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No Landing in the Twilight ZoneCBOT: Micro Treasury Yields ( CBOT_MINI:2YY1! , CBOT_MINI:5YY1! , CBOT_MINI:10Y1! , CBOT_MINI:30Y1! ) Is the US economy heading towards a “no landing”, as opposed to a “hard landing” or a “soft landing"? There is a heated debate among economists and market strategists. What is a "no landing"? It is a new term drawn up by Wall Street, which describes the economy continuing to grow while the Fed raises interest rates to fight inflation. Stock investors have a hard time making sense of the latest data from inflation, employment, and corporate earnings. The Fed’s future policy actions are unclear. As a result, the US stock market moved sideways in recent weeks. Treasury Market in Disarray With a widening negative yield curve, bond investors are convinced that a US economic recession is on the horizon. Let’s refresh our knowledge on this subject. Yield curve shows interest rates on Treasury bonds with short-term, intermediate, and long-term maturities, notably 3-month T-Bill, 2-year and 10-year T-Notes, 15-year and 30-year T-Bonds. Bond investors expect to be paid more for locking up their money for a long stretch, so interest rates on long-term debt are usually higher than those on short-term. Plotted out on a chart, the various yields for bonds create an upward sloping line. Sometimes short-term rates rise above long-term ones. That downward sloping line is called yield curve inversion or negative yield curve. An inversion has preceded every U.S. recession for the past 50 years. It’s considered a leading indicator of economic downturn. On July 21st 2022, the 2-year yield stood at 3.00%, above the 2.91% 10-year yield. Since then, we have been in negative yield curve environment for seven months. The 10Y-2Y yield spread has widened to -76.9 bps, but a recession has not yet occurred. Below are current yields indicated by CBOT Treasury futures as of February 17th: • 30-day Fed Funds: 4.665% • 2-year Treasury: 4.618% • 5-year Treasury: 4.014% • 10-year Treasury: 3.848% • 30-year Treasury: 3.883% We observe that the longer the duration, the lower the yield. The 5Y, 10Y and 30Y yields all price below current Fed Funds rate target of 4.50-4.75%. The US economy seems surprisingly strong, despite the Fed trying to cool it with eight consecutive rate hikes. However, negative yield curve contradicts the notion of “No Landing”. Trading Opportunities in Micro Yield Futures Investors currently expect the Fed to raise interest rates in March and June meetings, with the terminal rate consensus at 5.3% at the end of this tightening cycle. Clearly, Treasury futures market has not priced in the pending rate hikes. The most underpriced interest rate is the 10-year yield. At 3.85%, it is 90 bps below current Fed Funds target and 1.45% below expected terminal rate. On February 17th, the February and March 2023 contracts of CBOT 10-Year Micro Yield Futures (10Y) were quoted almost the same rate, at 3.850% and 3.853%, respectively. Investors apparently brushed off the upcoming rate increase in March. My trading rationale: US businesses continue to expand, which provides solid support for the long-term debt market. With short-term yield rising fast, borrowers would flock to lower rate debt, pushing up demand for the longer-term credit. In my opinion, a 10-year yield below 4% is not sustainable. For confirmation, let’s take a look at various market interest rates for 10-year duration: • US Corporate AAA Effective Yield: 4.61% • US Corporate BBB Effective Yield: 5.64% • US Mortgage Rate, 10-year fixed: 6.24% • Bank Certificate of Deposit, 10-year: 4.10% (Discover Bank) Monthly contracts for the 10Y are listed for 2 consecutive months. Contract notional value is 1,000 index points. A minimum tick of 0.001 (1/10 of 1 bps) is worth $1. This means that a 25-bps increase will translate into $250 per contract. It would be a 77% gain in contract value if we use the $325 initial margin as a cost base. April contract starts trading on March 1st. If it is quoted similar to the March contract, there is potential to gain. Whether we compare with market rates of debt instruments of the same 10-year duration, or with risk-free Treasury rates of different durations, a 10-year yield pricing below 4% is a bargain. Besides, the FOMC meeting on March 21st-22nd would likely give the contract a big boost, as long as the Fed raises rates. In summary, I would consider a long position for April 10Y contract at or below 4% yield. What about the idea of yield curve reversal and the narrowing of 10Y-2Y spread? It may still happen, but its timing is unclear at this point. Micro Yield futures are designed for shorter-term trading with contracts listing for only two calendar months. This is different from CBOT 2-year (ZT) and 10-year (ZN) futures which are listed for 3 consecutive quarters, currently through September. The traditional Treasury futures contracts would be better instruments for a yield spread strategy. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trade set-ups and express my market views. If you have futures in your trading portfolio, check out on CME Group data plans in TradingView that suit your trading needs www.tradingview.com
CBOT_MINI:10Y1!Long
by JimHuangChicago
6
DXY Daily - under pressure ?So, DXY continues its position under the 768 fib line AND the 200 and 100 EMA - PA managed to get above the 50 but will that last Somrthing to possibly note is that, as I have shown previously, DXY does not like Fib circles and 99% of the time, it will be rejected by them, as you can see on 3 previous occasions on this chart alone. And PA is approaching another around the beginning of April, which leave March for DXY to build up some strength to try and break through - But it has resistance just above. But, again, as mentioned previously, the FED ( the DXY Support group) has mentioned that it will continue to raise interest rates, the earns the banks Money and so the $ becomes more valuable...usually. DXY is worth watching close, it has retraced back tot he 0.5 fib retrace, as it has done previously before a push higher. be ready to react, could go either way
TVC:DXY
by Orriginal
Bitcoin VERSUS The FED - rate rise effects on PAI am posting this again as I have seen some people wondering why Bitcoin is continueing to rise despite the Fed ( the DXY Support group) saying that they will continue to raise interest rates On this chart, we can see that 5 of the Rate raises had little Effect on Bitcoin PA and recovery was swift. One of the reasons for this is that Bitcoin is truly GLOBAL and while the DXY $ is currently a major part of world economies, this is changing. As the $ becomes more expensive to Borrow, people WILL go elsewhere. And Many people See Bitcoin as that avenue. The Expected remaing 3 raises of 25 points will effect PA but probably not as much as it will effect other Markets...which may well pipe money into Bitcoin and other crypto. GOLD could be an interesting thing to watch as, well, Gains in Bitcoin far out weight the gains from gold. There is little doubt thatthe Fed timed its raises perfectly and that they did instigate the fall of FTX and others. It needed to happen
BITSTAMP:BTCUSD
by Orriginal
5
DXY daily chart and FEDDXY is looking like it needs a boost, and the FED just may have given it, saying larger Rate hikes on the way PA coming up under 200 MA as well as 768 fib line likely to be resistance MACD just above 0 so has room StochRSI overbought Ordinarily I would say that PA probably range under 200 But now, well, It may push harder today before close for the weekend. FED DEFIANTLY trying to Boost $ and this will be Negative for Markets It should be remembered that the FEDERAL RESERVE is a PRIVATE group of representatives of BANKS. It is NOT a Governmental organisation and its only reason for existence is to protect and strengthen the $, by any means it can. Raising interest rates increases the amount of money banks take back and so, by consequence, reduce the amount of moeny available for other markets. THAT is centralised Finance. The Very Thing that BITCOIN IS NOT Take care
TVC:DXY
by Orriginal
1
Disinflation – Fact or Fiction?CME: S&P Technology Select Sector ( CME_MINI:XAK1! ) The U.S. consumer price index (CPI) rose 0.5% in January and +6.4% year over year, reported the Bureau of Labor Statistics (BLS) on Tuesday. Excluding food and energy, Core CPI increased 0.4% monthly and 5.6% yearly. Economists surveyed by Dow Jones expected the headline CPI to grow 0.4% monthly and 6.2% yearly. Expectations for core CPI changes were 0.3% and 5.5%, respectively. On Tuesday, US stocks fell at open in response to the hotter-than-expected CPI report. But major indexes recovered somewhat at the close of the day. The Dow Jones Industrial Average slipped 156 points, or -0.46%, after initially losing over 300 points. The S&P 500 was flat at 4,136 (-0.03%), and the Nasdaq 100 gained 68 points to 11,960. US Treasury yields ticked higher. 2-year yield went up 94 ticks to 4.628%, while 10-year yield lifted 36 points to 3.755%. Bond investors widely expected the Federal Reserve to raise rates by 25 basis points to the 4.75%-5.00% range in March. Mega Trend in US Inflation While we usually focus on the percentage changes in inflation, CPI data are constructed as indexes, each using 1982-84 price data as a baseline at 100. January CPI reading of 299.170 is 0.8% above December of 296.797. It is up 6.4% from 281.148 in January 2022 (Data in this section is from Table 1 in the January CPI release). Interpretation: Today, the average price of goods and services in the U.S. is about 3 times as high as the price level from nearly four decades ago. This translates into a compound annual growth rate (CAGR) of 2.93% for the past 38 years. Insights: Long-run inflation rate is almost one percentage point higher than the Fed policy target. With less restrictive monetary policy on one hand, but more expansive fiscal policy on the other, the 2% goal appears to be far fetching. Barring a major recession, I expect the US inflation to stay above its 3% historical average in the foreseeable future. In the past four decades, cost of many consumer goods tripled in price, including Food (+219%), Energy (+183) and Core CPI (+202%). But there are noticeable outliners: • Tobacco and smoking products, +1289% • Motor vehicle insurance, +559% • Medical care services, +502% • New vehicle, +77% • Apparel, +28% January CPI Readings Before diving into the data, we should know that when BLS releases CPI data in February, it readjusts the weighting to account for the latest changes in the cost of living. For 2023, CPI weights are updated annually based on a single calendar year of consumer expenditure data. This reflects a change from prior practice of updating weights biennially. The changes of weighting by product and service category in the January report: CPI Category Old Weight New Weight Change Housing 46.40% 44.40% +2.0% Entertainment 5.70% 5.40% +0.3% Food 14.50% 14.40% +0.1% Clothing 2.50% 2.50% 0.0% Other 2.60% 2.70% -0.1% Medical 7.70% 8.10% -0.4% Education 5.20% 5.80% -0.6% Transport 15.30% 16.70% -1.4% Rising shelter costs accounted for nearly half the monthly price increase. The component accounts for more than one-third of the index and rose 0.7% on the month and was up 7.9% from a year ago. Energy also was a significant contributor, up 2% month over month (M/M) and 8.7% annually, while food costs rose 0.5% M/M and 10.1% annually. Food: Up 0.5% M/M in January from 0.1% in December. Annualized inflation is 10.1%. Energy: Up 2.0% M/M in January from -3.1% in December. Annualized gain is 8.7%, of which, gasoline (+1.9%), diesel (+27.7%), electricity (+11.9%), and natural gas (+26.7%). Shelter: Up 0.7% M/M in January from 0.8% in December. Up 7.9% Y/Y. Transportation: Up 0.9% M/M in January from 0.6% in December. Up 14.6% Y/Y. While the headline CPI ticks down from 6.5% to 6.4% on an annualized basis, January price increase of 0.5% is significantly higher than the December reading of +0.1%. Overall inflation level is undoubtedly on the way down, but price increases from food, shelter and transportation are very sticky and don’t normally go down once moving up. Is disinflation a fact or fiction? I think we are somewhere in between, in the Twilight Zone. The US Stock Market Narratives In the past three years, the stock market narratives have changed several times: • After the initial pandemic hit in March 2020, US stocks staged a very impressive bull run. Growth drivers were US companies innovating with new products and services and catering for “work-from-home” employees and “play-at-home” consumers. • 2022 started with a major geopolitical crisis, pushing stocks sharply down. Fed rate hikes from March 2022 dragged major stock indexes into bear market territory. • Since inflation peaked in July and the Core CPI reading confirmed it in October 2022, US stock market began to rebound, centering on the notion of “Fed Pivot”. More recently, investors are caught by conflicting economic data. • Unemployment at 50-year low vs. Big Techs pushing rounds of massive lay-offs; • Lower inflation rate vs. “Eggflation” and “Shrinkflation” that consumers experience; • Whether the Fed is hawkish or dovish depends on the next dataset. While investors try to make sense of all these, stock market moves sideways. The 30-day returns for Dow and the S&P are -0.83% and +3.20%, respectively. Are we at the beginning of a new bull market? Or is it a bear relief, a temporary rebound from a bear market? To make an assessment, you need to know how many more rate hikes could be (pick a number between 1 and 4), and what the terminal rate would be (5.0%, 5.25%, 5.5%, 5.75%, or 6.0%)? I have no idea. When uncertainty becomes the dominant narrative, it’s time to explore opportunities that promise more certainties. AI - New Engine for Economic Growth One visible exception is Nasdaq 100, which gained 8.9% in the past month. S&P Technology Select Sector Index (XAK) had an even higher return at 9.5%. Most Big Tech companies were vastly overstaffed during the pandemic years. With stock prices cutting by two thirds or more, they are forced to live within their cash flow. Cutting off unprofitable divisions and laying off redundant staff help them survive in leaner years. This is certainly very painful for the tech workers and their families. To investors, Big Tech may have transformed itself from lofty Growth Stock to reasonably priced Value Stock. For Nasdaq 100, its trailing 12-month price/earnings ratio was 34 one year ago. It is 23.63 as of February 10th, according to Birinyi Associates. Technological breakthroughs have always powered the US economy to growth for the long run. Personal computers in the 1980s, Internet for the 1990s, smart phones and mobile internet in the 2000s, and electric vehicles in the 2010s, just to name a few. In my opinion, Artificial Intelligence will be our economic growth engine in 2023. While AI is nothing new, the viral success of ChatGPT has sensationally changed the game. Its popularity among mainstream consumers helps form strong support for all publicly traded companies in the AI sector, not just for OpenAI and its parent Microsoft. While writing this report, I asked ChatGPT one question: “Please show me the top-10 publicly traded stocks in the AI field.” Below is his/her/its answer: 1. Alphabet Inc. (GOOGL) - Google's parent company, which has been investing heavily in AI technology and applications. 2. NVIDIA Corporation (NVDA) - A leading company in graphics processing units (GPUs), which are commonly used in AI training and inferencing. 3. International Business Machines Corporation (IBM) - A company that has been developing AI technologies for several years and has a range of products and services, including the Watson AI platform. 4. Microsoft Corporation (MSFT) - Microsoft has invested heavily in AI technologies, and its Azure platform provides a range of AI tools and services. 5. Amazon.com, Inc. (AMZN) - Amazon's AI capabilities are used in a variety of products and services, including the Alexa voice assistant and its recommendation algorithms. 6. Baidu, Inc. (BIDU) - A Chinese company that has been investing heavily in AI technologies, including natural language processing and autonomous driving. 7. Alibaba Group Holding Limited (BABA) - A Chinese company that has also invested heavily in AI technologies and has been developing AI applications for e-commerce, logistics, and finance. 8. Intel Corporation (INTC) - A company that has been developing hardware specifically for AI, including custom processors and FPGA chips. 9. Twilio Inc. (TWLO) - A company that provides cloud-based communication services and has been investing in AI technologies to improve its services. 10. Advanced Micro Devices, Inc. (AMD) - A company that develops CPUs and GPUs for AI applications and has been investing heavily in machine learning and other AI technologies. This is very impressive. ChatGPT not only gives me a list of the companies, but also highlights each company’s involvement in the AI field. Since ChatGPT doesn’t have data beyond 2021, we come back to our trusty TradingView to pull out 1-year return charts. What a brutal year! Only Microsoft manages to gain 5.3%. The rest in the list had negative returns from -10% to 40%. Twilio is the loss leader, yielding -66.8% in the last 12 months. This drives home the two major risks in new technology investing: Firstly, at an early stage, you have no idea which technology will win out at the end. Is it direct current (DC) or alternative current (AC)? Airship or Aircraft? VHS or Betamax? Cable TV or satellite TV? And TDMA or GSM for cellular signal? Secondly, you do not know which company will become a leader in a winner-take-all market. If you go back in time and invest in the new automobile industry in 1908, you have a 99% chance of losing money, unless you luckily picked Ford, General Motors, or Chrysler out of the 253 publicly traded automakers. Likewise, if you invested in mobile phone companies in early 2000, you likely picked Motorola, Blackberry, Ericsson, or Nokia. However, when an outsider Apple launch a breakthrough product, iPhone 1 in 2007, it knocked out all leading cellphone markers and became the ultimate winner. Right now, I predict that most electric vehicle makers will go out of business in five years, except for Tesla, and maybe BYD. The Case for S&P Technology Select Sector Index Consistently picking winners in emerging technologies is extremely difficult. Even the smartest stock picker could not beat the market. Take Cathy Wood’s Ark Innovation ETF (ARKK) as an example, its cumulative returns comparing to the Nasdaq 100 were: • 1-year: -42.8% vs. -12.4%; • 5-year: -2.1% vs. +85.1%; • Since Inception (8-year): +100.3% vs. +203.5%. Diversification is a very powerful concept in investing, notably in times of uncertainty. Concentrating on stock picking, many active managers tend to cloud objective assessment with their own conviction and lose sight of potential market leaders amid emerging mega trends. Passive investment via index futures focusing on the high-tech sector allows us to express our conviction and capture emerging trends. XAK is one of the 11 sector indexes in the S&P 500. Its top holdings are Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), Visa (V), Mastercard (MA), Broadcom (AVGO), Cisco (CSCO), and Adobe (ADBE). My research shows that S&P Technology Select Sector (XAK) outperformed many Big Tech stocks and ETFs in both short-term and long-term. According to Fact Sheet published by S&P, as of January 31st, the annualized historical returns are -15.22% (1Y), 13.82% (3Y), 16.22% (5Y) and 18.48% (10Y). Total returns since inception are 6,425.9%. You may invest in one of the technology sector ETFs, such as SPDR XLK, iShare IYW, and Vanguard VGT. But CME E-Mini S&P Technology Select Sector Index Futures (XAK) has distinguished features over ETFs. Firstly, XAK has five quarterly contracts to choose from: March, June, September, December and March 2024. This allows us to evaluate strategies focusing on expected future value of the index, up to 1 year ahead. Secondly, you could place either Long or Short position, allowing both bullish and bearish strategies to implement. Thirdly, initial margin of placing 1 contract is approximately 35% of the notional value. This built-in leverage could enhance the returns if market moves in the right direction. Finally, by holding a long position on the quarterly futures contract and rolling it each quarter, investors could replicate the strategy of holding the stocks or the ETFs. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trade set-ups and express my market views. If you have futures in your trading portfolio, check out on CME Group data plans in TradingView that suit your trading needs www.tradingview.com
CME_MINI:XAK1!Long
by JimHuangChicago
3
DXY Pre January CPIThe upward momentum on the DXY after January’s positive non-farm payroll print on the 3rd of February seems to have subsided for the time being. The DXY managed to test its 50-day MA and touch the green 23.6% Fibo retracement level at 104 but these resistance levels have held their ground. The 23.6 % Fibo also coincides satisfyingly with the neckline of the previous upward trendline as well as the blue 50% Fibo retracement level. There was a gap down at market open this morning ahead of the highly anticipated US CPI print for January which is negative for the greenback. Last week Friday the BLS quietly revised the CPI higher for four of the past five months, with one month unchanged so always take CPI results with a pinch of salt (CPI is a lie but it influences investor sentiment). The supposed CPI for January is expected to print 6.2%, down from 6.4% in December, yoy. My track record forecasting scenarios from data prints aren’t great but this is how I see the lay of the land; an in line with expectations or a print lower than 6.2% yoy will add fuel to the Fed’s self-proclaimed narrative that they have beat inflation. This scenario will be dollar negative and will spur risk-on investor sentiment. This scenario will allow the DXY to fall below the support at 103 (covid peak) and drop lower towards the critical support at 101.843, blue 61.8% Fibo retracement level). On the flip side, a print at or above 6.4% yoy will have investors running back to the safe haven dollar with their tails between their legs. This scenario is expected to push the DXY above the resistance level of 104 and higher towards 106.00. (I don’t expect a fair CPI print if they can just quietly revise the numbers higher at a later stage without spooking the markets thus, I’m not in favour of this scenario materializing today). Technical indicators: The buy signal on the daily MACD seems to be rolling over which is dollar negative but there is a fair degree of bullish divergence on the RSI which is keeping me on my toes. I’m leaning towards the first scenario I mentioned earlier. Over the longer-term (the remainder of 2023) I’m very much bullish on the dollar and I think the bottom for the DXY is in at 100.90 I believe we will see the dollar milkshake theory play out this year when the economic realities start collecting their debt.
TVC:DXY
by Goose96
2
Looking ahead into February 2023 (DXY)Through January the DXY traded to the downside following the release of several positive key economic data, increasing the market sentiment that the US Federal Reserve would pivot from its current monetary policy stance, to slow down/stop further interest rate hikes. Notable US news events in January -Non-Farm Payroll (NFP) was greater than expected (Actual: 223k Forecast: 200k), while wage inflation fell (Actual: 0.3% Forecast: 0.4%), together with the unemployment rate (Actual: 3.5% Forecast: 3.7%). This caused the DXY to reverse strongly from the 105.60 price area to trade steadily lower, down to the 103 price level. - Consumer Price Index (CPI) data was released at 6.5% (Previous: 7.1%) which indicated a slowdown in inflation growth for the US economy. Again, another factor that signaled the potential for a slowdown in future rate hikes from the US Federal Reserve, with markets forming the view that previous interest rate hikes are starting to take effect, slowing down inflation growth. The DXY broke through the 103 support level to trade within the current range. Since mid-January, the DXY has been trading between the price range of 101.50 and 102.50 as the price consolidates just above the key support level of 101.30 (the previous swing low from June 2022) So, where could the DXY move to in February? Volatility for the DXY is likely to come early in the month due to these news events 1) Federal Funds Rate, FOMC Statement, and FOMC Press Conference on 2nd February. The Feds are widely expected to hike rates by 25bps to take interest rates to 4.75%. Pay more attention to the accompanying statement and press conference for hints (keyword: sufficiently restrictive) and guidance (keyword: peak rates) over future interest rate decisions. The previous Federal Reserve rates decision in December saw the DXY trade slightly lower, forming a base along the 103.50 support level before trading higher a day later toward the 104.80 price level. A similar move could be anticipated, upon the release of the news, with the DXY possibly trading lower to test the key support level of 101.30 before potentially trading higher toward the 103 resistance level. 2) The NFP this month is unlikely to have a similar impact to what happened in January. This is because, with the current unemployment rate at 3.5% and wage growth at 0.3%, it would be unlikely that the data could be released significantly better. Therefore, IF the DXY does trade higher to the 103 resistance level after the Fed's interest rate decision, a "non-event" on the NFP could see the price continue to trade higher. 3) After the NFP, the next key economic data to be released is the CPI data on the 14th of February. If the data continues to show a slowdown in inflation growth (lower than 6.5%), this could have a significant impact on bringing the DXY lower again. While there will be other news events throughout the month ahead, which will cause prices to spike or dip briefly, the 3 discussed above would most likely be the key factors to determine the next directional bias of the DXY. Beyond the 101.30 support level, the next key support area is at the round number level of 100.00. The immediate resistance level is at 103.00 and the next key resistance level above that is 105.50.
TVC:DXYLong
by JinDao_Tai
7
Reduce inflation rate from 6.5% to 3% this years, says WilliamsFOMC's Williams speech did not do much, as he was echoing what Jerome Powell already said 2 days ago. Rate hikes to resume, but at slower pace. Williams mentioned that inflation rate in the US should cool off to 3% this year, now at 6.5%. That's 50% lower. Question is, how much more rate hike is required to push inflation down by 50%? Will that be somehow somewhat slowdown the US economy as a whole? A whole lot more tightening will need to take place, as I see it. Lending has already begun to tighten and credit is more difficult to obtain due to stricter requirements by banks. Hmm... how will this play out? By Sifu Steve @ XeroAcademy #usdollar #usd #dxy #interestrates #useconomy #federalreserve #FOMC #inflation
TVC:DXY
by XeroAcademy
The yield curve has to un-invert eventually… right? (Part 2)This week, we thought it will be interesting to review the trade from last week given the reaction post-FOMC, as well as discuss an alternative way to set up this trade. Firstly, let’s review the post-FOMC/employment data reaction. - Nonfarm Payrolls surprised to the upside, as over half a million jobs were added way above the estimates of a sub 200K number. - Unemployment rate continues to fall further, reaching a 53-year low of 3.4% A clear re-pricing has occurred since last Friday’s better-than-expected jobs data and Wednesday’s Federal Reserve meeting. With markets now expecting 1 more rate hike in May, bringing the peak rate up from the 475 -500 bps range to the 500-525 bps range. Keeping this in mind, we go back to our analysis last week to understand this situation and historical precedence. While the time for a pause in rate hike seems to be pushed back, in the grand scheme of things, we think that this has only kept the window of opportunity for this trade open for longer and at a more attractive entry point now. Without repeating ourselves too much, we encourage readers to take a look at our idea last week which explores the historical correlation between the peaking of yield curve inversion and the pause in Fed rate hikes. Link to our last week’s idea: This week, let’s tap into a different instrument. Here, we aim to take a short position on the 2Y-10Y yield differential by creating a portfolio of Treasury futures to express this view. To do so, we would have to first select the 2 instruments, the 2-Yr Treasury futures is a straightforward choice for the short end. But for the 10-Yr leg, we have a choice of the '10-Yr Treasury Note Futures' vs the 'Ultra 10-Yr Treasury Note Futures'. Digging into the contract specification, the 'Ultra 10-Yr Treasury Note Futures' provide a better proxy for the true 10-year duration exposure as the delivery requirements are for Treasuries with maturities between 9year 5 months and 10 years. In comparison, the underlying of '10-Yr Treasury Note Futures' has a maturity between 6 year 6 months and 10 years. With contract selection out of the way, the next step is to calculate the Dollar Neutral spread. This requires us to identify the DV01 of the front and back legs of the spread and try to match them. This is to ensure that the entire position remains as close to dollar neutral as possible, so we can get a 'purer' exposure to the yield difference between the front and back legs, and parallel moves are negated. CME publishes articles on this topic to explain the setting up of a DV01 spread clearer than we can explain. You can find them attached in the reference section below. You can handily find the DV01 of the Cheapest To Deliver (CTD) securities on CME’s website. In this case, we are looking at the 2Yr and Ultra 10Yr Treasury Futures to set up the trade. With the DV01 of the 2Yr at 34.04 and the DV01 of the Ultra 10Yr at 96.26. The spread ratio can be calculated as 96.26/34.04 = 2.83. Rounding this to the nearest whole number, we would need 3 lots of2-Yr Treasury Future and 1 lot of Ultra 10-Yr Treasury Future, to keep the DV01 equal (neutral) for both legs of this portfolio. Given our view of the 2Yr-10Yr yield spread turning lower, we want to short the yield spread. Yield and prices move inversely, hence, to short the yield spread, we long the Treasury Futures spread as it is quoted in price. We can long 3 ZTH3 Futures (2Y Treasury Future) and short 1 TNH3 futures (Ultra 10Y Treasury Future) to complete 1 set of the spread. However, since the 2-Yr Treasury Futures has a notional value of 200,000 while the Ultra 10Y Treasury Futures a notional of $100,000, the price ratio will be 6:1 when the position/leg ratio in the spread trade is 3:1. As such the current level would provide us with an entry point of roughly 494 with a minimal move in Ultra 10yrs representing 15.625 USD and that in 2Y representing 7.8125 USD. While slightly more complex in setting up, this trade allows us another alternative to express the same view on the yield curve spread differential. Being able to execute the trade via different instruments allows you to pick the most liquid markets to trade or take advantage of mispricing in the markets. The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description. Reference www.cmegroup.com www.cmegroup.com www.cmegroup.com www.cmegroup.com
CBOT:ZT1!Long
by inspirante
6
Fight or Flight?On February 1st, the Federal Reserve (Fed) announced a widely-expected 25bps rate hike. This was the rallying cry for the current market rally to continue. Is this confidence warranted? An interesting note is that the FOMC meeting minutes and the associated press conference appeared contradictory in nature because there was not a straightforward hawkish or dovish narrative across both. The statement was hawkish. Meanwhile, Fed Chairman Powell’s language in the press conference was remarkably dovish, describing the disinflation process as having started and as "encouraging and gratifying". This was the point that markets took as the signal to continue the recent rally. Precious metals, equities, and risk assets have all seen significant post-meeting relief. The first innings of a recession always appear to be somewhat of a soft landing in which inflation and growth begin to slow gradually. Yesterday’s meeting echoed the idea that recent indicators point to a modest increase in spending and that inflation has eased, precisely what the first innings of a recession would predict. As markets, potentially shortsightedly, adopt the soft landing narrative, the Fed’s lack of pushback against easier financial conditions added fuel to the fire. Given this, it is doubtful that markets will stop rallying until one of two cases occurs: First, if data comes in hot, it potentially frightens markets into thinking the Fed will turn back hawkish and raise rates more than the recently observed 25bps hike. The second scenario is the other extreme. Should data start coming in highly recessionary with lower inflation and weak growth, this will eliminate all believers in the soft landing narrative, thus halting the rally. However, at present, it looks like the market rally of 2023 could continue until either of these scenarios happen. An important thing to note is that whenever inflation has exceeded 5% in the past, it has never come back down without the Federal Funds Rate exceeding the rate of CPI inflation. Considering the Federal Funds Rate is currently between 4.5% and 4.75% whilst CPI inflation is at 6.5%, more rate hikes are on the horizon unless data comes in highly recessionary. CPI data on the 14th of February will provide significant insight into whether or not the Fed will follow the likes of the European Central Bank & Bank of England and go with a 50bps hike rather than a 25bps hike. Another important thing to note is that Apple , Amazon , and Alphabet (the parent company of Google ) all missed earnings last night. If three of the world's largest companies missed earnings, it does not breed confidence for economic hopes of avoiding a recession. One thing seems certain, the S&P500 is likely to take a hit when the NYSE opens later today.
by Coinrule
22
ECB raises rates but euro fallsThe euro is catching its breath on Friday after some sharp swings over the past two days. EUR/USD is trading quietly at the 1.09 line. This week's central bank rate announcements sent the euro on a roller-coaster ride. The Fed's 25-basis point hike pushed the euro higher by 1.16%, while the ECB hike of 50-bp sent the euro down by 0.76%. The end result is that the euro is back to where it started the week, just below the 1.09 line. The Fed rate decision sent the US dollar broadly lower, as investors were heartened by Jerome Powell saying that the disinflation process had begun and that he expected another couple of rate hikes before the current rate-hike cycle wrapped up. The markets are expecting inflation to fall faster than the Fed is thinking and are counting on some rate cuts this year, even though Powell said yesterday that he does not expect to cut rates this year. The markets were looking for a dovish bend to Powell's remarks and once they found it, stocks went up and the US dollar went down. The ECB meeting came a day after the Fed decision, and the rate hike of 50-bp was expected. Still, the euro fell sharply, perhaps due to a confusing message from the ECB. On the one hand, in its policy statement, the central bank signalled another 50 bp hike in March and kept the door open for additional hikes after March. At the same time, ECB President Lagarde said in a press conference that rate moves would be determined on a "meeting by meeting" basis seemed to veer away from the message in the policy statement. The ECB continues to have trouble communicating with the markets, which will only add to market volatility as investors try to figure out the central bank's plans. The week wraps up with the US employment report. The Fed has said that the strength of the labour market is a key factor in its rate policy, so today's release could have a strong impact on the movement of the US dollar. Nonfarm payrolls fell from 256,000 to 223,000 in December and the downturn is expected to continue, with an estimate of 190,000 for January. The ADP payroll report showed a decline in December, but unemployment claims and JOLT job openings both moved higher, making it difficult to predict what we'll get from nonfarm payrolls. The markets will also be keeping a close look at hourly earnings and the unemployment rate. 1.0921 is a weak resistance line, followed by 1.1034 There is support at 1.0878 and 1.0826
by OANDA
GBP/USD sliding after dovish BoE hikeThe British pound has posted sharp losses on Thursday and continues to lose ground in the North American session. GBP/USD is trading at 1.2251, down 0.98%. The major central banks remain the focus of the market's attention. The Bank of England raised rates by 50 basis points, just one day after the Federal Reserve's 25-bp hike. This marked a second straight increase of 50 bp, bringing the cash rate to 4%. As with the Fed decision, the hike was expected, but investors found plenty to cheer about, resulting in the pound reversing course and losing ground. Governor Bailey said in a follow-up news conference that inflation pressures remained and inflation risks were skewed to the upside. Still, investors found plenty of reasons to be optimistic. Bailey said that inflation had turned a corner and noted that members had removed the word "forcefully" from its forward guidance statement. The BoE is now projecting that inflation will fall to around 4% by the end of the year and that the recession will be shallower than it had anticipated. The less pessimistic outlook for inflation and the economy sent risk appetite higher and pushed the pound lower. The markets were in a good mood after the decision, but there are plenty of problems ahead - inflation is above 10% and some half a million workers went on strike on Wednesday. The Fed raised rates by 25 basis points as was widely expected. The Fed noted that inflation has eased but reminded listeners that it remained much higher than the 2% target. Jerome Powell signaled that more rate hikes are coming and said he did not expect to cut rates this year. This was essentially a repeat of the hawkish message we've heard before, but the markets chose to focus on Powell saying that the disinflation process had started and that he expected another couple of rate hikes before winding up the current rate-hike cycle. This sent the US dollar broadly lower on Wednesday. Besides inflation, the Fed is focused on employment data, which will make Friday's nonfarm employment report a key factor in future rate policy. In December, nonfarm payrolls fell from 256,000 to 223,000 and the downturn is expected to continue, with an estimate of 190,000 for January. This release could result in further volatility in the currency markets on Friday. .
by OANDA
BTC FED Meeting!BYBIT:BTCUSDT.P Fed meeting on 1-Feb-2023 at 19:00 UTC Looking for 25bp rate hike for potential bullish move. BTC has had a run to almost 24k. But it's approach is quite tight like a triple tap in play. Support levels marked in white for possible re-entry for Long via appropriate entry trigger. Entry trigger could be bullish candle or bullish candlestick formation. 50MA 4h and 200MA 1D as guide. But with BTC when it's hot, we don't always get support entries. After Breakout level $25K (1D) we need break and retest for upside otherwise it's a level to target a short via LTF (4h) break of structure. If you liked this idea or if you have your own opinion about it, write in the comments. The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations.
Long
by imr4nkh8n
You Can Have the Cake and Eat it TooCBOT: Treasury Yield Spread 10Y-2YY ( CBOT_MINI:10Y1! CBOT_MINI:2YY1! ), Micro Dow ( CBOT_MINI:MYM1! ), Micro S&P ( CME_MINI:MES1! ) On Wednesday, the Federal Reserve raises its benchmark Fed Funds rate by 25 basis points to a target range of 4.5%-4.75%. The move marked the eighth consecutive hikes that have began in March 2022. The overnight risk-free rate is now at its highest level since October 2007. Fed Chairman Jerome Powell sends mixed signals in his post-FOMC meeting news conference but appears more dovish comparing to previous speeches. The Committee thinks that “on-going increases in the target range will be appropriate”. These words send stocks down minutes after the speech begins at 2:30PM. However, during the Q&A session, when the Fed Chair confirms, for the first time, that “the disinflationary process has started,” the stock market rebounds strongly and finishes in the positive territory for the day. Other mixed messages: • Inflation data shows a welcome reduction in the monthly pace of increases; • It would be “very premature to declare victory or to think we really got this”; • It’s “possible” that the funds rate could stay lower than 5%; • Unlikely the Fed would cut rates this year unless inflation comes down more rapidly. Actions speak louder than words. In two rate-setting meetings, the Fed has slowed the pace from 75 bps to 25 bps. The path is not likely to reverse, and future rate hikes will come down to just two options, either 0 or 25 bps. In my opinion, the terminal rate will end at 5% or 5.25% after the March and May meeting. In recent months, the “Risk” button has been pressed on for risky assets: • The Dow is up 19% since October, and the S&P and the Nasdaq are up 17% and 18% for the same period, respectively; • Gold futures rallies 21% since November, while Bitcoin jumps 58%; • Tesla and Ark Innovation ETF gain 47% and 33% year-to-date, respectively. Historically, it’s rare for the stock market to dip two years or more in a row. For the S&P 500, it only happened four times in the last 100 years. The odds favor stock investors in the Year of Rabbits after a brutal double-digit selloff in 2022. Fed rate hikes and high inflation are like a brake that decelerated the running economy car. Now that the driver’s foot is off the brake, will the economy improve immediately? Not so fast. We will endure higher costs for months to come. Take the example of food items, once the price goes up, it usually stays up for the year. Sometimes, suppliers resolve to reducing the size of package for the illusion of keeping the same price, a tactic known as “Shrinkflation”. Wages, rent, phone bill, cable TV, utility, homeowner association fees and sales tax also seldom go down. All these point to a sticky inflation. Without massive government stimulus to press the gas pedal, subdued growth is on the horizon. However, the stock market is forward looking. Investors already see an "invisible foot" on the accelerator and begin buying in the dip. On balance, I’m bullish about risky assets, but would consider protecting my investments carefully. The inversed yield curve is a proven and tested signal of a potential recession. The 10Y-2Y Treasury yield spread is at -64 bps after the Fed rate decision. The yield spread turned negative last July and stayed below zero in the last seven months. Major crises could break out unexpectedly, crashing our party. The year-long Russia-Ukraine conflict could intensify, tensions in the Taiwan Strait could escalate, and the US government might not be able to avoid a national debt default. A Hedged Position on Stock Index Futures We could consider using the CME Micro E-mini S&P futures to establish a bullish position on the U.S. stock market. The June contract MESM3 is currently quoted at 4177, which is 58 points above the cash index. To protect my position from any adverse market movement, an out-of-the-money put option could be placed at the 3950-strike. If you are more pessimistic, a lower strike of 3840 may be considered. The benefit of futures over cash index ETFs lies with the leverage. With a smaller margin deposit upfront, investment return could be amplified if the market moves in your favor. The downside is that the loss will also ramp up quickly if the market moves against you. Put options protect us from any downfall below the strike price. Unlike futures, the maximum loss from a long options position is the premium you have paid upfront. A combination of long futures and long put options is, in theory, limited downside with unlimited upside. The risk and return tradeoff are asymmetry in this case. As a result, you can have the cake and eat it too! Happy trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trade set-ups and express my market views. If you have futures in your trading portfolio, check out on CME Group data plans in TradingView that suit your trading needs www.tradingview.com
CBOT_MINI:10Y1!Long
by JimHuangChicago
9
XAUUSD Potential Bearish Trade.The chart for XAUUSD could be a bearish trade given that the Federal Reserve increase interest rates to 25bp, this Federal decision could affect the XAUUSD trade favor to USD side, but according in the Federal report by Jerome Powell, Chairman of Federal Reserve, "that is for Congress to raise the debt ceiling so that the United States government can pay all of its obligations when due," Powell said. "Any deviations from that path would be highly risky. And no one should assume that the Fed can protect the economy from the consequences of failing to act in a timely manner." Powell said. Trader should assets the trading situation before placing a trade. If trend is bearish, the potential price point could be the three Fibonacci Retracement. A possible bearish trend at three Fibonacci Retracement level. 1.(1827.11 at 0.382 Fibonacci Retracement level) 2. (1786.92 at 0.5 Fibonacci Retracement level) 3. (1746.74 at 0.618 Fibonacci Retracement level) Forex Disclaimer. This Published idea is intended to be used and must be used for information purposes only and not for investment advice. It is important to do your own analysis in forex trading before making any investment based on your own personal circumstances. Regardless of anything to the contrary, nothing available on or through this information should be understood as a recommendation that you should not consult with financial professional to your particular information. Forex trading may sustain a total loss greater than the amount you deposited to your account if the forex trading move against to the trader. The said forex is the responsible for all the risk and financial resources and trading system that has been used by the trader.
FX:XAUUSDShort
by wilhelmvine21
US FED Rate Rise and BTC PAPosting this again while we wait for the US Federal Reserve ( A PRIVATE Group of Representatives of Private Banks) to come out and announce the next rate Rise. I feel it is important to note how BTC has reacted in the past. Mostly well. The major declines in PA are NOT actually from A Direct result of Rises but more the effect on other things. Both LUNA and FTX suffered a lack of liquidity as Loans became more expensive. This is an indirect result as far as I am concerned. There are a number of occasions were the rate raise has NOT negated PA, as can be seen on the chart. Today, we are expecting a 25 point rise which shoud be a boost but should a 50 or 75 come in, It may be negative for a short while but as can be seen, soon recovers Enjoy
BITSTAMP:BTCUSD
by Orriginal
4
NQ Power Range Report with FIB Ext - 2/1/2023 SessionCME_MINI:NQH2023 - PR High: 12121.50 - PR Low: 12096.00 - NZ Spread: 57.0 Evening Stats (As of 12:05 AM) - Weekend Gap: N/A - 8/19 Session Gap: -0.04% (open > 13237) - Session Open ATR: 260.07 - Volume: 19K - Open Int: 275K - Trend Grade: Bear - From ATH: -27.9% (Rounded) Key Levels (Rounded - Think of these as ranges) - Long: 12391 - Mid: 11820 - Short: 10678 Keep in mind this is not speculation or a prediction. Only a report of the Power Range with Fib extensions for target hunting. Do your DD! You determine your risk tolerance. You are fully capable of making your own decisions.
CME_MINI:NQH2023
by mv3trader5