Today is another wonderful options expiration Friday and while the weeklies are useful, I kind of miss the days of once a month expiration as Friday's feel pinned more often than not. The overnight ES / SPX futures were pretty flat with only about a 2 point range through the whole night, this may be because op-ex Friday's tend to pin right around Thursday's close.
Overnight the USD did get a bit of a bid and even more pre-open, there's a sense on the street that next week's F_O_M_C is going to contain a more hawkish tone, perhaps updated guidance or hints toward earlier rate hikes as this seems to be the path they are on, just letting it our slowly like the whole "Slow boil a frog" theory. This sent USD/JPY up to fresh multi-year highs at 107.38 and with it, the newly linked correlation of 10 year bond yields moving up to 2.598% which is probably reaching the oversold area shorter term.
There's not much of interest to me on the Macro Economic front, Retail Sales, Import/Export Prices, Consumer Sentiment & Business Inventories.
The bigger news today is the en-action of EU sanctions against Russia and what Russia's retaliation will be, I suspect we've already seen a hint of it especially as we move closer to winter with Russia slowing the flow of Natural gas to Europe who depends on Russia for about 1/3rd of their nat gas supply, although they have been stockpiling it just for such an occasion.
Also on the Energy front, the EIA (think weekly Petroleum report and Nat Gas report) has downgraded oil demand for the rest of 2014 and 2015 on the back of weaker growth from Europe and Russia, oil was knocked a bit after yesterday's gains, especially in WTI. The interesting question is how does this effect an ECB that is fighting disinflation or the F_E_D, I suspect with the latter, they won't mind at all.
Next week we get a new update on the flow of High Yield funds, but for this week there has been an outflow of .4% of NAX, a pretty sizable outflow from HY funds which I suspect is part of what we have been seeing in HY credit, interestingly there were inflows just before the August cycle's rally.
On the political news front a new poll shows the Scotland vote a bit closer with the No's at 51% and the Yes vote at 49%, there's still a sizable undecided vote so while cable seems to be knocked around with every poll release, it is coming down to the actual vote next week and I suspect from the size of the move over the weekend with a stronger yes vote and the size of the moves this week, the market is getting tired of the story at this point and probably rightly so with the F_O_M_C coming up, interestingly the F_O_M_C and Scottish independence vote will be back to back.
I wanted to kill a bit of time and wait for the open being ES has been so flat overnight, I see on the open it has taken a bit of a dive, well exiting that overnight 2 point range to the downside.
A very quick look at the opening indications in the major averages, shows that with the exception of the IWM, the concept of 3C picking up where it left off was forecasting a weaker open.
On most op-ex Fridays a max pain pin range seems to stay in place until about 2 p.m. and then the market tends to really make some moves, although it's the 3C data during these last 2 hours that tend to give us some of the best data of the week, often forecasting the week ahead just as last week the forecast was "More of the Same", meaning the lateral chop which is what we have seen all week, however I did expect we'd be in decline by the end of the week, I still expect we will be in decline, if it doesn't happen today that doesn't change the cycle or the signals.
Lets see what the market shows us today...
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