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BluetonaFX - SPX Forecast Ahead of Fed SpeechHi Traders! SPX is trading near its five-month high at 4607.07, and with Fed Chair Powell speaking later, the market could reach this level by the end of the trading week. Price Action 📊 After the break and close of the previous resistance at 4541.25, the market has refused to go back below this level for the time being, and an ascending price channel has started to form. This indicates that the bulls are currently in control. 4607.07 is the five-month high, and this is the next most likely target the longer we stay above 4541.25. Fundamental Analysis 📰 Later today, we have Fed Chair Powell speaking; therefore, we must be wary of his speech as he will mostly likely speak about the US' inflation situation, interest rates, and plans for the economy leading up to 2024. Support 📉 4541.25: PREVIOUS RESISTANCE BREAK Resistance 📈 4607.07: FIVE-MONTH HIGH Risk ⚠️ No more than 2% of your capital. Reward 💰 At least 4% of your capital. Please make sure to click on the like/boost button 🚀 as your support greatly helps. Trade safely and responsibly. BluetonaFX
SP:SPXLong
by BluetonaFX
GREED, GREED, GREED but what follows?About a month back, I made a solid move in the market that sparked a strong rally. Now, as we near the end of a strong earnings season, I'm in a neutral position, but I'm taking steps to secure gains by trimming my positions. I reckon a decent pullback would be beneficial before considering further upward movement. There's quite a few gaps to fill due to some impulsive buying, and I believe reallocating capital is crucial for a healthier market, especially considering how much weight big tech holds in the SPY. NVIDIA's earnings showed remarkable strength. They surpassed already optimistic expectations by a significant 10%. The $600 target set by premium sellers seemed overly ambitious, yet those sellers managed to benefit from the earnings report released last week. Many institutional investors are operating under the assumption of a smooth landing in 2024, envisioning reduced rates, a depreciating US Dollar, a weakened Chinese macroeconomy, and sustained dominance in Large Cap Tech. The consensus among fund managers leans towards the belief that the Fed's rate hike cycle is nearing its end, with expectations of forthcoming decreases in short-term rates. Additionally, there's a noticeable shift of interest towards Real Estate Investment Trusts (REITs) and Japanese stocks. (Source: BofA Global Fund Manager Survey, BLOOMBERG)
AMEX:SPY
by SPADESASSETS
US30 general viewEnglish For this index, I see how we are on a bullish rally (Christmas rally) which is about to break its last H(HIGH) and unless something happen with the FOMC on December, I wouldn`t expect to start a bearish movement. We are currently in a monthly OB which is the last H, if it breaks that H, we could expect higher prices and maybe break the ATH price, but we also have the possibility to go down, but in this point, it is up to the FOMC and all they say on December, let`s see how the price moves. By now, it looks better to buy and not to sell, it is more probable to happen. *THIS IT NOT INVESTMENT RECOMMENDATION OR SOMETHING LIKE THAT, THIS IS ONLY FOR ANALYSIS AND EDUCATION PURPOSE* Español Para este ìndice, veo como estamos en pleno rally alcista (Rally navideño) el cual está cerca de romper su máximo anteriores y a menos que la FED comente algo en su reunión en diciembre que afecte al dolar, seguramente siga subiendo, no espero iniciar un movimiento a la baja. Estamos en pleno OB mensual bajista, el cual puede servir de contenedor para que no suba, pero lo puede romper e incluso subir a su precio ATH y romperlo, vamos a ver cómo se mueve el mercado después de la reunión de la FED en diciembre. De momento, es más probable comprar y tener éxito que vender. *ESTO NO ES RECOMENDACIÓN DE INVERSIÓN NI NADA QUE SE LE PAREZCA, ESTO ES SOLO PARA ANÁLISIS Y EDUCACIÓN*
PEPPERSTONE:US30
by DarkTradingCapital
SR3: Trading Opportunities in a Disrupted Treasury MarketCBOT: Three-MO SOFR Futures ( CME:SR31! ) Breaking News: The US Treasury bonds are risk-free No Longer ! Last Friday, top credit ratings agency Moody's lowered its credit outlook on the U.S. to "negative" from "stable", citing large fiscal deficits and a decline in debt affordability. It has so far maintained the AAA credit rating for U.S. sovereign bonds. This move follows a rating downgrade by Fitch, another major ratings agency. On August 1st this year, Fitch cut U.S. credit rating from AAA to AA+, a decision made following months of political brinkmanship around the U.S. debt ceiling. Going back, the S&P was the first credit agency to give Uncle Sam a bad grade. It cut the U.S. credit rating from AAA to AA+ in August 2011 and has maintained it ever since. U.S. credit rating is now lower than that of Australia, Canada, Denmark, Germany, Luxemburg, Netherlands, Norway, Singapore, Sweden, Switzerland, and the European Union. These countries all enjoy AAA ratings from the top-3 major ratings agencies. The risk-free assumption on US Treasury bonds has long been the foundation of the global credit market. It typically measures the riskiness of a debt issue by adding risk premium(s) on top of a risk-free interest rate, which by default is the Fed Funds rate. If the U.S. bonds are no longer deemed risk-free, should we change “the mother of all reference rates” with a new risk-free rate? It would be like cracking the foundation of the Empire State Building and will bring chaos to the $133-trillion global bond market. In my opinion, this Doomsday scenario is very unlikely to occur. ‘A revisit of the following high-profile credit market events helps us understand why. August 2011: the S&P downgraded U.S. credit rating On August 5, 2011, the S&P announced its decision to give its first-ever downgrade to U.S. sovereign debt, lowering the rating by one notch to "AA+", with a negative outlook. S&P was direct in its criticism of the governance and policy-making process, which took the U.S. to the brink of default as part of the 2011 U.S. debt-ceiling crisis. This unprecedented downgrade drew sharp criticism from the Obama administration and the U.S. Congress, but the S&P refused to budge. What did the investors think? • The 10-Year Note with a par value of 100 traded at around 130 before the downgrade. A month later, its price hardly moved. By year end 2011, the 10Y note rose to 132. • The 30-Year Bond was quoted at 136. It reached 145 by year end, up 6.6%. • Following the downgrade, the S&P 500 lost 7.6% in August. But it quickly rebounded. The S&P ended the year at 1,258, up 3.3% from before the downgrade. I rephrase a famous quote to explain what happened: “When the U.S. sneezes, the World catches a cold.” The U.S. downgrade created a bigger chao in global markets. Investors pulled money out of emerging markets, which were considered even riskier. They put money back in the U.S. stocks and bonds, which, ironically, are deemed safer. There has not been any long-term impact from the S&P downgrade, or from its decision to keep U.S. rating at the less-than-perfect rating: • The S&P settled at 4,415 last Friday, up 260% since the downgrade in 2011; • US GDP has grown from $15.6 trillion in 2011 to $25.5 trillion in 2022, up 63%; • In 2011, US national debt totaled $14.8 trillion, a level the S&P considered as “unsustainable”. It has now mushroomed to $33.7 trillion, up 128%. The U.S. government has not defaulted on any debt or missed any interest payment. August 2023: Fitch downgraded U.S. credit rating In a surprise move on August 1st, Fitch downgraded U.S. Treasuries to AA+ from AAA. The U.S. markets were already in decline following the July 25th Fed decision to raise interest rates by 25 bps to 5.25-5.50%. Markets were clearly driven by the Fed, and the Fitch downgrade was merely a footnote. • The 10-Year Note traded at around 112 at the time of the downgrade. It fell as much as 6% to 105. The 10Y note has recovered somewhat to 107 by Monday. • The 30-Year Bond was quoted at 136. It dipped to 108 (-20%) by October, and it’s now quoted at 113, a rebound of nearly 5%. • Following the July rate hike, the S&P 500 has dropped from 4,588 to 4,117, a sharp 10% drawdown. However, it has since staged ten winning streaks, pushing the index back to 4,415, an impressive 300-point rebound (+7.2%). November 2023: Moody’s lowered U.S. credit outlook Last Friday November 10th, Moody's kept U.S. credit rating at AAA, but lowered its outlook to "negative" from "stable", citing large fiscal deficits and a decline in debt affordability. • The 10-Year Note ended the day at 4.646%, a modest gain of 0.016%. • The 30-Year Bond was settled 4.756%, down 0.011%. • The S&P 500 closed at 4,415, up 68 points or +1.6%. The U.S. hardly moved on Monday, as investors waited for the new inflation data. Today, the BLS reports that October CPI was unchanged from previous month, with the annual headline CPI dropping to 3.0%, below market expectations. The S&P pushed up 2% to reach 4,500 in morning trading. There you see how little the impact from a downgrade. Trading with CBOT SOFR Futures In “SOFR: Farewell to LIBOR”, published on July 3rd, I explained that the Securitized Overnight Funding Rate (SOFR) has already replaced the London Interbank Offering Rate (LIBOR) as the leading global credit market benchmark. If you are curious about what this means to you, check out your credit card agreement. You would find that the bank interest rate calculation usually consists of a “prime rate” and a markup, where the prime rate is defined as the sum of SOFR and a fixed rate. CBOT 3-Month SOFR Futures ( FWB:SR3 ) lists 40 quarterly contracts. It shows what the SOFR would be, quarter by quarter, ten years down to road. Based on Friday settlement prices and volume, here is the market consensus on SOFR through the end of 2024: • Current Fed Funds rate: 5.25-5.50% • December 2023 SOFR: 5.415%, volume: 265,153 • March 2024 SOFR: 5.350%, volume: 283,053 • June 2024 SOFR: 5.140%, volume: 324,902 • September 2024 SOFR: 4.880%, volume: 469,238 • December 2024: SOFR: 4.605%, volume: 402,005 SOFR futures are the most liquid futures contracts in the world. On Friday, 2,787,432 lots changed hands. Open interest was 10,655,832 contracts. The contracts showed here each traded over a quarter million lots in a single day. We could assume that market prices reflect best investor consensus on interest rate level at any given time in the future. Here are my observations: • The lead December contract is quoted at 5.415%, in line with the current Fed Funds range of 5.25-5.50%. It dropped to 5.3675% Tuesday after the CPI data. • The September 2024 quote of 4.635% on Tuesday, is 62-87 bps below range, indicating 2-3 rate cuts of 25 bps within the next ten months. • The December 2024 quote of 4.330% is 92-107 bps below range, indicating three to four rate cuts by the end of next year. In my opinion, the Fed decision, the Fed Chair statement and the latest data on payrolls and inflation, sent conflicting signals to the market, creating confusion among investors. Market prices are temporarily dislocated, which may present trading opportunities. The September 2024 quote indicates two or three rate cuts. I think that this assumption is too aggressive. The Fed, in both its statements and the Fed Chair public comments, repeatedly stressed that it never raised the issue of if or when to cut rates. If a trader holds the view that the September SOFR rate shall rise, he could express it with a short position in SOFR futures. The quoting convention of SOFR future is 100-R, where R is the effective interest rate. If the rate goes up, futures price will go down. SOFR contracts have a notional value of $2,500 x contract-grade IMM Index. Each 1 basis-point move would result in a gain or loss of $25 per contract. The minimum margins are $850 for the September contract. Hypothetically, if the trader is correct and the rates turn out to be 25 bps high, he would have a theoretical return of $625 per contract (= 25 X 25). The trader would lose money if the Fed cut rates faster than anticipated. 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 trading set-ups and express my market views. 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
CME:SR3Z2023Short
by JimHuangChicago
DOGe - blue fractal dactyl propagation Hello, and happy SET YOUR CLOCK ON FIRE DAY! DOGe Coin is doing its beautiful thing… going for a nice little run! :) Good Boy! Sit, Stay, DOGe coin! Also… if you want tot see the future of crypto, check this mural: www.reddit.com Good Luck, God Speed, Love & Light to all! Q: What are dogs best known for? A: Infinite love. Is this the only coin built on love, and not chained to the Federal Reserve and the matrix of corrupt money? must be!
GEMINI:DOGEUSDLong
by DHLawrence
2
DXY Analysis 10-11-23Overnight, Fed Chair Jerome Powell surprised markets with his comments that "the bigger mistake remains not getting rates high enough" and that "the US economy has been stronger than expected". These hawkish comments spurred market anticipation that the Fed is not done with the current rate hike cycle, lead to a sharp increase in the DXY. The DXY broke out of the consolidation, first testing the short-term 50% fib retracement level (105.35) before rising to consolidate just under the 106 round number level and at the 50% fib retracement level from the longer term. While the DXY could retrace briefly to retest the 105.65 level, look for the price to climb and break above the 106 level to trade higher toward 106.25
TVC:DXYLong
by JinDao_Tai
ES: Fed Pivot Breathes Life into MarketsCME: E-Mini S&P 500 Options ( CME_MINI:ES1! ) Last Wednesday, investors cheered as the Fed kept interest rates unchanged for the second time in a row. On Friday, a soft jobs report backed up market expectations that the rate-hiking campaign is over. For the full week, the Dow was up by 5.07% in its best week since October 2022. The S&P was higher by 5.85% and the Nasdaq gained 6.61%. It was the best week for both indexes since November 2022. Investors Choose to Ignore What the Fed Says Stock market behavior shows that the Fed is still the dominant driver. Drilling down further, I find that what moves market is not the actual Fed action, but the expectation of what the Fed would do next. Very often, such market-moving expectations could be in direct contradiction of the Fed Chair’s public statement. At the post-FOMC press conference, the Fed Chair said that they had not made a decision for the next meeting. He also stated that pausing now would not prevent the Fed from raising rates again. The Fed Chair stressed that they had not discussed if or when to cut rates. The overarching focus now is to bring inflation down to the 2% target rate. Investors think otherwise. According to CME FedWatch Tool, the probability of keeping rates unchanged on the December 13th FOMC is 95.4% as of November 5th. By the FOMC meeting scheduled on May 1st, 2024, the odds for cutting rates by 25-50 bps are 71%. (Link: www.cmegroup.com) Investors acted upon their expectations. Prior to the Fed meeting, Treasury yields were rising sharply. 10Y rose from 4.5% to above 5.0% in 11 days. In the three days following the rate decision, 10Y took a nosedive and now back to 4.6%. This dramatic changes in yields took place while the Fed did nothing. The stock market rebound could be attributed to the change in expectations too. Lowering rates has the effect of raising the present value of future cash flows, thus increasing a company’s market value, as prescribed by the Discounted Cash Flow valuation method. The collapse of the US dollar is due to the expectations that it would not generate higher returns without further rate increases, according to interest-rate parity theory. Let’s look at two more examples: On July 26th, the Fed raised rates by 25 bps. This was the 11th consecutive rate hike. US stocks rose initially, with the major indexes going up 1-2%. Investors interpreted that this marked the end of Fed tightening. The expectations of Fed Pivot drove market higher, even though the Fed continued to stress the important for fighting inflation. The September 20th FOMC was the first Fed Pause. On face value, this should have been taken as a huge positive. However, investors believed that the Fed would raise rates one more time by year end. US stocks falls so much that both S&P and Nasdaq lost more than 10% from their high and entered contractionary territory. Trading with E-Mini S&P Options What’s the implication from the above observation? 1. Investors may have an easier time forecasting the Fed decision itself than the market reaction after worth. A 95% probability of a Fed Pause could not tell if the stock market would rise or fall after the decision is made. 2. Investor expectations could be adjusted very quickly. Following the Fed decision, the stock market could move up or down by 5% in a week. We could build an event-driven strategy focusing on the December 13th Fed meeting. If we think that the stock market would make a sizable move after the Fed decision, CME E-Mini S&P Options on Futures could be used to express this view. The trade would not be built by this single insight only. There are more: The November jobs report will be released on Friday, December 8th, and the November CPI data will be published on Tuesday, December 12th. These big reports, available to the Fed right before the FOMC, could have a major impact on its rate decision. More importantly, it could alter investor expectations and drive market volatility. The December 2023 contract (ESE3) will be expired on Friday, December 15th, two days after the FOMC. It is also the “Triple Witching Day”, where US stock index futures, stock index options, and single-stock options contracts all expire on the same trading day. My writeup from September shows that stock market is highly likely to make a big move on Triple Witching and on the days leading up to it. With big reports, Fed decision and Triple Witching all within one week, the stock market could enter wild swings as investors digest new data. Time is ripe for options traders. CME E-Mini S&P 500 Options provide leverage and capital efficiency. Options are based on futures contracts. Contract notional is $50 x S&P 500 Index. On the morning of November 6th, the December futures contract is quoted 4,384. The out-of-the-money (OTM) call strike 4,580 is the most active call options, with over 50,000 lots traded. If a trader purchases a call and it finishes at 100 points above the strike, she will realize a gain of $5,000 (=50 x 100), minus the upfront premium she paid. If the market moves against the trade, with the index value below the strike, she will lose money, up to but not beyond the upfront premium. The OTM put strike traded 1,023 lots. If the trader purchases a put and it finishes 100 points below strike, the trader will also make $5,000, minus the premium. If the market moves against the trade to finish above the put strike, the trader will lose money, up to but not beyond the upfront premium. 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 trading set-ups and express my market views. 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
CME_MINI:ES1!Long
by JimHuangChicago
6
No such thing as a Hawkish pause? USD overrated? Has the market adopted the term “hawkish pause” to bolster USD bids? It could be possible that, in an attempt to drag out USD strength just a little bit longer (euro has weakened –4.20% in past 6 months), the term Hawkish Pause has been thrown around with not-enough criticism. Not many people have confidence in the US Fed to really make the hard decisions (transitory inflation anyone?), including being able to start up the rate hiking engine again (this year or next) after a few pauses. If they do, will they do it in a timely manner? Jerome Powell, this morning noted in his public address that the committee hasn’t discussed what it might plan for its December decision but dismissed the idea that it would be difficult to start hiking again (if the conditions in the market require such an action). There are two more inflation readings and two more labor market readings before the last decision of the year. Maybe investors have shrugged off the hawkish pause rhetoric this morning though. The Australian dollar is pumping, up 0.94% at last look, while the dollar has fallen more than half a percent against the yen. The euro is only up 0.16%.
by BlackBull_Markets
Should I do a FOMC strangle/ straddle play? Read here.So, what's the best way to play FOMC? Probably a strangle. According to last FOMC on 9/20 your NASDAQ:QQQ calls would have printed around +50% or more. Assuming you sold and held your puts, your puts would have given you an extra 200% to 300%. You can do this on any stock obviously. Don't get greedy. Best decision might be to stay out of course. Choosing a definite direction (i.e. holding calls/ puts only without a hedge) is pure gambling. Good luck. Welcome to follow for trade ideas. FOMC chart 9/20:
NASDAQ:QQQ
by kingdips
How the Fed affects long Bond YieldsInverse chart of US10Y Yield to show changes in Bond prices. Overlayed with the following: Fed Funds Rate US Treasury Deposits to Federal Reserve Banks Increase/Decrease Rate of change to Fed Balance Sheet Balance Sheet Total in separate pane below The USCBBS Percentage Change shows the money raining down :-D It's clear to see the relationship between the Fed buying Treasuries, i.e. Quantitative Easing (QE) and the increase in US10Y prices. Quantitative Tightening (QT) is the name of the game now. There is A LOT of QT left to do, we're at most 25% into QT since the Fed has only rolled off roughly 1Trillion. They likely have 3+ Trillion to go. Expect US10Y to be under continued pressure as long as QT is in effect. Even when Fed Funds rates are lowered it will have little effect on US10Y while the biggest buyer of Treasuries is on hiatus.
TVC:US10Y
by RobBiddle
Analyzing GOLD: Market Dynamics and Trading strategyThe XAU/USD currency pair, a dynamic interplay between gold and the US dollar, is currently navigating through pronounced market fluctuations. In this comprehensive analysis, we will delve into the intricate interplay of fundamental factors steering the value of XAU/USD. Our focus extends to the looming potential of The Federal Reserve's interest rate adjustments, the consequential shifts in the 10-year US Treasury Yield, and the intricate repercussions woven into the fabric of the Russia-Ukraine and Israel-Palestine conflicts. Moreover, we will embark on a journey through the undulating terrain of gold price fluctuations, deciphering their nuanced implications for the volatility inherent in this currency pair. As we scrutinize both the fundamental and technical dimensions, our aim is to provide traders with a nuanced understanding of the multifaceted forces currently at play, guiding them toward informed and strategic trading decisions. Join us as we unravel the layers of complexity inherent in the XAU/USD market, offering insights that transcend the surface, into the heart of this captivating financial landscape. Fundamental Analysis Potential Rise in The Fed's Interest Rates The Federal Reserve, the central bank of the United States, stands at the forefront of XAU/USD trader considerations. Despite maintaining interest rates in the latest meeting, speculation about future rate hikes has introduced uncertainty. A hike in interest rates could diminish gold's allure as a risk-free investment alternative. Gold investors tend to favor assets offering higher yields when interest rates rise. Increasing 10-Year US Treasury Yield The recent upswing in the 10-year US Treasury Yield over the past few months has adversely impacted XAU/USD. Gold, often considered a safe-haven asset, typically experiences decreased demand as bond yields rise. Investors seeking protection tend to shift towards bonds offering higher returns than gold, resulting in a decrease in the value of XAU/USD. Impact of Russia-Ukraine and Israel-Palestine Conflicts Geopolitical uncertainty stemming from the Russia-Ukraine and Israel-Palestine conflicts plays a pivotal role in the dynamics of XAU/USD. As a traditional safe-haven asset, gold tends to attract attention during periods of uncertainty. Elevated geopolitical tensions increase the demand for gold, contributing to an upsurge in the value of XAU/USD. Gold Price Fluctuations: Implications for XAU/USD The notable fluctuation in gold prices, reaching $1,750 per ounce on September 21, 2023, and subsequently declining to approximately $1,700 per ounce on October 20, 2023, reflects significant market volatility. The dip in gold prices could be attributed to a combination of factors, including expectations of interest rate hikes and a shift in investor preferences towards higher-yielding assets. Technical Analysis Indicator Analysis XAU/USD exhibits overbought signals on the STOCHRSI(14) and MACD(12,26) indicators. However, the elevated volatility serves as a warning for potential market direction changes. The 200-day Exponential Moving Average (EMA) confirms a bullish trend, instilling confidence in traders. Support and Resistance Levels According to Barchart, current support and resistance levels are as follows: 1st Resistance Point at 1,986.06, Last Price at 1,994.86, 1st Support Level at 1,954.30, 2nd Support Level at 1,934.11, and 3rd Support Level at 1,914.30. These levels serve as crucial guides in planning trading strategies. Trading Strategy The employed trading strategy involves entering positions after the price breaks and retests the breached support and resistance (S&R) levels. The target price is set before the next resistance level or prior to the Fed speech on October 25, 2023, considering potential unforeseen events. Trade Parameters Based on the above analysis, several trade parameters are identified: Entry Point: When the gold price rises and re-test the previous resistance level. Stop Loss: Placed below the nearest support level to safeguard against sharp declines. Target Profit: Before the next resistance level or prior to the Fed speech on October 25, 2023, considering potential unforeseen events Conclusion: This analysis illuminates the intricacies of XAU/USD, emphasizing the intertwined nature of complex fundamental and technical factors. As investors grapple with potential Fed rate hikes, changes in the 10-year US Treasury Yield, and geopolitical conflicts, a comprehensive understanding of risks is essential. The fluctuation in gold prices serves as a vital indicator, highlighting the need for vigilant monitoring of news and Federal Reserve policies. In navigating these volatile market conditions, prudent trading strategies and effective risk management become indispensable for success in trading XAU/USD.
FXOPEN:XAUUSDLong
by fardycurry
Markets embrace the Higher-for-Longer themeIt has been a big week of central bank policy announcements. While central banks in the US, UK, Switzerland, and Japan left key policy rates unchanged, the trajectory ahead remains vastly different. These central bank announcements were accompanied by a significant upward breakout in bond yields. Interestingly most of the increase in yields has been driven by higher real yields rather than breakeven inflation signifying a tightening of conditions. The bond markets appear to be acknowledging that until recession hits, yields are likely to keep rising. Connecting the dots The current stance of monetary policy continues to remain restrictive. The Fed’s dot plot, which the US central bank uses to signal its outlook for the path of interest rates, shows the median year-end projection for the federal funds rate at 5.6%. The dot plot of rate projections shows policymakers (12 of the 19 policymakers) still foresee one more rate hike this year. Furthermore, the 2024 and 2025 rate projections notched up by 50Bps, a signal the Fed expects rates to stay higher for longer. The key surprise was the upgrade in growth and unemployment projections beyond 2023, suggesting a more optimistic outlook on the economy. The Fed’s caution is justified amidst the prevailing headwinds – higher oil prices, the resumption of student loan payments, the United Auto Workers strike, and a potential government shutdown. Quantitative tightening continues on autopilot, with the Fed continuing to shrink its balance sheet by $95 billion per month. Risk assets such as equities, credit struggled this week as US yields continued to grind higher. The correction in risk assets remains supportive for the US dollar. A hawkish pause by the Bank of England In sharp contrast to the US, economic data has weakened across the board in the UK, with the exception of wage growth. The weakness in labour markets is likely to feed through into lower wages as discussed here. After 14 straights rate hikes, the weaker economic backdrop in the UK coupled with falling inflation influenced the Bank of England’s (BOE) decision to keep rates on hold at 5.25%. The Monetary Policy Committee (MPC) was keen to stress that interest rates are likely to stay at current levels for an extended period and only if there was evidence of persistent inflation pressures would further tightening in policy be required. By the next meeting in November, we expect economic conditions to move in the MPC’s favour and wage growth to have eased materially. As inflation declines, the rise in real interest rates is likely to drag the economy lower without the MPC having to raise interest rates further. That said, the MPC is unlikely to start cutting rates until this time next year and even then, we only expect to see a gradual decline in rates. Bank of Japan maintains a dovish stance Having just tweaked Yield Curve Control (YCC) at its prior Monetary Policy Meeting (MPM) on 28 July, the Bank of Japan decided to keep its ultra easy monetary settings unchanged. The BOJ expects inflation to decelerate and said core inflation has been around 3% owing to pass-through price increases. Governor Ueda confirmed that only if inflation accompanied by the wages goal was in sight would the BOJ consider an end to YCC and a rate shift. With its loose monetary policy, the BOJ has been an outlier among major central banks like the Fed, ECB and BOE which have all been hiking interest rates. That policy divergence has been a key driver of the yen’s weakness. While headline inflation in Japan has been declining, core inflation has remained persistently higher. The BOJ meeting confirmed that there is still some time before the BOJ exits from negative interest rate policy which is likely to keep the Yen under pressure. The developments in US Monetary Policy feeding into a stronger US dollar are also likely to exert further downside pressure on the Yen. This year global investors have taken note that Japanese stocks are benefitting from the weaker Yen, relatively cheaper valuations and a long-waited return of inflation. Japanese companies are also becoming more receptive to corporate reform and shareholder engagement. Adopting a hedged Japanese exposure Taking a hedged exposure to dividend paying Japanese equities would be a prudent approach amidst the weaker yen. This goes to a point we often make - currency changes do not need to impact your foreign return, and you can target that local market return by hedging your currency risk. A hedged Japanese dividend paying equity exposure could enable an investor to hedge their exposure to the Yen. This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
TVC:US10Y
by aneekaguptaWTE
1
SP500 BULL ACCUMULATIONHello! I see SP500 has formed some bottom on 12H timeframe and closed beyond previous 12H High Point. Bulls are gaining more strength in this market, that has seen 3 weeks of countinious decline. It looks just about to swing higher. Taking into consideration that previous weeks NFP data came out much stronger then forecast, about 330k new payrolls added to the economy tells of a strong labor market. This adds to the FEDs case to raise interest rates further and would be bearish for the SP500. This was not the expected market reaction, instead a small decline was followed by a steep increase and that is telling me bears are running out of steam. Write in the comments what you think will happen next week!
BLACKBULL:SPX500Long
by eediiz
BTC BULLISH BRAINSTORMHappy Spooky Season boys and girls! Here is just a mock up of how I have been navigating Bitcoin. I am currently short term bullish and possibly long term bullish due to the season and recent price action across major indexes, commodities, the dollar, and Treasury yields. However that is remain to be seen and I will adjust my theses when necessary. Cool side note: If you had been dollar cost averaging every time BTC went oversold on the daily RSI over the last 12-18 months, you would have an average price per Bitcoin somewhere in the ballpark of $20,000. As of today you would be up 37% on that strategy.
COINBASE:BTCUSDLong
by ChazzyFreshh
S&P500 Vulnerabilities: from Money Supply to Sectoral ImbalancesAs much as we try not to repeat ideas here, occasionally, an opportunity emerges to harp on the same point. As we have previously laid out the bear case for the S&P 500 from a historical volatility behavior perspective, this week we will zoom in on other metrics showing why we think the S&P may struggle from here. The first and most interesting measure, in our opinion, is the S&P 500 when adjusted by the money supply. Once again it appears to have peaked and is on the path of reversal now. The S&P500 / Money Supply has reached these levels not once, not twice but thrice, stopping at the same level before reversing. More importantly, overall, we see the S&P 500 clearly climbing up in line with the level of money supply. Money supply has been on a decreasing trend since the start of the Federal Reserve hikes. While the downtrend has been paused momentarily with money supply slightly increasing in early 2023 it now seems to have resumed the downward path. This could spell bad news for equities given that the S&P has broadly followed money supply and the clear resistance observed on the S&P 500 / Money Supply chart. As yields creep higher, investors will eventually second guess whether it still makes sense to put more into the equities when cash now yields more. The 6-month treasury yield is now higher than the S&P 500 earnings yield, a phenomenon not experienced since the turn of the millennium. A federal reserve resolute in keeping rates higher for longer might just be the kicker for investors to turn to these shorter dated treasuries while waiting out equity volatility. With a series of better-than-expected economic data, the Federal Reserve once again gains greater headroom to maintain its higher for longer stance, which is causing discomfort in the equities market. All eyes will be on the Non-Farm Payrolls numbers coming out tomorrow for further confirmation if the US economy can indeed take this regime of higher rates. Within the S&P 500, the Technology sector remains the significant outperformer compared to other sectors like Financial, Consumer Staples and Energy. With the Technology Sector / Financial Sector ratio extending far beyond the trend from 2017. The combination of money supply metrics, yield comparisons, and sectoral imbalances, among other factors, makes a compelling case for a bearish outlook on the S&P 500. For investors seeking targeted strategies, CME E-MINI Select Sector Futures offers a refined approach, allowing for an overall bearish view on the S&P 500 while building positions in certain sectors through a relative value strategy. To express the bearish view on the technology sector relative to the financial sector, we can take a short position on the E-MINI Technology Select Sector Futures and a long position on the E-MINI Financial Select Sector Futures. Given the contract size differences, to roughly match the notional, we will need 3 E-MINI Financial Select Sector Futures at the current level of 405 to match 2 E-MINI Technology Select Sector Futures. 3 x E-MINI Financial Select Sector Futures Notional = 3 * 405 * 250 USD = $303,750 2 x E-MINI Technology Select Sector Futures Notional = 2 * 1678 * 100 USD = $335,600 Each 0.1 index point move in the E-MINI Technology Select Sector Futures is $10, while each 0.05 index point move in the E-MINI Financial Select Sector Futures is $12.5. 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
SP:SPXShort
by inspirante
Unlocking SPDR S&P 500 ETF Trust's PotentialAt the start of 2023, our key assumption was that bullish trends would dominate the market this year despite the challenging global macroeconomic conditions following the post-COVID-19 era. Our prediction proved accurate, as the SPDR S&P 500 ETF Trust has already surged by over 10%, despite the ongoing high hydrocarbon prices. Bears have been trying to regain control and putting downward pressure on SPY in recent weeks. Adding fuel to the fire was the news that the Federal Reserve is ready to raise interest rates again if necessary, Jerome Powell said following the meeting at the end of September. "Given how far we have come, we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks. Real interest rates now are well above mainstream estimates of the neutral policy rate, but we are mindful of the inherent uncertainties in precisely gauging the stance of policy. We are prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we are confident that inflation is moving down sustainably toward our objective. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments." However, despite the negativity spreading in the media, in our opinion, all movements are taking place within the framework of corrective wave 4, which will be completed this week. Overall, we believe that the Fed will not tighten its monetary policy as American savings continue to decline, which, given the rise in household debt, poses a significant threat to the stability of the US financial system. In conclusion, we would like to note that we are optimistic about the American economy, which is showing its stability while China cannot recover from the COVID-19 pandemic. As a result, we expect that the price of SPDR S&P 500 ETF Trust will continue its movement within the impulse wave 5 up to $461-462. Analyst’s Disclosure: This article may not take into account all the risks and catalysts for the assets described in it. Any part of this analytical article is provided for informational purposes only, does not constitute an individual investment recommendation, investment idea, advice, offer to buy or sell securities, or other financial instruments. The completeness and accuracy of the information in the analytical article are not guaranteed. If any fundamental criteria or events change in the future, I do not assume any obligation to update this article.
AMEX:SPYLong
by ALLKA_RESEARCH
4
Fed Pause is the New Restricted PolicyCME: Micro Russell 2000 ( CME_MINI:M2K1! ) Global financial market orbits around Federal Reserve’s interest rate decisions. By concept, hiking interest rates means monetary tightening while cutting them signals easing. In reality, market perception to the Fed actions evolves over time, sometimes blurring the difference between “good news” and “bad news”. • On May 5, 2022, the Fed surprised the market with a larger-than-expected 50-bps rate hike. The S&P 500 fell 3.6%. This is a normal market reaction to bad news. • On July 27, 2022, the Fed hiked 75 bps and the S&P soared 2.6%! Previous meetings saw the Fed raising the stake from 25 to 50 and then 75 bps. By not getting a bigger 100-bp hike, investors were relieved and cheered as if it were good news. • On February 1st, the Fed raised for the 8th time, but the S&P went up 1%. With lower-than expected inflation, investors concluded that this would be “the last” rate hike. • On September 20th, the Fed paused after raising for 11 consecutive times. The S&P were down 1% as investors were spooked by the hawkish Fed statement. Last Friday, the Bureau of Economic Analysis (BEA) reported that personal consumption expenditures price index (PIC) excluding food and energy increased 0.1% for August, lower than expectation. On a 12-month basis, the index was up 3.9%. As the Fed’s favorite inflation gauge shows that the fight against higher prices is making progress, “Fed Pause” might be the new baseline case for the US central bank’s interest rate decision. The futures market agrees. CME FedWatch Tool shows that the probability of the Fed keeping rate at 5.25-5.50% is high through Mid-2024. Specifically: (Link: www.cmegroup.com) • Fed pause on November 1st, 2023 FOMC meeting: an 82% probability • Fed pause on December 13th, 2023: at 65% • Fed pause on January 31st, 2024: at 65% • Fed pause on March 20th, 2024: at 60% • Fed pause on May 1st, 2024: at 49% Last year, a Fed Pause meant slowing the rate hikes. It has a very different meaning now: to keep the interest rate higher for longer. Therefore, what was once a signal of easing should now be viewed as restricted monetary policy. Even if the Fed stops raising rates, the cumulative effect of past rate hikes would continue to ripple through the US economy. Government policy has a lagging period, but it has passed. Households and businesses now feel the full force of higher borrowing costs. Below are two-year changes of selected interest rates from the FRED: • 30-Year-Fixed Mortgage Rate: from 3.01% to 6.29% to 7.29% • 72-Month New Car Loan: 4.17% - 5.19% - 7.80% • Credit Card Interest Rate: 14.61% - 15.13% - 20.68% • Baa Corporate Bond Yields: 3.26% - 5.97% - 6.39% Restricted monetary policy would have negative impacts on stocks. Good news: Market prices show that investors have not yet adapted to changes in the Fed trajectory. Russell 2000: The Weakest Link The discounted cash flow (DCF) pricing theory states that stock price is the present value (PV) of expected future cash flows discounted by the weighted average cost of capital (WACC). A higher cost of capital shall cause stock price to fall, other things equal. Small- and medium-sized companies would be hit harder comparing to larger corporations. As rates go up, credit standard will be tightened, and credit spread will expand. Below are current bond rates charged to companies with different credit scores: • 10-Year Treasury Bond Yield: 4.58% • Moody’s Aaa Corporate Bond Yield: 4.95% • Moody’s Baa Corporate Bond Yield: 6.39% • Bank of America BBB Corporate Bond Yield: 6.31% • Bank of America BB High Yield: 7.55% • Bank of America CCC or Lower High Yield: 14.05% Russell 2000 is the benchmark stock market index for the US small companies. CME Micro Russell 2000 futures ( FWB:M2K ) has a drawdown of 200 points in the past two months, from yearly high of 2013 to 1807. The index is still up 2.6% YTD. As the Fed keeps rates high for the next 6-9 months, corporate bond yields could likely go higher. And the credit spreads, including Baa-Bbb, Baa-Bb, and Baa-Ccc, would likely get wider. This could put further downward pressure on the Russell index. Could we quantify the impact? Let’s illustrate this with a $1 million payment, to be received in five years. • Applying the BBB corporate bond yield 6.31% as the WACC, present value of $1 million will be $736,427. • If the WACC goes up by 200 bps, the PV will be reduced to $670,899. • This shows that a 2% increase in WACC could cause an 8.9% loss in market value. The same concept would work on the Russell index. WACC could go up, either due to a rise of general interest rate level, or because of the widening of credit spread. The result would be the decrease in the market value of Russell component companies. For someone with a bearish view of the Russell 2000, he could establish a short position in Micro Russell futures. The contract has a notional value at $5 times the index. At Friday closing price of 1807, each December contract (M2KZ3) is worth $9,035. CME Group requires an initial margin of $620 for each M2K contract, long or short. A short trader would gain $5 for each point the M2K moving down. Hypothetically, if the Russell is 5% lower, the 90-point slide would translate into $452 gain per contract. The risk of short futures is the index going up. If investors continue to perceive Fed Pause as “good news”, Russell could rise after the November and December FOMC meetings. 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 trading set-ups and express my market views. 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
CBOT:ZQ1!Long
by JimHuangChicago
1
Mexico’s Manufacturing Boom Lifted Peso to 5-Year HighCME: USD/Mexican Peso ( CME:6M1! ) What’s the strongest currency in 2023? Hint: Not the US dollar. • Although dollar index has rallied nearly 6% in the past two months, it gained just 2.1 points, or +1.9%, year-to-date, to settle at 105.583 as of September 22, 2023. • British Pound futures ( SEED_TVCODER77_ETHBTCDATA:6B ) was up 2.0% YTD, to close at $1.225 per pound sterling. • Euro FX ($6E) gained a meager 0.7% YTD, to $1.069 per euro. • Chinese Yuan ( FWB:CNH ) declined 5.5% YTD, from 6.991 to 7.295 yuan per dollar. • Japanese Yen ($6J) has lost over 11% YTD, from 130 to 146 yen per dollar. While most foreign currencies were under pressure as the US Federal Reserve embarks on the monetary tightening journey, Mexico boasts the world’s strongest currency this year. • Each dollar was exchanged for 19.70 Mexican Peso on January 1st. The exchange rate is now 17.41 as of last Friday. For the Peso, this represents a 12.7% gain. The strength of the Peso is built upon Mexico’s thriving economy. Riding on the waves of resurgent exports and booming manufacturing, Mexico has overtaken China as the biggest US trading partner. According to the latest US Census Bureau data, Mexico made up 15% of US imports in July, while China had a 14.6% share. From Offshoring to Nearshoring For decades, U.S. companies moved manufacturing offshore to lower production cost. Free trade helped grow global economy and lift the living standard of poorer nations. However, the world has experienced a series of trade disruptions lately: the US-China trade conflict, the Covid-19 pandemic and its supply chain disruptions, the Russia-Ukraine conflict and the export controls that followed. Their cumulative impact has called into question the vision of a globalized economy. To “de-risk” the potential disruptions in global supply chain, new trends has emerged to replace offshoring, namely, “Reshoring”, “Friend-shoring” and “Nearshoring”. Reshoring is the opposite of offshoring, with US companies bringing production back to the States. According to the “Reshoring Initiative 2022 Data Report”, this phenomenon contributed to the creation of 360K manufacturing jobs in 2022. • Cross-checking this claim with BLS nonfarm payroll data, I found that manufacturing employment is 13.0 million in August, up 106K year-on-year. “Made-in-America” is one of the reasons supporting a solid US job market. • While reshoring raises the cost of production, robotics and industrial automation offset some of the labor costs. Government funding and tax incentives also help. Friend-shoring encourages companies to shift manufacturing away from authoritarian states and toward allies with shared values. Countries such as India, Vietnam, Mexico, Indonesia, Malaysia, South Korea, Japan, and Brazil could benefit from friend-shoring as plants, jobs and investments move toward these nations deemed sufficiently trustworthy by the United States. • Diversifying the concentration of global supply chain also helps businesses become more resilient to shocks like war, famine, political change, or the next pandemic. Nearshoring is one step down from reshoring. The key word is “Near”. By placing plants in North and Central America, particularly in Mexico, US companies could source imports from closer to home. • In addition to lowering production cost, nearshoring also has the benefits of cheaper transportation, lower import tariffs, shorter production cycle, and faster response time. • Spanish, a common language, stands as a unique advantage for training local workforce and better communication between the US customers and their nearshoring suppliers. The Next World Factory Mexico stands to benefit from both friend-shoring and nearshoring. Made-in-Mexico-for-America is nothing new. It started in 1994 with the signing of North American Free Trade Agreement (NAFTA). However, it did not give a big boost for Mexico then. Since the year it took effect, Mexico’s economy grew at 2.0-2.5% a year, well below par for developing economies, and nowhere near enough to lift millions of Mexicans out of poverty. We could make the case that things would be very different this time. Tesla’s Monterrey Gigafactory serves as a textbook case of why it would work. Two years ago, when Tesla announced plans to open a factory in Texas, it also proposed to build a Gigafactory in Monterrey, the capital of Nuevo León state. Instead of shipping auto parts all the way from China, it made sense to build them close to the US border. “You could drive to California from Monterrey in 3 hours without seeing a red light”, a big advantage promoted by Nuevo León’s trade office. Tesla’s decision triggered a sea change in its supply chain. AGP Group makes windshields, China’s DSBJ makes electronics parts, Italy’s Brembo SpA makes brake— and they’re all setting up new factories near Monterrey. All told, more than 30 companies have moved to Nuevo León since Tesla’s announcement. Foreign direct investment in Mexico is already up more than 40% in 2023. Ultimately, Mexico’s appeal to global businesses rests on its geography and its free trade agreement with the U.S. Comparing to other alternatives, Mexico is attractive because it’s already integrated into the U.S. More investment will flow in as big companies bring their plants and the entire supply chains there one-by-one. While manufacturing for the US is concentrated in dozens of mega industrial parks close to the US-Mexico border now, the growth potential is huge. I am convinced that Mexico would be the next World Factory. “Made-in-Mexico” will be like “Made-in-China” today. Trading Idea with Mexico Peso Futures On May 16, 1972, the IMM (now part of the CME Group) launched seven currency futures contracts: British pounds, Canadian dollars, Deutsche marks, French francs, Japanese yen, Mexican pesos, and Swiss francs. This marks the birth of financial futures, the first time a futures contract is based on something other than physical commodities. The USD/MXN futures ($6M) is one of the earliest financial futures contracts. It is notional on 500,000 Mexican pesos. At Friday closing price of 0.057430, each December 2023 contract (6MZ3) is valued at $28,715. Initial margin for buying or selling one contract is $1,400. On September 14th, the day before Triple Witching Day, the Peso futures reached a high volume of 224,296 contracts, with open interest standing at 252,004. Aside from the fundamental economic factors, the near-ending of Fed rate hikes means that interest-rate parity is in favor of the Pesos. When the world has been focusing on the 525-bp Fed rate hikes in the past two years, Mexico’s Central Bank raised interest rates by 725 basis points during the same period, from 4.0% all the way to 11.25%. At 0.5675, the USD/Peso exchange rate is at 5-year high. However, this is nowhere near its all-time high of 0.1099 reached in March 2002. I am bullish on the Pesos based on the analysis discussed here and would explore a long position. Record export data and new announcement of foreign direct investment could lift the Pesos up further. The risk in long Peso would be the Fed raising interest rates again in November or December meeting. 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 trading set-ups and express my market views. 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
CME:6M1!Long
by JimHuangChicago
1
Month on Month US Inflation Harmonically Set to Rise to 1.94%This is a followup to this year-on-year inflation chart idea posted back in June 2022: The YoY US Inflation rate has been on a trend of going down since it tested the 1.414 PCZ of the Bearish Butterfly above, but recently we have seen the MoM rate slow its descent and form a bottoming pattern with MACD Hidden Bullish Divergence at the 200-Month SMA and now we can see that the MACD has crossed positively as the inflation rate has broken out of its recent range. This harmonically puts it into position where we will likely see it at least hit the 0.886 retrace to complete a small bat pattern, but it could go out of control and go as high as the 1.618 Fibonacci Extension area all the way at about 1.94%. One reason I suspect for the sudden stop of the inflationary decline is due to the Fed not raising rates high enough, fast enough, and then keeping them the same for the last few months. It would also seem that the year-on-year inflation rate is setting up for a similar rise, showing Hidden Bullish Divergence at the Moving Averages and likely one that will result in it going to test higher highs to around its 1.414-1.618 PCZ once area once more before ultimately crashing back down from these highs once the Fed starts to go heavy on rate hikes again. Though the timeframe may be shorter than how it is presented on the chart, I do still suspect we will have action resembling what is projected on the chart below until the Fed starts rising rates aggressively again: This does not mean I think stocks will go up, that the dominance of the dollar will go down, or even that I think the consumer credit situation will improve. Instead, I think the rise in inflation will be fueled by energy, import, and export costs, and that this will be very bad for: Stocks, Consumers, REITs, and Banks overall, and that the Bond Yields will continue to rise at an accelerated rate.
ECONOMICS:USIRMMLong
by RizeSenpai