Category: Reddit Post

Pepperstone: Trader Insights – A buyers strike results in a bleed lower in equity

Authored by ChrisWeston US equity fails to see follow-through buying The Dow breaks 40k but fails to hold the big level Amid a raft of US data US 2yr yields rise 7bp, curbing USD downside A picture in commodity markets – gold sits -0.4% NKY225 and ASX200 set for a weaker open, with the HK50 the outlier with 20k the target The post-US CPI rally in risk failed to find follow-through, and the relief that was initially expressed has been partly pared back. European equity indices fell around 0.6%, with markets opening on their highs and after a slow bleed all session, saw price close on their respective lows. The S&P500 cash printed a new high of 5325 early in the cash session and like Europe saw somewhat of a buyer’s strike, with the sellers winning out all through the day, with the index closing below 5300. 54% of S&P500 stocks closed higher, with all sectors, bar consumer staples, closing in the red, where we see consumer discretionary as the weak link – led lower by Amazon which looks to test the $180 level in the near term. https://preview.redd.it/ii6fu1ebkx0d1.png?width=513&format=png&auto=webp&s=7d980cb40e785643f862a063305a3517aaf38da1 The Dow did breach the 40k level to modest fanfare, but couldn’t hold the figure, closing -0.1% at 39,869. Disappointing price action for those who bought into the move after US CPI and saw the risk for a continued push and hold above the big figure. US data came in thick and fast, but was mostly tier 2 in nature, with housing starts, building permits, and industrial production out, amid a handful of Fed speakers which offered little to worry traders. There was a focus on US weekly jobless claims which fell to 222k (from 231k last week), with some saying this was impacted by school spring break. Either way, we’ve seen bond traders reengage with short positions, where, notably, we’ve seen the 2-year Treasury push 7bp higher to 4.79%, and a degree of rate cuts being priced out by December. The impact of higher rates and bond yields has curbed the move lower in the USD, and the DXY sits up 0.2%, although the percentage changes in G10 FX have been subdued. EURUSD did try and kick after the run into 1.0886 post-US CPI, but despite pushing to 1.0895 in Asia trade yesterday, has followed US equity lower with price now at 1.0868. AUDUSD has been well traded, with good two-way flows post-Aussie employment, and we see clear indecision in the price action. AUD bulls have not given up despite the rates market removing its skew towards hikes later this year, and we now see cuts expressed for the November and December meetings. AUDCHF longs continue to work, and the bull trend remains intact – I like this further higher, as I do AUDJPY, which has seen solid demand into 103 and could push through 104 in the near term. USDJPY also saw big demand in the move into 154, and should we see price break above 155.54 today, I would be jumping on for 156+. In commodity markets, gold has struggled to push into $2400 and has been impacted by the moves in US yields and USD flows – price sits at $2376, so we’ve seen no real liquidation of longs, but the bulls have simply failed to see a new catalyst. Crude sits +0.8%, and copper -1%. Asia equity looks set for a soggy start, with the NKY225 eyed to open -1%, and the ASX200 -0.5%, so those positioned in the AUS200 index for the all-time high of 7910 (set on 2 April) to be tested, may have to wait until next week. The focus will be on whether the buyer’s step and support opening weakness, or whether we see a similar move as EU/US equities, where the buyers stay clear and the market grinds lower through the day. https://preview.redd.it/78vxeldgkx0d1.png?width=602&format=png&auto=webp&s=6fc976f1f4ded7edf85e3efbe8dee6d828b3819e The HK50 is the outlier here, and futures suggest the HK cash market opens 1.1% higher – after signs were growing of a retracement after the strong rally that started on 19 April, with talk of international money managers witching back towards US equity, it’s clear that isn’t the case and the HK50 looks strong as any play and is the momentum powerhouse – 20k is the near-term target, with Alibaba and Tencent on a tear and the banks and developers also supporting. https://preview.redd.it/dlx9l43jkx0d1.png?width=602&format=png&auto=webp&s=998370e0e34f0617fb2fa8549cdcde1386b7f7ce China data will be closely watched and could impact the tape in the HK50 and mainland CSI300 markets – the monthly data deluge of new and used home prices, industrial production, retail sale and fixed asset investment is in focus – as is property investment data. Elsewhere the event risk is on the light side, with EU CPI (due 19:00 AEST) although this is a revision, and economists aren’t expecting a change from the current run rate of 2.4% on headline and 2.7% on core CPI. The US leading index shouldn’t move markets. Best UK retail CFD Broker – Pepperstone. Use this link with the built-in REDDIT promo code. Switch to Pepperstone – it may be the best trade you’ll ever make submitted by /u/XGramatik [link] [comments]

Mortgage and CDOs _ part 3 final | Trading Academy

Part 1 Part 2 This was not enough for American investment banks. It seemed simple: they didn’t gather clients but bought everything in bulk (on loans at 1% interest), the money from the monthly mortgage payments was flowing, everything was fine. But they came up with a new, even better earnings scheme. They decided: let’s resell these mortgage pools to Norwegian pensioners! To make them interested, let’s create a new structure: Collateralized Debt Obligations, CDOs. Secured debt obligations. Let’s issue bonds, secure them with our mortgage pool. Let’s divide the mortgages into more and less risky ones and create a pyramid out of them so that each Norwegian pension fund can acquire both profitable risky assets, as well as solid monthly payments. An investment bank creates a basket, for example, of a thousand mortgages, of which 500 are prime (white-collar workers and managers), let’s label them class “A”, 300 are subprime, class “B” (working people without higher education, service personnel), and the remaining 200 are high-risk, class “C”, meaning unemployed and financially struggling families who were given mortgages hoping they’d somehow manage to pay them off. And if they can’t — you can always kick them out into the cold and sell the house. Norwegian pensioners who bought “A” class securities receive their income first, but their interest rate is the lowest (for example, 5% per annum). Those who bought “B” class securities are entitled to 8% per annum, but they receive their income only after the thousand mortgages have accumulated five percent payments to holders of class “A”. There are also risk-loving grannies: they want to earn 15% per annum and buy “C” class securities — the ones with the highest risk. Some investment banks went even further (as if that was possible). They bought “C” class securities and divided them again: presenting you with bonds of “parking attendant”, “waitress”, and “limping old lady”! Then they packed it into a new pyramid, for the most reckless grannies from Oslo, promising them not 15%, but all 25% per annum, which is unheard of in Norway. In those times if someone brought money to a bank there, they didn’t give them interest, they took it for storage. And here they offer twenty-five percent per annum! Although the risk is enormous — how can you buy such a tangle of financial entanglements? Here’s how: it was enough for the seller to declare that the bonds were secured by mortgages. Technically, that’s what it was, but after diluting single malt whiskey with tap water, you understand… Still unclear? Well, the “The Big Short” movie explains it perfectly) In short, it’s enough for a few unemployed people to leave “McDonald’s” for a couple of months and sit down to play GTA, and the pyramid begins to crumble. There’s no tranche for the “waitress” class, which means the “C” class of the higher pyramid is left without payments. Then it turns out that Lehman Brothers took out a huge loan from Goldman Sachs against “C” class bonds, and Goldman considered this loan incredibly secure — firstly, Lehman always paid on time, and secondly, it’s secured by mortgages! And when Lehman suddenly couldn’t repay this loan, all of Goldman’s calculations went to dust, dragging down the entire financial gang. It’s important to understand that being angry at finance mechanisms is unproductive — it’s just technology, and it’s not to blame. You have to work out the technology and learn to apply it, then it will serve you well. You might just be wondering, what do Goldman and Lehman had to do with this?.. Just remember – It’s all cyclical submitted by /u/FXgram_ [link] [comments]

Mortgage _ part 2 | Trading Academy

It’s all cyclical. And far, far away in California, the unemployed people thought that home prices would only go up, and banks somehow thought the same – they gave out loans without any collateral. An unemployed person “bought” a house for $150,000 with no down payment, paying $700 a month. After six months, it turned out that the house was now worth $180,000. They sold it, bought a $200,000 house, using the virtual appreciation as the down payment. The bank was happy, the client was happy, and the real estate agent was even happier. It was only when every other borrower stopped making payments after a year, and the banks tried to sell the mortgaged houses, that they found out all the houses on that street were already on the market, and no one wanted to buy them for $180,000, $150,000, or even $100,000. And all because a couple of years earlier, banks had accumulated so much money that they stopped verifying the reliability of borrowers – why bother? Real estate was always appreciating! If they didn’t pay, we’d quickly foreclose at a round price. But mortgage banks weren’t satisfied with just getting clients. They wanted to earn more, and more importantly – faster. So, they started pooling mortgagees and selling them to investment banks. These are the banks that don’t operate on the classic “gather deposits – grant loans” model, but try to make money in more cunning ways. The mortgage bank sells thousands of loans to the investment bank upfront and immediately receives hundreds of oil or some trendy, but little-understood, commitments in return. submitted by /u/FXgram_ [link] [comments]