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Macro Monday 60 ~ Japanese Yen Recession Signal Macro Monday 60 Japanese Yen Recession Signal If you follow me on Trading view, you can revisit this chart at any time and press play to get the up to date data and see if we have hit any Yen recessionary trigger levels. Very handy to have at a glance. The Chart The chart illustrates how the Japanese Yen / U.S. Dollar has followed a similar trajectory as the U.S. Unemployment Rate. The chart demonstrates that the Yen price has behaved in a particular way prior to recessions (red areas). You might be wondering how the Yen can offer insights into economic recessions and how they are linked; 1. Historically, the yen has strengthened during recessions due to the reduction of U.S. interest rates that typically coincides with recessions. When the U.S. Federal Reserve lowers rates, it makes the yen relatively more attractive to investors. With rate cuts highly likely in September 2024 the Japanese Yen is likely to see positive price action against the U.S. dollar. 2. The BOJ has historically intervened to prevent the Yen from becoming too strong. A strong yen negatively impacts Japan’s export-reliant economy. However, this trend shifted in 2022 when Tokyo stepped in to defend the Yen’s value. The BOJ bought Yen after expectations that other central banks would raise rates while the BOJ kept rates ultra-low. 3. In July 2024, the BOJ raised interest rates and signaled further policy tightening. Concerns about the historically weak yen also played a role (evident on the chart by the 30 year low in June 2024). This move, along with U.S. growth concerns, triggered an unwinding of carry trades (where investors borrow cheaply in yen to invest in higher-yielding assets), causing the yen to rebound against the dollar. The chart along with the above three points are suggesting the Yen may be about to rise significantly in coming months versus USD. This direction of price for the Yen is consistent with the early signs of recession onset, in particular if the Yen increases in value by 22% to 42% (see below). Japanese Yen vs U.S. Unemployment Rate The blue numbers and corresponding blue box on the chart suggests that a sudden 22% – 42% increase in the Japanese Yen / U.S. Dollar (from below the 0.008200 level) typically precedes recessions. This 22 – 42% increase in the yen is something we can look out for in combination with other recession charts we have in our current armory. See my most recent charts. ▫️ Above we discussed some macro-economic factors that suggest a high probability of the Yen ascending higher. The yen price also made a 30 year low in June 2024 and now appears to be breaking higher. ▫️ We now have levels on the chart to watch; the 22% level and the 42% level. In the event the Yen rises to these levels alongside the U.S. Unemployment Rate continuing to increase, this would significantly raise the probability of recession in subsequent months. Summary ▫️ The chart captures how the Japanese Yen has followed a similar trajectory as the U.S. Unemployment Rate. When both move in unison up and to the right it typically isn’t a good sign for the economy. ▫️ A number of macro-economic factors suggest the Yen is about to increase e.g. Likely lowering of interest rates in the U.S will make the dollar more affordable to borrow and increase its supply weakening its strength whilst increasing the strength/value of the Yen. ▫️ The chart demonstrates that increases in Yen from below 0.008200 by 22% - 42% typically precede recessions. Theses levels are etched on the chart for you to monitor. ▫️ As the Yen price made a 30 year low in June 2024 and now appears to be breaking higher and with the addition of macro-economic events suggest a higher Yen, its now more important than ever to monitor the Yen and its historic recession trigger levels at 22% and 42%. These are on the chart for your convenience. You can revisit this chart at any time and press play to get the up to date data and see if we have hit any JPY recessionary trigger levels. Japan Trade Opportunities Given the higher probability that the Yen is increasing, this heightens the probability of recession, however it also means some Japanese stocks might offer a nice back end currency benefit over coming two years. Do you know any good Japanese Value stocks? If you do, be sure to share them below for some recession proof, back end currency promising trades. As always, its been a pleasure PUKA
Long
by PukaCharts
Macro Monday 58 - Recession Warning Charts Worth Watching Macro Monday 58 Recession Charts Worth Watching If you follow me on Trading view, you can revisit these charts at any time and press play to get the up to date data and see if we have hit any recessionary trigger levels. They are very handy to have at a glance. CHART 1 10 - 2 year treasury yield spread vs U.S. Unemployment Rate Subject chart above Summary ▫️ The chart demonstrates how the inversion of the Yield Curve (a fall below 0 for the blue area) coincides with U.S. Unemployment Rate bottoming (green area) prior to recession onset (red areas). ▫️ The yellow box on the chart gives us timelines on how many months passed, historically, before a confirmed economic recession after the yield curves first definitive turn back up towards the 0% level (also see circled numbers showing connecting bottoming unemployment rate). ▫️ Using this approach, you can see that the average time frame prior to recession onset is 13 months (April 2024) and the max timeframe is 22 months (Jan 2025). ▫️ This is only a consideration based on historical data and does not guarantee a recession or a recession timeline however it significantly raises the probability of a recession, and the longer into the timeframe we are the higher that recession probability. ▫️ We typically we have a recession (red zones) either during or immediately after the yield curve moves back above the zero level. At present we are at -0.08 and fast approaching the zero level which is one of the most concerning data points of this week. ▫️ The unemployment rate moved from a low of 3.4 in April 2023 to 4.3 in July 2024. This is a significant increase and is typical prior to recession onset. Conclusion ▫️ If both the 10 - 2 year treasury yield spread and the U.S. Unemployment Rate continue in their upwards trajectory in coming weeks and months, this is a significant risk off signal and recession imminent warning. ▫️ The Sahm Rule triggered this week which has been one of the most accurate indicators of a recession starting. It is triggered when the three-month moving average of the U.S Unemployment Rate above rises by 0.50 percentage points or more, relative to its low over the previous 12 months. The Sahm rule triggering adds to recession concerns, however the designer of the rule has stated that I may not be accurate factoring in recent events like COVID-19 which has thrown unemployment and economic data to extremes. What is the 10-2 year Treasury yield spread? The 10-2 year Treasury yield spread represents the difference between the yield on 10-year U.S. Treasury bonds and 2-year U.S. Treasury bonds. It’s calculated by subtracting the 2-year yield from the 10-year yield. When this spread turns negative (inverts), it’s significant because it often precedes economic downturns. An inversion suggests that investors expect lower future interest rates, which can signal concerns about economic growth and potential recession. In essence, it’s a barometer of market sentiment and interest rate expectations What is the U.S. Unemployment Rate The unemployment rate is calculated by dividing the number of unemployed people by the total labor force in the U.S (which includes both employed and unemployed individuals). CHART 2 Interest Rate Historic Timelines and impact on S&P500 Summary ▫️ This chart aims to illustrate the relationship between the Federal Reserve’s Interest rate hike policy and the S&P500’s price movements. ▫️ This is obviously pertinent factoring in the expectations of a rate cut in Sept 2024. This chart which I shared in Sept 2023 may have accurately predicted this likely Sept 2023 interest rate cut but is this positive for the market? ▫️ Interest Rate increases have resulted in positive S&P500 price action ▫️ Interest rate pauses are the first cautionary signal of potential negative S&P500 price action however 2 out of 3 pauses have resulted in positive price action. The higher the rate the higher the chance of a market decline during the pause period. ▫️ Interest rate pauses have ranged from 6 to 16 months (avg. of 11 months). ▫️ Interest rate reductions have been the major, often advanced warning signal for significant and continued market decline (red circles on chart) ▫️ Interest rates can decrease for 2 to 6 months before the market eventually capitulates. ▫️ In 2020 rates decreased for 6 months as the market continued its ascent and in 2007 rates decreased for 2 months as the market continued its ascent. This tells us that rates can go down as prices go up but that it rarely lasts with any gains completely wiped out within months. Conclusion: ▫️ Rate cuts should signal significant concern as most are followed immediately by recession or followed by a recession within 2 to 6 months of the initial cut. This is high risk territory. ▫️ During the week I seen the 2 year treasury bill which matches closely the Federal Reserve interest rate cycle. The spread developing between the two suggests rate cuts are imminent. Remember point one above. The chart below: CHART 3 Relationship between 2 Year Bonds and Interest Rate ▫️ Very briefly, you can see the red areas where gaps formed when the Federal Reserve interest rate was lagging behind the 2 year treasury bonds declines. ▫️ Currently there is a large gap of 1.74% between the two data sets. The last time we had gaps like this were prior to the 2000 and 2007 recessions. Even prior to COVID-19 you can see the Federal reserve was playing catch up. What to watch for in coming weeks and months? ▫️ If both the 10 - 2 year treasury yield spread and the U.S. Unemployment Rate continue in their upwards trajectory in coming weeks and months, this is a significant risk off signal and recession imminent warning. ▫️ Since 1999 the Federal reserve interest pauses have averaged at 11 months. July 2024 is the 11th month. This suggests rate cuts are imminent. ▫️ The 2 year bond yield which provides a lead on interest rate direction is suggesting that rates are set to decline in the immediate future and that the Fed might lagging in their rate cuts. Furthermore, rate cuts are anticipated in Sept 2024 by market participant's. ▫️ Finally, rate cuts should signal significant concern as most are followed immediately by recession or followed by a recession within 2 to 6 months of the initial cut. Yet the market appears to be calling out for this. This is high risk territory. Combine this with a treasury yield curve rising above the 0 level and an increasing U.S. unemployment rate and things look increasingly concerning. We can keep any eye on these charts for a lead on what might happen next. I will be reviewing some other charts over coming days around jobless claims and ISM figures to see how positive and negative we are looking. PUKA
FRED:T10Y2Y
by PukaCharts
4
Unemployment, FED Rates, SPXLooks like market bottoms just before the Unemployment peak. Market peaks just before fed starts reducing the rates. At the current situation, we have fed fund rates high and also unemployment started to climb. Will be looking at the unemployment going high and markets roll over and fed cuts rates. if FED keeps the same rate for long, something in the economy will break and they have to reduce the rate and if it happens then it's already too late. Looks like CD's and earning ~5% interest on cash is much better than risking for very limited upside in the market.
FRED:UNRATEShort
by MarathonToMoon
7
Thesis: slightly higher SP500, before crash due to unemployment12/9/2023 I - Issue: Yesterday, the latest unemployment rate for the USA were released. The current rate stands at 3.7, reflecting a decrease of 0.2. The key question now is whether this is merely a test of support or a signal for a potential invalidation of the bottom structure. R - Rule: Since 1950, we observe numerous instances where the unemployment rate proves to be a reliable indicator for determining the macro trend of the stock markets.The formation of a bottom signals a peak for the S&P 500, and the initiation of an upward trend is generally considered the least favorable time to invest in stocks. A - Application: As per the latest data, the unemployment rate stands at 3.7. As evident from the charts, this marks a breached resistance that is now expected to serve as support. Additionally, there is a current rejection of the upper band of the Bull Market Support Band, but the price remains above it, indicating potential support in this range as well. Furthermore, in accordance with the Phillips curve, there is a negative correlation between inflation and unemployment. This relationship suggests that the declining inflation, results in an rising unemployment. C - Conclusion: The lower unemployment rate currently appears to be a retest of the 3.7 level. It is highly likely that it will stay above this level, given the substantial support from the horizontal support and the Bull Market Support Band. Additionally, the Phillips curve provides an additional reason why unemployment may increase in the coming months. This suggests that, based on this scenario, the stock markets could be approaching a potential peak. Take this into consideration.
FRED:UNRATE
by FibonacciTheGreat
The Implications of the US Unemployment Rate - It Is Higher Now What is moving lately? The US unemployment rate has edged up. We can see from past cycles that when unemployment numbers started breaking above their downtrend, crisis occurred. Micro E-Mini Nasdaq Futures and Options Ticker: MNQ Minimum fluctuation: 0.25 index points = $0.50 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
FRED:UNRATEShort
by konhow
Continuous Jobless Claims in High Risk Territory U.S. Continuous Jobless Claims Rep: 1,906k 🚨Higher than Expected 🚨 Exp: 1,889K Prev: 1,898k (revised down from 1,905k) Continuous claims came at 1,906k which is 8,000 higher than last weeks revised 1,898k. The Trend Since Sept 2022 continuing claims have increased from 1.302m to 1.906m (604k+). This is significantly concerning trend & suggests that an increasing number of people that have become unemployed are remaining unemployed for longer. Short Term Trend ~ Weekly Chart - FEATURED CHART Long Term Chart Trend ~ Monthly Chart - SEE BELOW LINK Recession Watch Both charts above have min, avg and max levels on the bottom right to illustrate the levels we would need to hit for increased recession risk. Right now this chart demonstrates we are at max timeframe and close to max levels for an advance recession warning. PUKA
ECONOMICS:USCJC
by PukaCharts
RECESSION PROABILITY SIGNIFICANTLY INCREASES JAN - JUN 202410Y/2Y Yield Spread & Unemployment Rate Originally shared back in July 2023 (see below charts) Its interesting to see that the yield curve is rising fast (up towards the 0 level) We are reaching into dangerous recessionary territory. No guarantees, just a significantly increased probability. Continuous jobless claims are reaching pre-recession warning levels in both time and volume. Meaning more and more people are becoming unemployed and remaining unemployed for longer. More info in links below. The average interest rate pause timeframe is closing in fast at June 2024 also(Contained in Charts below also). Its time to pay very close attention. The initial 6 months of this year Stay safe out there PUKA
FRED:T10Y2Y
by PukaCharts
Interest Rates Trading and Hedging Through a New LensIntroduction In the dynamic world of financial markets, Micro 10-Year Yield Futures stand out as a pivotal tool for traders and investors. These futures offer unique opportunities to navigate the complexities of interest rates, particularly in an environment influenced by key economic indicators. This article delves into how traders can leverage both fundamental economic data and a novel technical analysis approach to optimize their strategies in trading and hedging with these futures. Fundamental Analysis Approach Understanding CPI, PPI, and Unemployment Rate: Consumer Price Index (CPI): This indicator measures the average change over time in the prices paid by consumers for a basket of goods and services. It's a critical gauge of inflation, directly impacting interest rates and, consequently, the yields on Treasury securities. Producer Price Index (PPI): PPI tracks the average change over time in the selling prices received by domestic producers for their output. It's a leading indicator of consumer inflation when producers pass on higher costs to consumers. Unemployment Rate: This key metric reflects the number of unemployed workers as a percentage of the labor force. It’s vital for assessing the health of the economy, influencing monetary policy and interest rates. These indicators, notably their changes, provide crucial insights for active trading, particularly in hedging strategies with Micro 10-Year Yield Futures. For instance, a higher-than-expected CPI or PPI might signal rising inflation, prompting traders to anticipate rate hikes and adjust their positions accordingly. How to incorporate Fundamental Analysis into the trade decision process? When making trading decisions for Micro 10-Year Yield Futures, it's crucial to understand the impact of economic reports on interest rates: Buying (Long) Position Rationale: When CPI, PPI, and Employment Rate (opposite of unemployment) are all increasing (indicated by green color on the chart), it typically suggests an expanding economy and potential inflationary pressures. In such scenarios, interest rates are likely to rise to manage inflation. Hence, buying 10-Year Yield Futures could become a strategic move, anticipating a potential uptick in yields. Selling Existing Long Positions: A decrease in any of these indicators (CPI, PPI, Employment Rate) signals a potential slowdown or less aggressive inflationary pressure. Traders holding long positions might consider selling to lock in profits or prevent losses, anticipating a potential drop in yields. Selling (Short) Position Rationale: If these reports show a decreasing trend (indicated by red color on the chart), it suggests economic contraction or reduced inflationary pressure. Lower interest rates are often introduced to stimulate economic growth in such conditions. Shorting 10-Year Yield Futures could be advantageous as it would benefit from a potential fall in yields. Buying Existing Short Positions: An increase in any of these indicators (CPI, PPI, Employment Rate) signals a potential expanding economy and potential inflationary pressures. Traders holding short positions might consider buying to lock in profits or prevent losses, anticipating a potential rise in yields. Rationale Behind the Rules: These rules are based on the traditional economic relationship between inflation, economic activity, and interest rates. Rising inflation or strong economic growth (indicated by higher CPI, PPI, and Employment Rates) often leads to higher interest rates to prevent the economy from overheating. Conversely, decreasing indicators suggest an economy that might need stimulation, often leading to lower interest rates. By aligning trading strategies with these fundamental economic principles, traders can make more informed decisions, leveraging economic trends to speculate or hedge effectively. Technical Analysis Approach Yield Extremes and Curve Analysis: This approach involves charting and combining the 2-Year and 30-Year yield futures contracts in one chart. Analyzing the relationship between these yields provides insights similar to traditional yield curve analysis in a much more accessible format. Key Indicator: A crossover between the 2-Year and 30-Year rates signifies a substantial shift in market sentiment and economic outlook. How to Incorporate Technical Analysis into the Trade Decision Process? As said, the crossover of yield rates between the 2-year and the 30-year yields is a pivotal event, suggesting significant changes in the yield curve. Here's how to interpret and act on these occurrences: Identifying the Crossover Event: A crossover event occurs when the 2-year yield rate overtakes the 30-year rate, or vice versa. This event is indicative of a significant change in the interest rate environment, reflecting shifts in economic expectations and monetary policy. Trading Strategy Based on Micro 10-Year Prior Price Action: When the crossover occurs, the immediate strategy depends on the recent trend in the Micro 10-Year Yield Futures prices. If the Micro 10-Year Yield was trending upwards prior to the crossover, it suggests bullish sentiment in the shorter term. In this scenario, traders could consider taking a short position, anticipating a potential reversal or bearish shift in the market. Conversely, if the Micro 10-Year Yield was trending downwards, indicating bearish sentiment, traders could consider a long position post-crossover, capitalizing on the potential for a bullish reversal or recovery in prices. Rationale Behind the Trade Rules: The crossover event between the 2-Year and 30-Year yields represents a pivotal shift in market dynamics, often reflecting changes in economic policy, inflation expectations, or investor sentiment. Prior price action in the Micro 10-Year Yield Futures provides a context for these shifts, indicating the market's prevailing trend and sentiment. By aligning trading actions with both the yield curve dynamics (crossover event) and the recent trend of the Micro 10-Year Futures, traders can make informed decisions, leveraging the market's anticipated reaction to these significant economic indicators. Market Outlook and Trade Plan Keeping in mind the below tick and (Average True Range) ATR values, based on our analysis, we could express our market views through the following hypothetical set-ups: Trade Plan for the Fundamental Analysis Approach: ENTRY: Wait for the next CPI, PPI and Employment Rate reports and consider executing a trade if all 3 reports are either positive (long) or negative (short). STOP LOSS: Located 1 Monthly ATR away from the entry price Trade Plan for the Technical Analysis Approach: ENTRY: The crossover may confirm itself at the end of the day. Wait for such confirmation and consider executing a short trade once confirmed. STOP LOSS: Located 1 Monthly ATR away from the entry price Tick Value: 0.001 Index points (1/10th basis point per annum) = $1.00 Monthly ATR: The average volatility is measured as 0.509 at the time of this report Trade Example: If the 2-Year yield rises above the 30-Year yield amid rising CPI, consider a short position anticipating rate hikes. Reward-to-Risk Ratio: Calculate this ratio to ensure a balanced approach to potential gains versus losses. Risk Management in Futures Trading Effective risk management is paramount. Utilize stop-loss orders and consider hedging techniques to mitigate potential losses. Understand the significance of economic reports and yield curve shifts in making informed decisions. Conclusion Micro 10-Year Yield Futures offer a versatile platform for interest rate trading and hedging. By combining monthly economic updates with a unique yield curve analysis approach, traders can navigate these markets with greater confidence and strategic foresight. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
CBOT_MINI:10Y1!Education
by traddictiv
Macro Monday 9~ Initial Jobless Claims MACRO MONDAY 9 Initial Jobless Claims Historical Analysis and Important upcoming levels Initial claims are new jobless claims filed by U.S. workers seeking unemployment compensation, included in the unemployment insurance weekly claims report. "Initial claims" refers to the government report on the number of workers applying for unemployment benefits for the first time following job loss First-time jobless claims can be a useful leading indicator because elevated numbers tend to lead to further economic weakness, and to decline ahead of a recovery Initial claims show the recent layoffs trend and does not a full picture of the labor market however it can provide more frequent data points indicating the trend in layoffs based on the recent decisions of U.S. employers. The layoffs trend can be particularly telling at economic turning points. With that in mind lets look at the chart and its historic patterns. The Chart The chart looks complicated but is incredibly simple and can be summarised as follows. - Recessions are in red - Increases to Initial Jobless Claims prior to recessions are in blue - It is clear that prior to recessions Jobless Claims typically increase but for how long and by what amount? - The min/max increase in claims prior to recession is between 35k - 127k - The min/max timeframe of increasing claims prior to recession is 7 - 23 months - The average of the above is a 71k claims increase over a 14 month period. - At present we are below that average at 49k increase over 11 months @ 230,000 claims. - I have set out levels on the chart for us to monitor going forward in line with the min and max claims amounts and timelines as above. We can monitor these levels on trading view going forward just by pressing play and seeing if we are nearing or hitting the indicative levels. - Once we reach the average increase amount at 252k or the average timeline of 14 months in Nov 2023, we are entering into higher risk recession territory. Currently, the max increase in claims prior to recession is projected to be at the level of 308,000 (based on historic claims) and the max timeframe is out to Aug 2024 (based on historic timeframes) thus indicating that between Nov 2023 and Aug 2024, subject to continued increasing initial claims (above the average level of 252,000) it is probable that there will be a recession within this time window (Not guaranteed). If initial claims fall below their recent low of 200,000 I believe this might invalidate the possibility of a recession or at least have a significant lagging effect on time horizon. At present this outcome seems unlikely but anything is possible and we can monitor this on an ongoing basis. The current yield curve inversion on the 2/10 year Treasury Spread provided advance warning of recession/capitulation prior to all of the above recessions however it provided us a wide 6 - 22 month window of time from the time the yield curve made its first definitive turn back up to the 0% level (See Macro Monday 2). September will be the 6th month of that 6 – 22 month window and thus we are closing in on dangerous territory very fast. From reviewing initial jobless claims we can see how from Nov 2023 we are stepping into a higher risk zone on this chart also (subject to continued higher increases in claims). Should we have claims higher than the average of 252,000 we will be confirming another step towards a higher risk of a recession. Factoring in yield curve inversion and the initial jobless claims we could consider the months of Sept-Oct 2023 as Risk level 1 (yield curve inversion time window opens) and Nov-Dec 2023 as stepping into a higher Risk Level 2 (Jobless claims average timeframe hit). Should the yield curve continue to move up towards being un-inverted and should Jobless Claims increase then Jan 2024 forward could be considered a higher Risk level 3. Adding to the above concerns is that M2 Money supply is still reducing (Macro Monday 8) and Global Net Liquidity is continuing to reduce (Macro Monday 4) as the S&P 500 is hitting a major resistance zone when accounting for M2 money supply (Macro Monday 8). At present it is clear that liquidity is reducing both globally and in the US. Currently fiscal stimulus appears to be filling the gaps and may be causing additional lagging effects to the changes we have seen imposed by Federal Reserve (balance sheet reduction and increased interest rates). Keep in mind that the Fed is also targeting higher unemployment to help quell the effects of inflation thus adding to the relevance of the Initial Jobless Claims numbers. Continued jobless claims are another metric that is not covered here today. Continued Jobless Claims accounts for the continuation of claims over a time period, thus indicating that those workers who made the first “Initial claims” have remained unemployed thereafter and have not managed to get new work. We might cover this in a future Macro Monday. Let me know if you want it sooner than later? We need all the help we can find in managing risk going forward and I hope all these charts can help you with that. We can monitor all these charts on my trading view just by pressing play and seeing where things are going. Regardless ill be providing updates along the way. Be safe out there PUKA
ECONOMICS:USIJC
by PukaCharts
37
MACRO MONDAY 11~ Cont. Jobless Claims MACRO MONDAY 11 Continued Jobless Claims ECONOMICS:USCJC Continued Jobless Claims are the continued unemployment benefits claimed by workers who made their first “Initial claim” and remained unemployed in the weeks that followed. In other words, Initial Jobless Claims account for only the people that claimed their first week of unemployment benefit whilst Continued Jobless Claims accounts for people who continued to seek their unemployment benefit into week 2 and subsequent weeks. In order to be classified as a continuing claim, an unemployed individual must be unemployed for at least one week after filing an initial claim. They will be removed from the metric when they return to work. Whilst continuous claims do provide an aggregate of accumulating unemployment numbers over time, initial claims are reported sooner and considered more important to financial markets. Regardless there is a clear historic pattern on the Continued Claims Chart that demonstrates that continued jobless claims increase prior to recessions, and at present we are reaching higher than historical averages that have preceded recessions. The Chart The chart can be summarized as follows: - Recessions are in red - Increases in Continuous Jobless Claims prior to recessions are in blue - It is clear that prior to recessions Continuous Jobless Claims typically increase but for how long and by what amount? - The min/max increase in claims prior to recession is between 218k - 614k - The min/max timeframe of increasing claims prior to recession is 6 – 21 months - The average of the above is a 424k claim increase over a 11 month period. - At present we are now at the avg. 11 months time period and sit at an increase of 380k, however we exceeded 520k in continuous claims increases in Apr 2023. This obviously means since April 2023 continuous claims have reduced however the reduction is marginal against the larger move. - I have set out levels on the chart for us to monitor going forward in line with the min and max claims amounts and timelines as above. We can monitor these levels on trading view going forward just by pressing play and seeing if we are nearing or hitting the indicative levels. - If we reach the average increase amount at >424k AGAIN we are entering into higher risk of recession territory. We are already in month 11 of increases to continuous claims which is the average timeframe prior to a recession commencing. To be exact it is approx. 11.5 months therefore the 2ndhalf of the month of September is where we step into a higher risk level. Currently, the max increase in claims prior to recession is projected to be at a level of 1.928 million (based on historic claims) and the max timeframe is out to Jun 2024 (based on historic timeframes) thus indicating that between Aug 2023 and Jun 2024, subject to ongoing increasing continuous claims (holding above the average level of 1.734 million) it is probable that there will be a recession within this 11 month time window (Not guaranteed). If continuous claims fall below their minimum historic pre-recession level of 1.51 million I believe this might invalidate the possibility of a recession or at least have a significant lagging effect on time horizon. At present this outcome seems unlikely but anything is possible and we can monitor this on an ongoing basis. We now have a number of charts demonstrating that from Sept 2023 to Mar/Apr 2024 we have a significantly increased probability of recession. These charts were shared just a few days ago if want to have a look. These charts are as follows: 1. The current yield curve inversion on the 2/10 year Treasury Spread provided advance warning of recession/capitulation prior to all of the recessions outlined on the below chart however it provided us with a wide 6 - 22 month window of time from the time the yield curve made its first definitive turn back up to the 0% level. Sept 2023 is the 6th month of that 6 – 22 month window. The 22nd month is Jan 2025. The average time before a recession after the yield curve starts to turn up is 13 months or April 2024. - Based on this chart it is clear that there is substantially increased recession risk between Sept 2023 – April 2024. 2. Interest Rate Hike & S&P500 chart (Macro Monday 8). In the event that the Federal Reserve is pausing rates from Sept 2023, historic timelines of major hike cycles suggest a 7 month pause like in 2000 or a 16 month pause in line with 2007 (an avg. of both is c.11 months). For reference COVID-19’s rate pause was for 6 months. - 6 months from now would be March 2024 and 16 months from now would be Nov 2024. The average of both Jun 2024. - Based on this chart it is clear again that there is substantially increased recession risk between Sept 2023 – March 2024 of recession, increasing again thereafter from May onwards. 3. Initial Jobless Claims are currently increasing and are reaching pre-recessionary levels. If initial jobless claims surpasses its historic pre-recession averages of 252,000 of increased claims and if claims continue to increase past Nov 2023, this suggests we are entering into a much higher risk of recession. - Whilst this chart is not indicating the Sept 2023 to Mar/Apr 2024 time window as the two charts above are, it may present a date within that window of time from Nov 2023 forward (subject to continued increases). 4. Today’s chart Continuing Jobless Claims suggests that we have broken past both the increase in claims average of 424k (to 1.734 mln) and we are into month 11 which is the average timeframe of increases prior to recession commencement. - Todays chart is suggesting we are already in a recession or have just started into one. Another breach back above the 1.734 mln level (average level) would be a good confirmation signal that the risk of recession remains on the table. With this in mind it is important to recognize that on average official declaration of recession can be declared up to 8 months after a recession has started, so we should be on the look out for indications of a recession starting (without the official declaration). Today’s chart and the above charts suggest the following: 1. Significantly increased risk of recession from the 2nd half of September 2023: - 2/10 year Treasury Spread 6 – 22 month recession risk window opens from Sept 2023. - Average timeframe of increases in continuous jobless claims prior to recession is from the 2nd week in September. - The last time the Federal Reserve paused interest rates, the COVID-19 crash occurred 6 months later. 6 months from a Sept 2023 pause would be March 2024. 2. The Recession Risk increase higher from Nov 2023 - Average timeframe of increases in Initial Jobless Claims prior to recession is hit. Adding to the above concerns is that M2 Money supply is still reducing (Macro Monday 8) and Global Net Liquidity is continuing to reduce (Macro Monday 4) as the S&P 500 is hitting a major resistance zone when accounting for M2 money supply (Macro Monday 8). At present it is clear that liquidity is reducing both globally and in the US. Currently fiscal stimulus appears to be filling the gaps and may be causing additional lagging effects to the changes we have seen imposed by Federal Reserve (balance sheet reduction and increased interest rates). Keep in mind that the Fed is also targeting higher unemployment to help quell the effects of inflation thus adding to the relevance of the Initial Jobless Claims and continuous jobless claims numbers. We can monitor these charts on my trading view just by pressing play and seeing where things are going. Regardless ill be providing updates along the way of claims releases and other important data. Be safe out there as we enter into a high risk zone (no guarantees) PUKA
ECONOMICS:USCJC
by PukaCharts
2
Macro Monday 14~Unemployment Rate Rise Macro Monday 14 US Employment Rate Pre-Recession Indications The Unemployment Rate tells us how many people in the United States are currently without a job and actively looking for one. The U.S. Bureau of Labor Statistics calculates and reports the unemployment rate. In basic terms it consists of the following; Survey: The Bureau of Labor Statistics conducts a regular survey of a sample of households across the country. They ask people whether they are working or actively trying to find work. Calculation: Based on the survey results, the Bureau calculates the percentage of people who are unemployed (those without jobs but actively seeking employment) compared to the total number of people in the labor force (those who are either employed or actively looking for work). Reporting: This percentage is then reported as the unemployment rate. For example, if 5 out of every 100 people in the labor force are unemployed, the unemployment rate would be 5%. At present the Unemployment rate is 3.8%. In simple terms, the unemployment rate is a way to gauge how many people are struggling to find jobs in the United States. In this respect it is an important economic indicator that helps us and policy makers understand the health of the job market. The Chart In today’s chart I will be analysing the history of the Unemployment Rate and how it has behaved both before and during recessions. The aim of the analysis is to help us understand the distinct pre-recession patterns and levels that occur prior to recession so that we can prepare ourselves should these levels be breached or these patterns play out again. These historic levels will be placed on the chart for you to monitor from today forward. Chart Outline: 1. Recessions are the red zones (also numbered & labelled 1 – 12 and on the chart itself) 2. Increases in the Unemployment Rate prior to recession are in blue. - These blue zones start at the lowest level the Unemployment Rate established prior to the recession periods in red. - Basis points (bps) have been used to show the change in the value within the blue zones (pre-recession zones) e.g. recession No. 2 The Great Financial Crisis had a pre-recession Unemployment Rate increase from 4.39% - 5.00% which is a 0.61% increase in the unemployment rate or a 61 bps increase. - Peaks: I have also included peak bps increases within these pre-recession periods (within the blue zones). These are times that the Unemployment Rate peaked higher but reduced thereafter but a recession still followed. Chart Findings: 1. In 10 out of 12 of the recessions outlined the Unemployment Rate increased in advance of the on-coming recession (in the blue zones) demonstrating that initial early increases to the Unemployment Rate can act as an early recession warning signal: - An average increase of 33.5 bps over an average timeframe of 7.3 months is observed pre-recession. - The maximum increase in the pre-recession blue zones was 71bps over 8 months. This max increase was observed prior to 1980 Volcker/Energy Recession no. 6 on the chart (this increase was from 5.59% to 6.30% in the Unemployment Rate itself – a 71bps increase). This recession was induced by Fed Chair Paul Volcker’s sudden increase to interest rates much like those that have been imposed by Jerome Powell over recent months (Volcker was appointed in Aug 1979 and got to work quick). - The max timeframe for a rising Unemployment Rate prior to recession was 16 months. This was prior to the The Gulf War Recession, no. 4 on the chart (which was considered a short 8 month softer recession). This max 16 month pre-recession timeframe has been marked on the chart to May 2024 in correspondence with today’s pre-recession blue zone timeline – so we know where a max timeline would put us (not a prediction). - 2 out of 12 times the Unemployment Rate did not increase prior to recession however it did not decrease either, it based at 0 bps or no change (No.1 COVID-19 Crash and No. 5 The Iran/Energy Crisis Recession). Whilst the Unemployment Rate did not increase, they did temporarily peak higher within the blue zones by 10 bps (No. 1) and 31 bps (No.5) demonstrating the importance of peaks and bases formed prior to an Unemployment rate ramp up and recession. I found the peak increases interesting to include because they illustrate that the Unemployment Rate can oscillate peaking higher temporarily only to form a higher low or return to its starting point, but a peak, if significant enough could be a telling indicator. The most notable peaks are the following; 62 bps (no. 12), 61 bps (no. 9), 60 bps (no. 10), 30 bps (No. 8), 31bps (No. 5) and only 10 bps (No. 2) for the COVID Crash. All of these peaks reduced thereafter within their pre-recession blue zones but a recession still ensued. A sudden increase in the unemployment rate should be taken seriously. I will include a subsequent data table chart that outlines these peaks and all other data utilized for Chart 1’s illustration and findings. We are currently in dangerous territory as we have passed the average timeframe of 7.3 months of increases to the Unemployment Rate and the Unemployment Rate increased by 40 bps over that period which is higher than the historical average of 33.5bps. We have surpassed both averages. The max historical pre-recession increase is 71 bps (No. 6) so this is a level to watch going forward. This translates to a level of 4.11% in the Unemployment Rate (marked on the chart). Similar to today’s Unemployment Rate level, there are two very similar instances in the past where the Unemployment Rate increased from c.3.4% to c.3.8% prior to recession (See RED ARROWS on chart). These both took 7 – 10 months to play out with a 10 – 42 bps increase to be established before recession hit. This is very similar to today’s levels which are at 7 months and 40bps of an increase with the 8th month being released this Friday 6th October 2023 which should be very revealing. We are now well armed with an historical chart as a reference point for any upcoming Unemployment Rate figures released in coming months. We know we have surpassed the averages in terms of timeframe (7 months) and the 40 bps increase is above the avg. 33.5 bps. We can refer back to this chart using Trading View, press play and see if we are breaching the max pre-recession level of 4.11% (the 71bps move) or other extreme pre-recession levels such as the dot.com and GFC Unemployment Rates (both marked on the chart). And if you don’t frequent the chart on trading view I will update you here regardless. Lets see what Friday brings…. PUKA
FRED:UNRATE
by PukaCharts
1
Recession Timeframe Horizon Macro Monday (2) Potential Recession Time Horizon Below you will find a breakdown of how many months pass before a confirmed Economic Recession (shaded grey areas) after the yield curves first definitive turn back up towards the 0% level: 1) 13 Months (Dec 1978 – Jan 1980) 2) 9 Months (Nov 1980 – July 1981) 3) 16 Months (Mar 1989 – Jul 1990) 4) 12 Months (Mar 2000 – Mar 2001) 5) 22 Months (Feb 2006 – Dec 2007) 6) 6 Months (Aug 2019 – Mar 2020) 7) 4 Months so far (Mar 2023 - ????) Average Time frame: 13 months (reasonable time horizon would be 6 – 18 months). I consider the first definitive turn up towards the 0% level as no. 7 on the chart (March 2023). Since this date we have rolled over below the -1% level (see additional chart in comments). March 2023 appears similar to the bounce in Dec 1978 (No. 1 in the chart), it also rolled over to the lower sub -1% level. If we assumed a similar 13 month timeframe to recession commencement as in Dec 1978 of 13 months, which also aligns with our 13 month average above, we would be looking at April 2024 for a recession to commence. Interestingly 1978 - 1980 was a similar peak inflationary period known as the Great Inflation, a defining macroeconomic period of high inflation. You might be wondering, has a recession ever occurred in the month of April before? I personally thought this was a strange month but it has occurred in the past. In April 1960 a recession commenced and lasted 10 months to February 1961. The 1960 recession was mainly a result of an over-tight monetary policy whereby the Federal Reserve raised interest rates from 1.75% in mid-1958 to 4% by the end of 1959 and maintained them at that level until June 1960. The Federal Reserves motive for raising interest rates and maintaining them was fear of high inflation (as in early 1951 inflation soared to +9.5%). Is it just me or is this all starting to sound a little too familiar? If we wanted to cater for all time scenarios in the chart and noted above (no. 1 - 6) we could argue that the start of a recession is possible at the earliest within 6 months (Sept 2023) and at the latest 22 months (Jan 2025). Also, the month of April 2024 has some eerie similarities to two prior recessions, the 1978 and 1960 Recessions. Lucky 13 Since World War 2 bear markets have on average taken about 13 months to reach their bottom and a further 26 months to recover their losses. Our average time before a recession would start is 13 months. It’s worth remembering that it could take an additional 13 months before a bottom is established and then 2 years or 26 months (2 x 13) of price action below the pre-recession price highs. Over 3 years is a long time to wait to recover losses. It would be pertinent to start deleveraging or increasing your hedge from the 6 month mark (Sept 2023 in this case) as subsequently the likelihood of a 3 year period below the Sept 2023 price levels increase as each month passes. For reference the S&P 500 index has fallen an average of 33% during bear markets over the avg. timeframe of 13 months to the bottom. I actually find it very hard to accept that a recession is possible in the near term (within 6 - 12 months) and I would in fact argue against it, however I cannot explain away the data in the chart which speaks for itself and warrants at least some consideration & caution. Nothing is a guarantee and maybe this time it will be different, especially factoring in the amount of unprecedented liquidity added to the market in recent years, sticky inflation and financial supports provided to systemically important banks. All the chart really indicates is a probable window for a recession to start some time between Sept 2023 – Jan 2025 and no guarantees. The rule of 13 is worth remembering, simply from a timing perspective (before and during a recession) as it may help your timing. Based on two similar periods in history, the 1978 and 1960 recessions suggest the month of April 2024 may be a key date. Again, no guarantees. It is also worth noting that for the last six recessions, on average, the announcement of when a recession started was up to 8 months after the fact…meaning we will have no direct indication when a recession starts, however the un-inversion of the yield curve (back above the 0% level) and a rise in unemployment will be the early tells, so these are worth paying attention too. We will keep you posted on any sudden changes in these metrics. I hope the chart is helpful, provides one perspective of which there are many, and can help time and frame the situation we currently find ourselves in. NO GAURANTEES, just probable timeframes that may be worth paying attention too. PUKA List of Recessions: 1. COVID-19 Recession (February - April 2020) 2. The Great Recession of 2008 (December 2007 - June 2009) 3. The September 11 Recession (March - November 2001) 4. The Gulf War Recession (July 1990 - March 1991) 5. The Iran/Energy Crisis Recession (July 1981 - November 1982) 6. The Energy Crisis Recession (January - July 1980) 7. The Nixon Recession (December 1969 - November 1970) 8. The “Rolling Adjustment” Recession (April 1960 - February 1961) 9. The Eisenhower Recession (August 1957 - April 1958) 10. The Post-Korean War Recession (July 1953 - May 1954)
FRED:T10Y2Y
by PukaCharts
5
Daily Market Analysis - THURSDAY JULY 06, 2023Key News: USA - ADP Nonfarm Employment Change (Jun) USA - Initial Jobless Claims USA - Services PMI (Jun) USA - ISM Non-Manufacturing PMI (Jun) USA - JOLTs Job Openings (May) USA - Crude Oil Inventories During Wednesday's trading session, the Dow Jones Industrial Average concluded the day with a decline, driven by the release of the Federal Reserve's meeting minutes for June. The minutes indicated a growing interest among policymakers in resuming interest rate hikes. However, in the tech sector, major players showcased mostly positive performance. Notably, Meta (formerly known as Facebook) soared to a 52-week high as anticipation mounted for its upcoming Twitter competitor. Specifically, the Dow Jones Industrial Average recorded a decrease of 0.38%, translating to a decline of 129 points. Similarly, both the Nasdaq and the S&P 500 experienced a modest 0.2% decrease during the trading session. Dow Jones Industrial Average Index daily chart The release of the Federal Reserve's meeting minutes from June, which occurred on Wednesday, shed light on the members' sentiment regarding future rate hikes. The minutes revealed that a significant majority of the members, described as "almost all," expressed support for the notion of resuming rate hikes. This position was motivated by concerns about persistently high inflation levels, which were deemed "unacceptably high." Furthermore, the minutes indicated a hawkish stance among some members, with a preference for raising rates rather than pausing during the June meeting. These members highlighted their worries about a tight labor market, recognizing that such conditions could potentially drive up wages and inflation even further. However, while the discussion expressed a general inclination towards resuming rate hikes, the decision to implement such actions in July will largely depend on upcoming data. Pantheon Macroeconomics suggests that the forthcoming data expected to be released this week and next will play a crucial role in shaping the Fed's decision-making process. It is worth noting that approximately 90% of traders, as indicated by the Fed Rate Monitor Tool, anticipate that the Federal Reserve will indeed resume rate hikes in July. Effective Fed Funds Rate Investor concerns regarding a potential global economic slowdown were heightened due to underwhelming services data from China. However, the impact of these concerns on the broader market was somewhat mitigated by the strong performance of prominent technology companies. Notably, Meta (previously known as Facebook) experienced a significant surge of over 3%, reaching 52-week highs. This impressive performance came ahead of the launch of Meta's rival Twitter app, Threads, scheduled for Thursday. It is noteworthy that Twitter had recently announced its decision to temporarily restrict the number of posts users can read on its platform. Meta Platforms stocks daily chart Despite Apple's 0.6% decline, the company's market capitalization remains above $3 trillion, demonstrating its significant value in the market. In contrast, Microsoft experienced a slight increase in its stock price. Wedbush, a prominent research firm, predicts that Microsoft will also join the exclusive $3 trillion club alongside Apple by early 2024. This projection is based on the belief that advancements in artificial intelligence (AI) will be a major driver of Microsoft's growth and valuation. Wedbush noted in a statement on Wednesday that, considering the potential of AI and through a sum-of-the-parts valuation, Microsoft's overall value should propel it to the esteemed $3 trillion club within the next few years. Microsoft stock daily chart During the US Independence Day holiday, major currencies displayed a noticeable trend of trading within narrow ranges in relation to the US dollar. Among the G10 currencies, the New Zealand dollar (NZD) emerged as the top performer. This could be attributed to the unwinding of long positions in the Australian dollar/New Zealand dollar (AUD/NZD) pair, which likely contributed to the NZD's relative strength in the market. AUD/NZD daily chart Throughout this week, European markets have faced consistent declines, with yesterday's losses being notably significant. The downward trend in the markets is expected to persist today. The market weakness witnessed yesterday was primarily fueled by concerns surrounding disappointing services Purchasing Managers' Index (PMI) data from both China and Europe. These underwhelming data releases have heightened worries about a potential global economic slowdown. Furthermore, the increasing risks related to interest rates have contributed to weakness in sectors such as basic resources, energy, and financials, amplifying the overall market downturn. These negative sentiments have had a spill-over effect on Asian markets as well, reflecting the widespread concerns about the global economic landscape. Employed Usually Works Full time Chart US Employed Persons status Today's highly anticipated release of the ADP payrolls report is expected to show a robust figure of 225,000, slightly lower than the previous month's 278,000. Despite this slight decrease, it is important to note that the current level of job vacancies suggests that we are unlikely to see a weak jobs report in the upcoming months. Consequently, it is less probable that the labor market will serve as the catalyst for the Federal Reserve to signal a pause in its policies in the near future. US Purchasing Managers Index (ISM) The Federal Reserve has expressed concerns regarding the persistence of services inflation, highlighting its potential impact on the economy. Today's ISM services report is anticipated to reveal a modest uptick in headline activity, reaching around 51.3. However, special attention will be given to the prices paid component, which experienced a decline to 56.2 in May, marking a three-year low. This data will provide insights into the pricing pressures faced by service providers. As for Independence Day, please note that trading hours may be affected due to the holiday in the United States. The Unemployment Rate is a key economic indicator that measures the percentage of the labor force that is unemployed and actively seeking employment. It provides insights into the health of the labor market and is closely monitored by economists, policymakers, and market participants.
by FOREXN1
15
What is Non-Farm Payroll and How to Trade It? 📚 Hey traders, This week, on Friday, we are expecting Non-Farm Payroll Report. In this educational article, I will try to explain to you why that fundamental data is so important and I will share with you the insights how to trade it. Non-Farm Payroll is one of the most important indicators for forex and stock markets in the economic calendar. Being released on the first Friday of each month by the Bureau of Labor Statistics (BLS), it shows the number of new jobs created by the US economy during the previous month, excluding farm sector, government and not for profit organizations. NFP accounts for 80% of the US gross domestic product work force. The non-farm payroll is used by analysts to determine the current state of the economy and to predict the future activity levels. For that reason, its release usually triggers volatile movements across all Us Dollar related financial instruments. Being crucially important, remember that NFP is not the only figure released by the Bureau of Labor Statistics. NFP is the part of the Employment Situation Report that also contains: Unemployment rate, Average hourly earnings, Labor participation rate, Average workweek. The main reason, why newbie traders fail in trading NFP release is the fact that they completely neglect the figures of the Employment Situation Report. Here are some tips how to properly interpret the figures in the report: 1) Non-farm payroll numbers. It reflects the new jobs' creation pace. Higher than predicted rate is usually positive for the US stock market, while the weak rate usually affects that negatively. 2) Unemployment rate. It reflects the number of unemployed people in relation to a total workforce. Low unemployment rate is usually very positive for US Dollar, while higher than expected unemployment quite negatively affects on USD. 3) Average hourly earnings. It reflects the change of the labor cost. The fast increase in the labor cost is usually positive for US Dollar, while the slowing increase is considered to be a bearish indicator for USD. 4) Average weekly hours. It reflects the average amount of paid working hours. The increase in average weekly hours is considered to be a very positive factor for US stock market, while its decrease is considered to be a negative one. Trading NFP report, the one should consider all the figures from the Employment Situation Report. All the numbers should be weighed properly and only then the predictions should be made. Remember that volatility is higher than usual in the hours of news release, for that reason, be careful and never forget to set a stop loss.
OANDA:XAUUSDEducation
by VasilyTrader
7
SP500 vs FedFund vs Unemp vs Yield CurveUS stocks vs the Federal Reserve Funding Rate vs the unemployment rate vs 10yr-2yr treasury yields. When the 10yr vs 2yr yield goes negative it means that a 2yr treasury bond is yielding more interest than a 10yr treasury bond and it is also known as a yield curve inversion. The red vertical lines in the chart are drawn from yield curve inversions which are usually followed by the Federal Reserve lowering interest rates, a rise in unemployment and US recessions. We're currently in a yield curve inversion that has gone more negative than the inversions just prior to the Covid panic, the 2008 financial/housing crisis and the 2000 dot-com bust which were all accompanied by record stock market losses. Maybe this time will be different...
SP:SPX
by PrepForProfit
1