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Realyields

Nasdaq 100 index analysis: US real yields dominateThe Nasdaq 100 index ( US 100 ) has moved in the opposite direction of US real yields ( DFII10 ), which are the difference between nominal Treasury yields and market-based inflation expectations (also known as Breakeven yields). Real yields serve as a measure of the Fed's rate tightening aggressiveness. The 30-day correlation between Nasdaq 100 and US real yields is currently at -0.83, indicating a strong and inverse negative relationship. US real yields have risen dramatically since the start of the Fed hiking cycle in mid-March, from -0.7% to around 1% as of this writing, reflecting increased market expectations of a more stringent monetary policy. This means that the nominal yield on a 10-year Treasury (3.45%) is currently about 1% higher than the market measure of inflation expectations for the next 10 years (2.45%). Positive real returns on a safe asset like US Treasuries undoubtedly act as a deterrent to investing in riskier assets like stocks. Technology stocks are also way more sensitive to changes in Federal Reserve interest rates than stocks in other industries. Higher interest rates reduce the long-term expected cash flows for tech companies. As a result, tech stocks fall more than the overall stock market. The Nasdaq 100 has underperformed the broader S&P 500 ( US 500 ), which is down 17.7% year to date versus -26.5% for the tech-heavy index. After the US inflation rate continued to beat market expectations this week, markets have already fully priced in a 75 basis point hike at the FOMC meeting next week. The chances of another 75 basis point hike in November are also increasing, which would bring US interest rates to 4% ahead of the December meeting. Stronger rate hikes could put additional pressure on the tech-heavy Nasdaq index .
NASDAQ:NDX
by Capitalcom
Gold amid rising yields and dollar strengtheningSince we last covered gold , most of our views have played out, as real yields rose and dollar strengthened significantly. As central banks remain committed to fighting the greatest inflation seen in decades, we see continued headwind for the yellow metal. Going back to our real-yield and dollar analysis framework, we see 2 key points. Firstly, real yields have increased significantly as US Interest rates rise at unprecedented levels due to back-to-back rate hikes. Central bankers have continued to pre-empt the markets on the rates hiking path, and we see no reason for the US Federal Reserve to change its stance anytime soon. Thus, we think that real rates are likely to continue upwards. Secondly, the dollar is now trading at a 20-year high. With no major resistance until the 120 level, we see a clear path upwards as the backdrop of higher yield continues to favor the dollar. Looking at the charts we see a potential double top chart pattern, for gold. With the first peak slightly higher than the second and current prices trading near the neckline, we think the bearish set-up is almost complete for gold and prices are likely to decline from here. Barring any surprise data points from now till the next FOMC meeting in 2 weeks’ time, it is highly likely for the Fed to continue its hiking path which will drive real rates & the dollar higher. This presents a strong headwind to gold which could tip lower if we see a clear break of the neckline. As such we think gold is caught between a rock (higher yields) and a hard place (stronger dollar). Entry at 1723, stop at 1830. Target at 1530 and 1360. 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.
Editors' picks
COMEX:GC1!Short
by inspirante
14
Stagflation is comingReal interest rates will probably start to fall soon because of stagflation. Real interest rates can be measured by subtracting inflation expectations FRED:T10YIE from US treasury yields FRED:DGS10 . Treasury yields will likely fall along with unemployment as measured by initial claims FRED:ICSA . Initials claims has started to slowly rise and when it does treasury yields will probably go down. Inflation expectations will likely take longer to fall because it takes longer to get prices to slow down than for unemployment to rise. Businesses will more likely fire people than lower their prices to protect their profits and now inflation expectations are probably well anchored. This should be bullish for silver OANDA:XAGUSD and gold OANDA:XAUUSD and negative for the dollar TVC:DXY . When looking at the charts for primary metals and DXY it also looks like they are ready for a major turnaround. A description of the above can also be found here: www.forbes.com
FRED:DGS10Short
by lucky_human_foot
2
The importance of Gold & its current price actionMany people consider gold as an inflation hedge, but the truth is that Gold in the present day is more of hedge against policy errors or catastrophic scenarios in broadly. It is more like insurance which could also appreciate in a scenario where real rates are falling. In case for whatever reason the financial system breaks, then gold is probably one of the best assets to hold, especially in physical form. Russia for example has been adding to its Gold reserves and could potentially add a lot more to it if possible, as we have seen that all these sanctions could do a lot of damage on the FX reserves it is holding abroad. So not only the conflict between Ukraine and Russia 'boosted' the price of gold due to all the issues it might cause to the financial system, but also all the uncertainty on an already stressed out system and all the potential money printing that will ensue shortly, have the potential to really take gold even higher. Gold is currently above its 2011 ATHs and the overall price action is very bullish. XAUUSD has broken above most major levels and has retested every single one of them. When the war broke out, it pumped straight to 1970 and then pulled back below the level it was before the war started. Every single breakout has been retested, as even the recent gap up after the nuclear threats was filled. 1910-1920 was the 2011 ATH and recently was resistance that turned into support, while it was also the weekly Pivot. The market bounced on it perfectly and closed the week with immense strength, right its most recent peak. Although it hasn't fully broken out yet, at least not above its GLD 2011 ATHs or generally its recent 2020 ATHs, the strength and the case for Gold is certainly here. In my next ideas I will mention why Gold isn't potentially the best play on inflation, but this doesn't mean it isn't an asset to hold regardless of how high or low inflation might be. As the final chapter of the 4th turning has begun, Gold could really reach 5000-10000 in the next 3-5 years, as breaking above this massive cup & handle pattern would be massive. 10 years in the making and it could really take gold even higher than that, as the devaluation of fiat escalates rapidly. I wouldn't say bet everything on Gold for sure, and I think in the long run Bitcoin is going to do better, while there is also still a chance we see a massive dollar spike that sends gold anywhere between 1350-1650. So be aware that even gold isn't 'riskless' in this environment. Finally some thoughts and ideas on tokenized gold, is that I find it pretty interesting and a decent bet. PAXG and XAUT had some spikes significantly higher than the actual gold price, something that has happened before too. I am using the price of PAXG on Kraken which has seen many spikes before, which could be seen as a potential way to get yield on your gold. By setting sell orders 5-10% higher than the spot price, just in case there is a spike and you are able to make a decent amount and then rebuy lower. You can even go long or short on various crypto platforms even on weekends, which makes it even easier to trade while news occur on weekends.
FX_IDC:XAUUSDLong
by BitcoinMacro
3
More USDollar strength? #DXY + Fundamental driversHello traders! I expect more upside for the dollar both technically and fundamentally. Fundamental Bias: Weak Bullish Primary Driver: 1. The Monetary Policy outlook for the FED Rationale: More hawkish than expected sums up the Sep meeting. The FOMC gave the go ahead for a November tapering announcement as long as the economy develops as expected with their criteria for substantial further progress close to being met. The biggest hawkish tilt was the announcement about a faster pace of tapering, with Chair Powell saying there is broad agreement that tapering can be concluded by mid- 2022. Inflation projections were hawkish, with the Fed projecting Core PCE above their 2% until 2024. On labour, Chair Powell said he thought the substantial further progress threshold for employment was ‘all but met’ and explained that it won’t take a very strong September jobs print for them to start tapering as just a ‘decent’ print will do. The 2022 Dots stayed very close to the June median, but the rate path was much steeper than markets were anticipating with seven hikes expected over the forecast horizon (from just two previously). It is important here to note though that even though the path was steeper, if one compares that to a projected Core PCE >2% for 2022 to 2024, the rate path does not exactly scream fear when it comes to inflation. All in all, it was a hawkish meeting. Interestingly, it took markets about three days to realize this as the expected price action only really took hold of markets a few days later. A faster tapering was a key factor we were watching for an incrementally bullish tilt in the outlook, so market’s initial reactions were surprising. However, with the recent breakout in both US yields and the USD, this has given us more confidence in moving our fundamental outlook for the Dollar from Neutral to Weak Bullish. Primary Driver: 2. Real Yields Rationale: With a Q4 taper start and mid-2022 taper conclusion on the card, we think further downside in real yields will be a struggle and the probability are skewed higher given the outlook for growth, inflation and policy, and higher real yields should be supportive for the USD in the med-term. Primary Driver: 3. The global risk outlook Rationale: One supporting factor for the USD from June was the onset of downside surprises in global growth. However, recent Covid-19 case data from ourworldindata.org has shown a sharp deceleration in new cases globally. Using past occurrences as a template, the reduction in cases is likely to lead to less restrictive measures, which is likely to lead to a strong bounce in economic activity. Thus, even though we have shifted our bias to weak bullish in the med-term, the fall in cases and increased likelihood of a bounce in economic activity could mean downside for the USD from a short to intermediate time horizon (remember a re-acceleration in growth and potentially inflation = reflation) Primary Driver: 4. Economic Data Rationale: Economic data will be very light in the incoming week with the main highlights being PCE and Advanced GDP (old news). Also keep in mind that the Fed has largely reduced the impact of economic data going into the November FOMC meeting by already acknowledged a Nov taper and a possible mid-2022 conclusion. So, even though data will be important, it’s unlikely to sway the Fed from their tapering plans. Primary Driver: 5. CFTC Analysis Rationale: Latest CFTC data showed a positioning change of +872 with a net non-commercial position of +35934. Positioning isn’t anywhere near stress levels for the USD, but the speed of the build-up in large specular positioning measures over 2-standard deviation on a 1-year look back period. Thus, even though the med-term bias remains unchanged, it does mean the USD could be sensitive to mean reversion risks while still trading close to YTD highs. Thus, reflationary data and overall risk sentiment will be a key focus for the USD in the week ahead. Have a great week! Vitez
TVC:DXYLong
by Vitezabraham