Investor Positioning

Speculators in 10-year and 30-year U.S. Treasuries increased their net long positions this week while platinum longs pulled back.

Every Friday, the CFTC’s Commitments of Traders (CoT) release provides a breakdown of the previous Tuesday’s open interest for markets in which 20 or more futures and options traders hold positions equal to or above the established reporting levels. We provide a detailed look at positioning across financials and commodities by broad and disaggregated trader types.

U.S. TIC Report

The U.S. Treasury International Capital (TIC) report for the month of April showed a net $66 billion entering the U.S on private inflows of $73 billion and official outflows of $7 billion.

Foreigners net sold $11 billion worth of long-term securities, net purchased $26 billion of short-term securities, and banks’ $USD liabilities increased by $51 billion.

Over the past 12 months, a total of $63 billion in capital has left the U.S., on private inflows of $203 billion and official outflows of $266 billion.

Foreigners have net purchased $24 billion worth of long-term securities, net purchased $57 billion of short-term securities, and banks’ $USD liabilities decreased by $144 billion.

Of the foreign net purchase of long-term securities, a $285 billion inflow was due to long-term securities transactions and a $261 billion outflows was due to other foreign acquisitions.

Of the net $285 billion inflow from long-term securities transactions, a net $120 billion came from net foreign buying of U.S. securities and the remaining $165 billion was due to foreign buying of foreign securities.

The foreign buying of foreign securities was driven by net inflows of $251 billion from bonds and net outflows of $85 billion from equities.

The foreign buying of U.S. securities was due to net inflows of $352 billion from the private sector and net outflows of $233 billion from foreign governments. Combined, U.S. Treasury securities have seen net outflows of $257 billion, U.S. Government Agency Bonds have seen net inflows of $212 billion, Corporate Bonds have seen net inflows of $106 billion, and Equities have seen net inflows of $59 billion.

The separation of U.S. long-term securities categories by private and official sector are shown below.

U.S. Retail Report

The 3-month moving average of total U.S. retail sales was at $473.9 billion in May, an increase of 4.4% from the year prior. Core retail sales, which exclude the Autos and Gas categories, have increased 3.8%.

Sales at the Census Bureau’s defined GAFO measure, comprised of department store categories, are up only 0.7% year over year while sales at all Non-GAFO categories have risen 5.5%.

Total retail sales are around 26% higher than their pre-crisis peak level.

U.S Industrial Activity

The Fed’s aggregate index of U.S. industrial production was unchanged in May and is now up 2.2% from a year ago. All major market and industry groups have increased on a year over year basis, led by Materials markets and the Mining industry.

The total industrial production level is approaching the high it reached pre-recession. Of the 3 major market groups, only Materials production has recovered beyond pre-crisis peak. Of the 3 major industry groups, only Mining production has recovered.

Total industrial capacity is at a historical high.

Industrial production has not yet caught up with capacity this cycle, meaning further investment is not yet necessary.

Fed Watch

The Federal Open Market Committee voted at today’s monetary policy meeting to increase the Fed Funds target rate from a range of 0.75%-1.00% to 1.00%-1.25%. There was one dissenting voter, Neel Kashkari, who favored leaving rates unchanged.

Some FOMC members revised their economic forecasts from March, but the median projected long-run Federal Funds rate was unchanged at 3.0%.

In recent years the Fed has typically overestimated economic growth and price inflation in its forecasts.

Financial conditions remain loose and are not a present deterrent to the Fed’s targeted policy path.

The M2 money supply remains fairly stable with year over year growth around 6.0%.

The Fed has stated that it intends to begin implementing a balance sheet normalization program later this year, an effort to reduce it’s current holdings of approximately $4.5 trillion.

The FOMC will make its next policy announcement on July 26, 2017.

U.S. Inflation Monitor

Consumer price inflation in the U.S. slowed to 1.9% year over year in May. The Core CPI, which excludes Food and Energy components, has increased only 1.7% from a year ago. Food prices are up 0.9% year over year while Energy prices have risen 5.4%.

Median CPI, which measures the median price change of all the items in the total index, has increased 2.3% year over year, quite a bit faster rate than the Core CPI. The Trimmed Mean CPI, which excludes the highest and lowest 8% of items in the basket, has risen 1.9%.

Core Services prices have tended to outpace growth in the Core CPI while Core Goods prices have typically lagged.

U.S. Treasury Monitor

The U.S. federal government ran a fiscal deficit of $88 billion during the month of May on receipts of $240 billion and outlays of $329 billion. There is generally a fiscal deficit during the month of May, but this is a greater deficit than last year. Fiscal year-to-date, the deficit is approximately inline with last year.

Rolling annual U.S. Treasury receipts have increased only 0.4% year over year, a level somewhat unusual to see during an economic expansion. Individual income taxes, corporate income taxes, and other receipts are all down from a year ago.

U.S. Bank Credit Monitor

Total U.S. commercial bank balance sheets have increased to ~$16.2 trillion through May, an increase of 2.3% year over year. Bank credit, which includes securities and loans & leases, has increased 4.3%.

The 25 largest banks hold $9.3 trillion, or 57.4%, of those assets.

Loans & leases are up 3.9% year over year but growth is slowing, dragged down by falling home equity lines of credit and fed funds & reverse repos with nonbanks.

Investor Positioning

Speculative longs in 10-year U.S. Treasuries pulled back a bit this week while Russell 2000 shorts reduced their positions.

Every Friday, the CFTC’s Commitments of Traders (CoT) release provides a breakdown of the previous Tuesday’s open interest for markets in which 20 or more futures and options traders hold positions equal to or above the established reporting levels. We provide a detailed look at positioning across financials and commodities by broad and disaggregated trader types.

U.S. Consumer Credit Monitor

Total U.S. consumer credit outstanding through April has increased to ~$3.76 trillion and is up about 6.2% year over year (3-month moving average). Revolving credit, which is mainly comprised of credit cards, is ~$0.96 trillion and up 6.3% from a year ago, while nonrevolving credit, which is installment credit such as student and auto loans, is ~$2.80 trillion and up 6.2%.

Federal government’s share of consumer credit holdings is now up to 28.8%.