Following futures positions of non-commercials are as of October 23, 2018.
10-year note: Currently net short 544k, down 71.9k.
The 10-year Treasury rate (3.08 percent) shed 12 basis points this week – now down 17 basis points from the intraday high of 3.25 percent reached on October 5, which was the highest since May 2011. These notes have had quite a drop, with yields as low as 2.03 percent in September last year and 2.81 percent on August 22 this year.
Both weekly and monthly charts are in overbought territory. Rather menacingly for bond bears, with three sessions to go, October so far has produced a gravestone doji on the 10-year rate. This is a potential bearish reversal candle. Non-commercials, who have cut back quite a bit in the past month but remain massively net short these notes, are not betting on this outcome. They would profit if yields rallied higher. A scenario in which interest rates head lower exposes them to a risk of short squeeze down the line.
30-year bond: Currently net short 87.8k, down 16.1k.
Major economic releases next week are as follows.
Personal income and spending for September is scheduled for Monday. In the 12 months to August, core PCE (personal consumption expenditures) – the Fed’s favorite measure of consumer inflation – rose 1.96 percent. July’s 2.03-percent increase was the first two-plus reading since April 2012.
August’s S&P Case-Shiller home price index is on tap for Tuesday. Nationally in July, home prices increased six percent year-over-year. Prices are rising much faster than inflation. That said, growth is decelerating from March’s 6.5 percent.
The employment cost index for 3Q18 is due out Wednesday. In the 12 months through June, compensation costs for private-industry workers rose 2.9 percent. This was the fastest growth rate in a decade.
Thursday brings labor productivity (3Q18) and the ISM manufacturing index (October).
Non-farm output per hour increased 1.3 percent y/y in 2Q18. Productivity remains suppressed.
Manufacturing activity in September fell 1.5 points month-over-month. August’s 61.3 was the highest since 61.4 in May 2004. It is hard to sustain this kind of pace.
On Friday, October’s employment report and revised durable goods data for September are on the docket.
The economy created 134,000 non-farm jobs in September, for a monthly average this year of 208,000. If the trend persists in the remaining three months, this would represent a first up year in four. In 2017, the monthly average was 182,000, versus 195,000 in 2016, 226,000 in 2015 and 250,000 in 2014.
