10Y: Inflation Could Creep Back Up as Seaborne Trade InterruptedCBOT: Micro 10-Year Yield Futures ( CBOT_MINI:10Y1! )
Maritime transport is the backbone of international trade and the global economy. Over 80% of the global trade volume in goods is carried by sea, according to the UN. Therefore, whenever a major trade route is blocked, shipping time would be lengthened, which pushes up freight cost, and ultimately, the prices of merchandise.
Suez Canal Blockage, March 2021
Traffic jams at sea are not rare. On March 23rd, 2021, a 400-metre-long container vessel, MV Ever Given, got diagonally stuck inside Egypt’s Suez Canal. Transport was completely blocked in the all-important 193-km narrow waterway for six days.
Suez Canal is one of the world's busiest shipping channels for oil, refined fuels, grain, and other trades linking East to West. It moves about 12% of the global trade. Holding up traffic there could cost $9 billion per day, according to data from Lloyd’s list.
Direct impact: The Baltic Dry Index (BDI), a benchmark for the cost of shipping goods worldwide, traded around 2350 before the blockage. It shot up to 3170 (+35%) by May and peaked at 5530 (+135%) by October. While canal blockage was not the only cause, it exposed weaknesses in global trade and triggered a chain reaction in price hikes.
Influence: In February 2021, US CPI was well under control at a 1.7% annual rate. It jumped to 2.6% in March. By the time BDI peaked, CPI was at 6.2% in October. But it did not stop there, US CPI topped 9.1% in June 2022, 15 months after the blockage.
Panama Canal Drought, August 2023 to Present
The 65-kilometer-long Panama Canal connects the Atlantic and Pacific Oceans and is a key shipping hub for trade between North and South America to Asia and Europe. It links about 5% of global trade. In 2022, more than 14,000 ships passed through the canal.
The Panama Canal is experiencing a severe drought now, resulting in a shortage of fresh water for the operation of the locks. This forced officials to slash the number of vessels they allow through and has created expensive headaches for shipping companies. Before the crisis, 38 ships a day moved through the canal. It’s now down to only 22.
Canal authority now hosts special auctions to allow winner to cut in line and move his ship ahead in the queue. It is reported that shipping companies paid up to $2 million for this privilege, which is on top of the regular canal fees they paid.
Direct impact: Unlike the Suez fiasco, drought would last for months. It’s estimated that daily passage could move up to 24 by January 2024. The canal would still be running at 65% capacity. This means that global trade could be slowed by as much as 2%.
Red Sea Under Houthi Attacks, October 2023 to Present
The Bab el-Mandeb Strait is between the Horn of Africa and the Middle East. It connects the Red Sea to the Gulf of Aden and the Arabian Sea. This waterway is used by container ships and exports of petroleum and natural gas from the Persian Gulf. Approximately 12% of the world’s trade, which includes 30% of all global containers, move through the Suez Canal. That then feeds through the Red Sea and Bab el-Mandeb.
The Yemen-based Houthi militants have threatened to attack any vessels that have ownership ties to Israel or do business there. Overall, 13 vessels have been attacked at Red Sea since the Israel-Hamas conflict broke out in early October.
On Saturday, MSC, the world’s largest shipping carrier, said that its ships will not transit the Suez Canal due to security risks. Shipping giants Hapag-Lloyd and Maersk also paused travel through the Red Sea a day earlier.
Direct impact: The collective vessel market share of MSC, Hapag Lloyd, and Maersk is approximately 40% of global trade. The decrease in vessel transits by these three giant ocean carriers will be a financial hit to Egypt, which owns, operates, and maintains the Suez Canal. Egypt has already seen a hit in tourism due to the conflict.
Impacts from Panama Canal and Red Sea Crisis
The combined trade volume passing through Suez and Panama canals accounts for 17% of global trade. Any interruption, either man-made or by nature force, could reduce global goods supply and add to the price tag on store shelves.
The long wait time at the canal and the extra weeks it takes for using alternative route both increase overall fuel consumption and other expenses. Even though crude oil price has been falling, freight shipping cost are now on the way up. This is like a tax on the economy. The impact on such a global scale could reverse the trend of cooling inflation.
If recent history repeats itself, we could see US CPI creeping back up in the coming months, following a surge in the BDI.
Trading Opportunity with CBOT Micro Yield Futures
Last Wednesday, the Federal Reserve decided to keep the Fed Funds rate unchanged in the 5.25-5.50% range. While Fed officials put out inconsistent statements about what they would do next, investors overwhelmingly concluded that rate cuts are coming soon.
On Thursday, both S&P and Nasdaq made 52-week high, of 4,738.57 and 14,855.62, respectively. The Dow reached a new all-time-high record of 37,347.60 on Friday.
According to CME FedWatch Tool, the first rate-cut could occur in March, with a 69% probability. By the end of 2024, there is a 98% probability that the Fed Funds rate would be 4.25-4.50% or lower, indicating investor expectations of 4-7 cuts of 25 bps each.
(Link: www.cmegroup.com)
In the Treasury spot market, 10-Year yield was quoted 3.928% on Friday. This represents 132 bps below Fed Funds, and a 10Y-2Y spread at -51 bps. In the futures market, CBOT Micro Yield futures ($10Y) January 2024 contract (10YF4) was settled at 3.927 last Friday, in line with the spot market.
If our analysis on pending inflation rebound is proven to be correct, the Fed would start cutting rates later than the market expected, and not as much as the Treasury market priced in at the moment.
Each Micro 10Y Yield contract has a notional value of 1,000 index points, or $3,927 at current price. To acquire 1 contract, a trader is required to deposit an initial margin of $320.
If the resurgence of inflation spurred by global supply chain disruption makes the Fed to maintain its hawkish stance and continue tighten the monetary policy, the rates will stay elevated. A trader with a long position will gain if 10Y yield rises.
While a rate hike raises Treasury yield, the postponement of an expected rate cut also has similar effect. The forecasted low yield would now be revised up. As a result, the futures price, which is the 10Y yield, would go up, rendering a profit for the long position.
On the other hand, if 10Y yield continues to fall, the trader would incur a loss of $250 for each 25bps cut.
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
Ratecut
Rate Cut 1930 - Pattern Recognition: 30s vs Today In 1930, when the Fed cut interest rates, the market crashed further. In today's tutorial, we will be comparing the 30s and today’s market to identify some of their similarities.
Where exactly are interest rates’ direction pointing us?
As we may have read, many analysts are forecasting that there will be a few rate cuts in 2024. Is this the best option?
My work in this channel, as always, is to study behavioral science in finance, discover correlations between different markets, and uncover potential opportunities.
Micro Treasury Yields & Its Minimum Fluctuation
Micro 2-Year Yield Futures
Ticker: 2YY
0.001 Index points (1/10th basis point per annum) = $1.00
Micro 5-Year Yield Futures
Ticker: 5YY
0.001 Index points (1/10th basis point per annum) = $1.00
Micro 10-Year Yield Futures
Ticker: 10Y
0.001 Index points (1/10th basis point per annum) = $1.00
Micro 30-Year Yield Futures
Ticker: 30Y
0.01 Index points (1/10th basis point per annum) = $1.00
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time 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
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
DOW divergence? Does this RSI divergence signal what's to come. I believe there is a catalyst coming that will cause the dow to plunge as will other indices. As of now im not sure what that is. something will blow up whether its banks ect. The fed will have no choice but to do an emergency rate cut. IF the rate cut happens. that's the time to go short. go look at every previous crash it only happens once fed cuts.
Interest rate up to at least 6.5% in 2023, why?The Fed chairman has given the market a very important clue on 13 Dec 22.
At what level will he consider an interest rate cut?
He said “I wouldn't see us considering rate cuts until the committee is confident that inflation is moving down to 2% in a sustained way,” meaning only if CPI is heading nearing 2% then it is hopeful to see a rate cut.
Market consensus for CPI to range between 5% to 8..9% for this year. If this is true, the Fed is likely to continue to hike the rate moderately at 0.25% in each meeting just to bring inflation down.
I am seeing this as the best case scenario.
Today’s content:
Strategy in an inflationary environment:
i. Commodity – Buy them
ii. Stock market – Trade them
Can inflation be hedged and can we trade into the interest rate uptrend?
CME Micro 30 Year Yield Futures
Minimum fluctuation
0.001 point = $1
0.01 point = $10
0.1 point = $100
1 point = $1,000
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time 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
AUDUSD is trending in a pennant flag pattern - more upside?AUDUSD is trending to the upside today ahead of US elections. A break above the resistance trendline could signal for buyers to drive price higher, likewise a rejection of the resistance line could signal further selling. We are bullish AUDUSD today as traders may look to reduce USD exposure approaching the elections. It is worth taking into account the RBA's rate cute today, from 0.25% to record lows of 0.1%. This would typically be bearish for the AUD.
USD/RUB, targeting 77.174 (big move coming)Backdrop
Rapidly escalating trade war tensions between US and China and concerns on a potential second wave of covid-19 continue to linger. President Putin faces many challenges domestically, and his policies could ultimately impact the direction on the ruble.
Trouble at home
Russia is struggling to contain covid-19 at home and is on track to remain top 3 in the number of confirmed cases. While the death toll of 3,388 is significantly lower than most EU countries, I would take this figure with a grain of salt. In fact, the same view can be applied across all countries as every government classifies the deceased in a different way.
Nevertheless, over the past month, President Putin announced the gradual easing of restrictions, with local governors given the ability to decide on implementations and timelines. This is slightly uncommon given how tight Putin has run his ship, but also a strategic move on his part given that he could shift the blame on local governors should there be a rise in infections. It's noteworthy that President Putin's approval rating is already at its lowest since his inauguration in 1999. Given that Russia is heading towards its most serious recession since 1998, his base of support could decline further in the next several months. Putin's administration can take all the credit if easing plans bode well for the economy.
China - Catch 22
Russia has built strong ties with China over the past decade amid deteriorating relationships with the West. President Putin cannot afford to take the same stance as US President Trump on blaming China's alleged mishandling of covid-19 given China is its biggest strategic partner and hedge against the US and EU.
What can Russia do?
Putin could either divert attention by increasing geopolitical tensions (vis-a-vis Crimea type of move). However, such a bold strategy could do more harm than good. The only way out seems to be shifting focus towards structural and regulatory reforms, and reducing corruption. In fact, there is more incentive to diversify its economy now given the sharp drop in oil prices. However, Putin's administration has yet to deploy massive fiscal support (as seen by other countries). I suspect this will come towards the end of the year; the reluctance may have to do with timing of the referendum (his political plan is to remain as Russia's president potentially until 2036).
Rate cut implications
Last month, the Central Bank of Russia (CBR) lowered its rate by 50 bps to 5.50% in line with market expectations, while signaling for more cuts to come to reduce recessionary risks. The pair retreated in response to CBR's dovishness and rate cut. At this stage, I don't see rate cuts as a big deal given every central bank is easing, so long as the CBR's word remains credible. If the latter does not hold, currency interventions may be required to stop RUB depreciation.
Technical analysis
I believe we are in favor of a move higher in the pair as we breakout from a descending triangle pattern. There are plenty of shorter time frame technical analysis on the pair - that's not the ultimate focus here, but rather to take a directional view based on fundamental analysis.
Risks / opportunities
On the contrary, RUB could be one of the most attractive EM plays if Putin's administration can weather the storm and implement comprehensive economic reforms. Currently, I am not of that bullish view, particularly on the backdrop of covid-19, while any heightened tensions between the US and China is a negative for RUB.
As such, targeting near April highs of 77.174 as an initial target with stop loss set (at 69.946) under the support zone of around 72.700.
Feeling some bullish vibe on USDCHFI know FED is playing big moves ahead so far to prevent the State from the pandemic before it may cause more disruption around the country. The reason is beyond technical analysis for me to think even slightly how this pair might gonna end up trending upward. The big moves which I'm talking about from fed were the double rate cut within a month and some repo market actions. They aren't taking things slightly any more the moment when they decided to drop their benchmark rate around 0%-0.25% and some big Qe plans coming later. I know most of global central banks honchos are too serious about this pandemic at this moment and Fed has already shown us the real action lately which should slowly help to resolve the issue which had generated by that pandemic "coronavirus" within the state and its economy. Lastly don't forget about Swiss National Bank Intervening to Weaken Franc on recent data from the central banks. They just don't like their currency to get overvalued for various reasons. These conditions let me assume this pair may probably make some new swing highs.
S&P500 vs Fed Fund Rate#spx #sp500 #fedfundrate - The Federal Reserve lowered the Federal Fund Rate today from 1.5% to 1% in the first rate cut outside of an FOMC meeting since Lehman Brothers collapsed in 2008. This came as the Federal Reserve Chairman, Jerome Powell, claimed that the economy is doing fine and unemployment is at a multi-decade low. If everything is so “fine”, then why the need for a rate cut? Why the need for a rate cut two weeks before the next FOMC meeting where interest rates and monetary policy are supposed to be decided? This is one of those instances where you need to be paying attention to what they are doing rather than listening to what they are saying. At no point in the past has the Federal Reserve, or any other government official/agency, ever come out and warned the public in advance of potential systematic dangers in the economy or stock market. Doing so would be a self-fulling prophecy and cause investors to begin selling immediately.
The past two instances the Federal Reserve was in heavy rate-cutting cycles were during the 2000 dot.com bust and again during the 2008 housing and financial crisis. If there is no crisis right now, then why are they employing crisis-level measures? Which fire are they attempting to extinguish before we see the smoke or hear the alarms?
During the two previous market crashes the Federal Reserve had to lower the Federal Funding Rate by 5% in order to calm markets. During the 2000 crisis we saw rates drop from 6% to 1%, and during the 2008 crisis rates fell from 5% to 0% where they stayed for nearly 10 years before being raised back to 1% in 2017. Rates topped out at 2.5% in 2019 which was the same year that the Federal Reserve began lowering again, three rate cuts in fact were seen in 2019. If we can expect another -5% rate cut to calm whatever crisis we’re facing this time around it indicates that we’ll be seeing negative interest rates before all is said and done since a 5% cut from a peak this time of 2.5% = -2.5%. This would be a new paradigm for the US financial system.
Get ready for volatility in stock prices as traders attempt to decipher what is really going on at the Federal Reserve and why they felt the sudden need for an interest rate cut. Covid19 fears appear to be weighing heavily on global markets which could be the cause for the rate cut as the Federal Reserve might be attempting to front-run what is likely to be a major slowdown in economic activity, not just in the US, but throughout the globe. China basically coming to a halt in production will most certainly send ripple affects throughout the world as global supply chains are being disrupted. China is the #2 economy in the world and the #1 producer of raw materials/goods that the rest of the world depends on in order to maintain their respective economies. If businesses around the world are unable to obtain the products from China that they require in order to run their operations it likely means that we are heading for another recession and new round of layoffs across the board.
Expect another rate cut in two weeks when the Federal Reserve conducts their FOMC meeting.
AUDUSD Potential Short Term Retracement or Mid Term Swing Most of the wise traders knew that the 25bp rate cut probabilities were higher and then finally when the actual day came up it ended up being a cut actually. I don't wanna explain all those stuff which had already been past but for now, we can see good demand in Aussie just to know that fed might have some future rate stimulus probabilities (but that part on next time). Knowing how the fall on S&P/ASX 200 a couple of days last week due to covid-19 chaos then suddenly after today's RBA rate decision gave a sweet upward pump which creates some optimistic vibe over Australia equity market and I assume with lower Official cash rate might have something to do on it. I wonder if S&P/ASX 200 bounces back for a couple of days it will pinpoint the demand in Aussie as people need local currency to even purchase the equities babe! Already a cut from RBA means a delay in any further cuts even if there is anything left to do! Which let me think FED babe in turn to have some stimulus game!
Market Pricing in 100% Chance of Rate Cut in March - 50bpsQuick update here on the state of the market.
The FOMC futures for March 18th are currently pricing in a 100% chance of a rate cut, with a 95% chance of a 50 basis point cut.
I warned that we would see a strong central bank response, and it appears we are going to get just that.
This comes amidst a recent move in Hong Kong to award it's citizens with 'helicopter money' to alleviate the impact of Covid19.
"Hong Kong permanent residents aged 18 and above will each receive a cash handout of HK$10,000 (US$1,200) in a HK$120 billion (US$15 billion) relief deal rolled out by the government to ease the burden on individuals and companies, while saving jobs."
I will be watching the market very closely, because this could either fizzle out and the sell off continues, or the flood of liquidity could propel markets to new highs.
The major catalyst will be news surrounding the spread of Covid19, should we see community level infection in the US, i could easily see the markets begin to buckle under the pressure.
www.cato.org
www.cmegroup.com
AGNC for 480% gains in just 6 weeks!I posted about AGNC at the beginning of January when AGNC was around $17.50, I called for $20 no later than June. What a pleasant surprise that AGNC has continued to stay on fire!
Now one might ask how did I turn this little, fairly slow moving stock into 480% gains in just 6 weeks? I mean this sounds like crypto gains, not stock market gains! This is a strategy I like to use where as I find a stock I expect to move but specifically a stock that typically doesn’t move that much. What we find is that the options have almost no overhead premium priced in and are super cheap. Here I bought 50 call contracts for June expiry @ $18 for .28cents each. I am now $1.50 in the money and just continue climbing with a current option price of $1.60!
Here is a capture of my specific options and their gains to date. > imgur.com
AGNC had another surprise earnings marking two in a row now, an indication that in fact fed policies are benefiting them more than anticipated. AGNC also announced an offering but #1 it was priced at $25 and #2 their offerings aren’t really dilutions, its just an expansion of capital that is tied 1 to 1 with real estate backed securities, more akin to expanding their balance sheets.
I took this opportunity to update AGNC because due to the incline, it looks like we will see a $20.50 top of channel and by next month at this rate. This is in contrast to $20 top of channel on this descending channel in June. Also I am selling most of my options now to buy more options further out of the money. While I suspect we will see decent resistance @ $20.50 I believe everything is in place to break resistance this time and start heading back up, maybe $24ish by late 2020.
If you have never traded options, you should be extremely careful. Options can expire worthless turning your entire investment to $0 with zero holdings. I prefer option trading to margin trading for leverage trading as I am only risking what I put on the table, I know my total risk up front. Options are not for the faint of heart or new investor.
This is not investment advice, DYOR, if its something new to you, always start super small while you test and get a feel for how it works.
I will post another update on AGNC as we see the channel resistance start to flesh out.
If you trade Crypto as well, please check out our site vcdepth.io with advanced real time and historical level2 data for the broad crypto market.
Good luck with your trades!
London Watchlist: Expecting a strong GBPSo... the UK data coming out today is pretty important, if bad it increases the chance of a rate cut by the BOE, but if positive it kinda kills it! So there should be pretty big movement on the GBP if the print is better than expected or worse thane expected!
The video pretty much explains our thinking here and our trading tactic, we are long on GBPUSD and we are targetting the 120% mark seen on the chart on the right, a solid 100+ pip move!
Right now the GBP is tanking, but thats just due to expectations of the analysts, who are rarely right and they don't even trade for a living, the charts say GBP is long and we will TRADE WHAT WE SEE !
If you like the video give us a follow!
GBPUSD: possible long scenarioThis idea is based on that the market is already pricing rate cut in GBP, so it is possible that we are going to see a strong pull back in price and then buy out from the level around 1.2957.. it provides decent R:R for joining bulls with stops below 1.29 and take profit around 1.312. (R:R=2.86)
If the rate remains unchanged it will be a positive scenario for GBP and it might continue going up without any pull back..
Keep in mind that this idea might be realized in several days and having long position in GBPUSD results negative swap.
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Miners rounding bottom?The gold miners' ETF is testing its downward trend line again today, and may be in the process of making a rounding bottom. Buy low in the crescent or watch for a bullish trend line break. Gold has been showing some strength due to Fed policies and dollar weakness. It could break out upward on news of either significant market weakness or a breakdown in the US dollar.
ORBEX: TOO Many "Insurance" CUTS! Where Risk Takes Us?In today’s #marketinsights video recording, I talk about #Fed's rate cut and identify the main components leading to their decision.
I also talk about their decision toolbox and wonder whether they should start looking at slowing inflation with a different eye? One that doesn't look at trade wars with such certainty.
With Fed, BOC and now also BOJ out, we can't miss the opportunities appearing on #cadjpy and #usdcnh, can we?
Stavros Tousios
Head of Investment Research
Orbex
This analysis is provided as general market commentary and does not constitute investment advice
Uncertainties remain! Dovish statement We just received the 25 basis points rate cut. The market had already priced it in.
Powell just released the statement. It seems to be a dovish one . He will start his speech at 2:30pm, where the market will try to understand the possibility of a 4th rate cut in December.
The CBOE Fed tool has the 4th cut in December at 26%.
We should see the yield curve steepen.
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Economic reports
GDP report was positive/neutral.
ADP employment change headlines were good, but analyst are not happy reading into the details.
TLT Inverse Bond Play Before MeetingThe play for OTM calls on TLT right now is a good risk to reward for myself given the numerous positive potential outcomes. If they don't cut rates, I expect TLT to make a very nice upward move due to bond prices going up and maturity going down.
If they cut rates, I still expect bond maturities to go down and for TLT to go up.
With the current landscape I am feeling very comfortable with the prices I got for my OTM calls and the ROI.
I'll update later today after the meeting which is less than two hours away currently.
Happy trading everyone, try and be as positive of an impact as you can be everyday. Good luck with any of your plays today
-golddolphin
#SPY #SPX500 will the FED cut rates today? 30.10.2019While the SP500 trading at all time high and Mainstream media and the American Government is just talking about how wonderful, bright and happy everything is i just want to share the technical chart of 2019 Federal Reserve Fed Cuts on the SP500 Chart which were done this year.
31.07.2019 2,25% SP500 dropped 8-9%
18.09.2019 2,00% SP500 dropped 5-6%
Economist and Media are expecting a 3rd Rate cut this year today.
And probably they will do it and announce that this will be the last rate cut they are doing.
So there is a big question mark how the market will react today, and past performance is no indication for future events.
here you can watch the Livestream today:
www.youtube.com
Trade Safe!
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You can copy and follow my Trades on eToro
www.etoro.com
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#FED #FEDCUTRATES #TECHNICALANALYSIS #SP500 #SPX500 #SPY $SP500 $SPX500 $SPY #SP500INDEX
Day trading and swing trading trend lines for goldXAUUSD is still in its long-term falling channel, but it's established both short-term and mid-term uptrends.
If you're day trading gold, you'll want to exit if it falls below the steeper trend line. (Honestly probably too late for a day trade entry at this point.) I expect it will break this trend line soon and move sideways along the volume support.
If you're swinging gold, watch my gentler blue trend line. Enter near the trend line if it falls that low, and exit if it falls below the line. With the dollar weakening, I expect gold to hold this trend line at least until the Fed meeting.
If the Fed cuts interest rates, gold should break upward out of its falling channel. If the Fed doesn't cut interest rates, gold will fall through the trend line. You can limit losses by setting a stop loss beneath the trend line ahead of the Fed meeting.
AUDUSD - Possible bear continuationAs we can see from the chart above, the cross reached a very important resistance first established back in May as a support and tested in June; the "change of polarity" happened in July, when price dropped of more than 4% in 2 trading weeks. As the saying goes: "the first test never fails"; it didn't indeed. We could be in front of a retest of the resistance, which, moreover, coincides with the 50% of Fibonacci level (as you can see from the chart). So here's what I expect: price will drop at least to 0.6755, if not to 0.6725, where there's a high liquidity zone.
In addition, some economists expect one more rate cut from the RBA for 2019 and the likely adoption of QE, in order to accomplish the inflationary target of 2-3% (CPI), which is now at 1.6%. The next CPI data will be published on October, 30th and will likely remain at 1.6%.
ROKU - Will it fill the gap?Today's market showed some breath, specially for software. Which is normally a growth>value story.
$118 is the closing gap resistance.
Important market sentiment:
Tomorrow October 4th will be a deciding move, as we get the employment report before the open (8:30am ET).
With recent continued weak manufacturing data, this employment data could tell us if a recession is coming, and more importantly (short-term), if the FOMC is going to cut rates again.
The market has the cut now priced with a probability of 90% at the end of this month.
Gold AnalysisGold is a safe haven at this time.
A rate cut is priced in of US Fed after worse than expected ISM Manufacturing and Non-Manufacturing PMI.
