing) contract, and then re-establishing their position in the front (incoming) contract - in this case, March futures contracts are expiring, and June futures are becoming the front contracts.

The long-term daily chart for gilts below clearly shows the spikes in volume that occur as the quarterly contracts expire and volume moves into the new contract:

Core PCE (the inflation measure preferred by the Federal Reserve) was low, and indicative of a potentially deflationary situation in the US (0.1% MoM), but in-line with market expectations and so passed without much of a market reaction.  ISM manufacturing figures were a small beat (headline ISM 53.2 vs exp 52.0, employment component 52.3 vs exp 52.0 and new orders 54.5 vs a previous 51.2) and had more market impact, but it seemed the major mover today was news regarding Ukraine, and Russia's presence in the Crimea.  Russian stocks were off over 10% today, and the Russian rouble has been trading at all-time lows against the US dollar despite an approximated $10 billion of supportive intervention in the FX markets and a dramatic interest rate hike to 7%, from 5.5%, by the Russian Central Bank.  All eyes will remain on the situation as it develops...

[pynetrading-blog]

Day 35 - Chicago PMI and Flash CPI for the Eurozone

The end of week 7 and the time has flown by - great to see the trainees settled into their trading routines and observe the level of market awareness they're displaying.  Then again there has been a deluge of information with all those classroom sessions (!) and now the learning by example on the trading floor.

This morning saw some serious activity in European bonds after EZ Flash CPI came in at 0.8 y/y (vs an expected 0.7%).  Hardly a danger reading, but the size of the reaction in fixed income was because the higher print could be the first nail in the EZ deflation coffin, and signal an end to further, and more extreme, easing in monetary policy by the ECB.  The move was particularly noticeable in the short end, although the Bund came off over 50 ticks in short order too.

A higher print in Chicago PMI for January (59.8 vs an expected 56.4), despite the cold weather stateside, caused further pressure in fixed income and we look to be down around 80 ticks coming into cash bond settlement at 16:15.  An interesting graph of Chicago PMI vs ISM Manufacturing (due on Monday) here:

Of course, there is a rundown of each figure along with graph of historic prints on our economic calendar page...

[pynetrading-blog]

Day 34 - Long-term lines and the single print behaviour!

Another lovely couple of tech examples today, and as the picture shows - there's never a shortage of screens providing technical information on the markets!

One of our stocks traders pointed out this lovely example of a long-term trendline in the Eurostoxx this morning, and it obligingly broke a few minutes later!  Breaks of these long-term lines can provide great trading opportunities, with fast market moves as stops are hit and the market capitulates.  Actually far more satisfying to trade than when the market respects the trendline and slooowly turns...!

Another beautiful technical example here using Market Profile - bunds traded down to 58s to fill yesterday's single prints (during the first half hour) and then proceeded to rally 75 ticks over the rest of the day!