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Nikkei/Yen Futures (Jan 2025)Nikkei/Yen Futures (Jan 2025)Nikkei/Yen Futures (Jan 2025)

Nikkei/Yen Futures (Jan 2025)

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NIYF2025 trade ideas

Japanese Equities Rebound Post Election ShocksJapan’s October 28 elections delivered a surprise to the market with the ruling Liberal Democratic Party (LDP)’s loss of the majority in the parliament. Prime Minister Shigeru Ishiba now faces the challenge of securing a majority in the 465-member Diet, Japan’s national legislature, in the coming weeks. This political uncertainty has impacted the outlook for Japanese equities. Typically, such instability would weaken the equity market; however, a combination of a depreciating Yen and a "buy the news" rebound after two weeks of decline has led to a market recovery, with the Nikkei-225 rising 3.7% since the election results were announced. This environment presents tactical opportunities for savvy investors, such as leveraging spreads between the concentrated large-cap stocks in the Nikkei-225 and the broader Japanese equity market through the AMEX:DFJ ETF. Political Uncertainty a Concern for the Nikkei-225 Japan's October 28 election resulted in no party securing a majority, with the LDP and Komeito losing 64 seats, leading to a hung parliament. This uncertainty has raised concerns over the Nikkei-225, as the lack of a stable government could hinder decisive economic policy. Historically, political instability tends to undermine investor confidence in Japanese equities, and analysts are now concerned about the ability of a weakened government to implement coherent economic policy. Following the result, the Yen dropped to a three-month low of 153.88 per dollar, reflecting investor nervousness. The Nikkei-225 rallied 3.7%, driven by a weaker Yen benefiting exporters like Toyota and Nissan. Analysts expect continued market volatility until a stable coalition is formed, with specific concerns around delayed fiscal measures and economic reforms that could weigh on investor confidence. PM Ishiba’s Hawkish Tone Likely to be Tempered Even in Case of Victory Shigeru Ishiba, recently appointed as Prime Minister, has expressed his intention to remain in office, despite facing a challenging re-election campaign after the disappointing outcome of his snap election. Analysts like David Roche from Quantum Strategy and Masahika Loo from State Street suggest his re-election prospects are slim. PM Ishiba has historically supported the Bank of Japan's rate hike strategy and voiced concerns over yen depreciation. However, in light of the election results, his party may need to adopt a more populist stance to retain support, embracing dovish monetary policies and increased social spending. Additionally, PM Ishiba has pledged to introduce a larger stimulus plan in response to the election outcome. This expanded stimulus could conflict with the BoJ’s monetary policy goals, likely prolonging yen weakness. Weaker Yen Supports Nikkei-225 The weaker yen has been a key driver in Nikkei-225's recent stellar performance. A depreciating yen makes Japanese exports more competitive, directly benefiting major exporters such as Toyota and Nissan, which saw gains of over 4% on 28/Oct (Mon). Mint Finance previously highlighted the inverse relationship between the Yen and the Nikkei-225. Recently, however, this correlation has broken, with both the Nikkei-225 and the Yen declining over the past two weeks. Although post-election performance has brought a modest recovery in this relationship, fundamental concerns persist. With the Bank of Japan holding rates steady, the Yen is expected to weaken further. The outlook for the Nikkei-225 is less clear, as it benefits from a weaker Yen yet faces pressures from ongoing political uncertainty. Key Technical Levels Nikkei-225 is trading just above its long-term moving averages which have acted as support after being tested multiple times over the past few months. With the Nikkei-225 in a rising channel and above a support level, price may have some upside. However, the R1 pivot level at 40,525 may act as resistance as it previously has. Nikkei-225 is currently in a price range dominated by buyers over the past month. Overall volume activity shows buyers have remained dominant according to the accumulation/distribution indicator. In case Nikkei-225 breaks out from this range, it is likely to see increased selling. This could lead to a period of consolidation at present levels, especially given the political uncertainty. Hypothetical Trade Setup Tailwinds from the weakening Yen intertwine with headwinds from the political uncertainty for Nikkei-225. Until clarity on economic outlook arises, the Nikkei-225 is likely to remain volatile. Due to the recent diverging performance, the effectiveness of a Yen hedge on the Nikkei-225 has decreased. While the Yen may continue to weaken, it is not likely to have a proportional impact on strengthening the Nikkei-225. However, a weakening Yen also favours large cap stocks that comprise the Nikkei-225 relative to smaller companies such as those comprising the WisdomTree Japan Smallcap Fund ETF (DFJ), which provides broad exposure to Japan equities. DFJ is geared towards small cap firms and excludes the 300 largest companies by market cap. It also caps the maximum weightage of any single sector to 25% ensuring that the index is not impacted by any single sector. By comparison, the Nikkei-225 index is a price weighted index which tilts its exposure towards expensive stocks, especially those from large companies. It also provides exposure to the technology sector in Japan which has outperformed recently due to the burgeoning chip industry. Mint Finance covered the breakdown of the index in a previous paper . The spread between the Nikkei-225 and DFJ ETF has continued to rise over the past two years alongside the Japanese equity rally, though there have been periods of consolidation in between which small caps have managed to to catch up. The peaks in the ratio have been at times when the Nikkei-225 reached a new all-time-high while periods of consolidation following the peak have favoured the small cap equities. This view benefits investors in case the Nikkei-225 retests its all-time-high in the near future. It also benefits from the fundamental drivers that favour the firms comprising the Nikkei-225 compared to the ETF. Investors can express a view by buiding a long position in Nikkei-225 using CME Group futures and a short position in DFJ ETF. Nikkei-225 Futures on CME are available in a dollar denominated form, which negates currency impact from the weakening Yen. For example, a long position in CME Group Nikkei-225 futures provides exposure to a notional value of USD 197,900 (USD 5 x 39,580 index price as of 30/Oct). This would require an extremely large position on the ETF leg to balance out the notional. Alternatively, investors can utilize the newly launched Micro Nikkei (USD) futures which are 1/10th the size of the standard Nikkei 225 futures contract with a notional value of USD 19,790 (USD 0.5 x 39,580). Micro Nikkei (USD) futures are geared towards smaller notional sizes which allows for granular hedging and spreads as well as enhanced capital efficiency. Since their launch on October 28, the contracts have experienced rapid growth and adoption. Over the past two days, 1,370 Micro Nikkei (USD) contracts and 4,141 Micro Nikkei (JPY) contracts have been traded. The contracts also shows a tight bid-ask spread and a liquid market, supporting capital-efficient trading. The following hypothetical trade setup consists of long 1 x Micro Nikkei (USD) futures expiring in December and short 265 shares of WisdomTree Japan SmallCap Fund with a reward to risk ratio of 1.33x. MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/cme . DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
CME:NKD1!Long
by mintdotfinance
NKD: Japan Beyond Carry TradeCME: Nikkei 225 USD Futures ( CME:NKD1! ) Tokyo: The Ministry of Internal Affairs reported last Friday that the Consumer Price Index (CPI) in Japan increased 2.5% in September year-on-year, down from 3.0% in August. The CPI excluding fresh food rose 2.4%, down from 2.8%, during the same period. The core inflation measure, which excludes both fresh food and energy costs, rose slightly to 2.1% in September from 2.0% in August. Service prices, considered a crucial indicator by the Bank of Japan (BOJ), gained 1.3% year-on-year, slowing from 1.4% in August. To counter the recent economic slowdown, the Japanese Government rolled out subsidies on electricity and gas prices. These fiscal measures were a major contributor to the cooling inflation, estimated to have shaved 0.55% off the annual inflation rate. The BOJ is widely anticipated to maintain its interest rate at 0.25% during its upcoming policy meeting on October 31st. Despite the dip in inflation, BOJ has signaled that further rate hikes may still be on the table if inflation continues to align with its projections. However, policymakers are cautious following criticism of their July rate hike, which triggered a market downturn. As the US Federal Reserve will have its rate-setting FOMC meeting on November 7th, the all-important interest rate spread between the US and Japan could continue to narrow: • With the Fed Funds at 4.75%-5.00% and the Japanese Interest Rate at 0.25%, the US-Japan interest rate spread is currently at 450 basis points (our calculation takes the lower bound from the US policy rate range) • According to CME Group FedWatch Tool, as of October 20th, the futures market expects a 99.3% chance that the Fed will cut 25 basis points in November. If that happens and the BOJ maintains its current rate, the spread will narrow to 425 bps • If the Fed pushes for a supersized 50bp cut again, same as they did in the last meeting, the interest rate spread could further shrink to 400 bps • Over the course of the next 2-3 years, I expect the Fed to normalize interest rates to 3% or below, to a level not restrictive to economic activity. Meanwhile, the BOJ could maintain the 0.25% rate throughout this period. If that is the case, the US-Japan rate differential could further move towards the 200-250bp range, in my opinion Carry Trade May be a thing of the Past Two years ago, I published a market commentary, “Land of Rising Sun and Falling Yen” on November 7, 2022, and received TradingView Editors’ Picks. In that writing, I discussed Carry Trade, a wildly popular FX strategy. In a nutshell, a trader would borrow Japanese Yen with ultra-low interest rate, exchange the fund into Australian Dollar or US Dollar and earn a higher return. At the end of the investment horizon, the trade would exchange the proceed back to Yen and pay back the loan. The differential between the investing interest rate and loan rate would be the return from this strategy. With 50x to 100x leverage common in FX trade, carry trade could be hugely profitable. Carry trade carries two significant risks. The first is the appreciating yen. The trader may need more dollars to exchange back to yen and pay back the loan. The loss from exchange rate changes could eat up all the interest earning profit. In the last writing, I commented that Yen at 150 may have bottomed out, and explored the idea to take cover for carry trade. Over the following two months, the Yen sharply rose 15% to 127. A trade that earned 3% in interest would have been wiped out completely and may incur huge losses if executed with high leverage. In the present time, we are observing the second risk, a shrinking interest rate spread. Carry trades may have 400-bp interest spread in 2023 and could see the spread narrowing to 200 bps in the next two years. With central banks around the world cutting interest rates, and volatility of exchange rates on the rise, this is probably not a good time for carry trade. The Japanese Stock Market on Focus While the currency play may be out, the Japanese stock market could offer both a good return and diversification for an investor’s portfolio. The Nikkei 225 index is the main stock market index for Japan. At 39,290, its year-to-date return is 17.9% as of last Friday. It is lower than the 22.7% YTD return for S&P 500. However, Nikkei was initially up 27.6% in July. When the BOJ raised rates, the Japanese stock market entered a huge correction, wiping out all the gain. Since then, the Nikkei popped up about 17% in the past six weeks. Japan is the world’s third largest economy with GDP of $4.2 trillion in 2023. Comparing to the other large nations, Japan is more intertwined with the rest of the world. We would explore two trading strategies based on Japan’s unique economic fundamentals. The first aspect: Japan has an export-oriented economy. Its top 3 trading partners are • China: exports were $153 billion in 2021, accounting for 21% of the total ($728 billion) • United States: $137 billion, 19% of the total • The European Union: $97 billion, a 13% share These top 3 partners contribute to 53% of Japan’s exports of goods and services. In essence, economic growth in its trading partners will result in more demand for “Made-in-Japan”, while economic slowdown could spill over to Japan. In my opinion, there is more tail wind than head wind on the way. The US is already in a rate-cutting cycle. Its economy has been resilient during the high-rate environment. The economic health would continue to improve with lower cost of capital. I would also point out that Japan’s export data did not tell the whole story. Most Japanese cars are now made in the US. The data does not show up on Japan’s GDP, but is included in the profit of Toyota, Honda and Nissan. Many of the Japanese car makers are component companies in the Nikkei 225 index. China is implementing massive economic stimulus. Hundreds of business-supportive new rules and trillions of yuan are putting in the economy. I expect China to revive in Q4 and in 2025, which would lead to higher demand for Japanese goods. To summarize, I consider the Nikkei 225 has room to grow. A long position in CME Group’s Nikkei 225 Futures could be deployed to express this view. The second aspect: Japan is a net importer of natural resources • Japan, ranked fifth-highest consumer of oil in the world, relied on imports to meet 97% of its demand in 2022. Japan imports crude oil primarily from Saudi Arabia, United Arab Emirates, Kuwait, Qatar, and Russia. In 2022, Japan’s crude oil imports increased to 2.5 million barrels per day, up from 2.3 million b/d in 2021. Not only does Japan depend on foreign oil, but it also sources crude oil from regions with heightened geopolitical tensions. If the conflicts in the Middle East escalate further, crude oil production and/or shipping routes could be interrupted. The chart below shows an inverted relationship between Nikkei 225 and WTI crude oil price trends. This suggests that a spread trade could be constructed. For most of 2024, Nikkei moved up as crude oil trended down, except for the BOJ rate hike disrupting the trend. If geopolitical crisis escalated, oil prices could soar while the Nikkei would tank. For someone holding this view, a long position on WTI Crude Oil futures ( NYSE:CL ) and a short position on CME Nikkei futures ($NKD) could be deployed to express such a view. Introducing CME Micro Nikkei USD Futures On October 28th, CME Group will be launching a USD-denominated and Yen-denominated Micro Nikkei futures. The new contract has a notional value of $0.50 times the Nikkei index. At Friday closing price of 39,150, each contract would be worth $19,575. The Micro contract is 1/10th the size of the standard Nikkei futures ($NKD). It will provide a new way to access broad-market Japanese index exposure with greater trading precision and lower capital commitment required. The timing of the new contract launch is critical. It is a week before the US presidential election (November 5th) and ten days before the next FOMC meeting (November 7th). Let’s watch this space to explore the trading opportunities presented by the standard Nikkei futures and Micro Nikkei futures. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CME:NKD1!Long
by JimHuangChicago
Breakout Watch: Trading Nikkei Futures Ahead of Its Micro Launch1. Introduction: Nikkei Futures and Current Market Setup Nikkei Futures (NIY1!) remain a cornerstone of Japan's equity market exposure for traders globally, offering insights and trading opportunities tied to the performance of Japan’s stock market. In recent days, the Nikkei Futures market has entered a phase of tight consolidation, with the trading range narrowing between 39515 and 38785. This setup presents a classic breakout opportunity, with price poised to either break above the upper boundary or fall below the bottom one. Traders should remain vigilant, as a breakout could lead to a market movement in either direction. 2. Contract Specifications: Nikkei Futures vs. Micro Nikkei Futures Nikkei Futures (NIY1!) are a valuable tool for traders seeking exposure to Japan’s economy. The contract size is tied to the Nikkei 225 index, with each tick movement having substantial financial implications for the trader. Here’s a breakdown of the key specifications: o Nikkei Futures (NIY1!): Tick Size: 5 points. Tick Value: 2,500 JPY per tick. Margin: 1,500,000 JPY (varies as market conditions change) Starting October 28, 2024, CME Group will introduce Micro Nikkei Futures, which will provide a more accessible option for retail traders by offering a smaller contract size and lower margin requirements. The Micro Nikkei contracts will allow traders to take advantage of the same market exposure with greater flexibility and reduced capital risk: o Micro Nikkei Futures: Tick Size: 5 points. Tick Value: 250 JPY per tick. Margin: 150,000 JPY (varies as market conditions change) This introduction opens up new opportunities for traders looking to manage risk more effectively or for those who prefer to trade with smaller position sizes. 3. Breakout Trade Setup for Nikkei Futures Currently, Nikkei Futures are stuck in a range-bound market, oscillating between 39515 and 38785. A potential breakout beyond these levels is potentially imminent, and traders can prepare to capture the momentum once it occurs. The key to this setup is patience: wait for the price to either break above or fall below before entering any trades. Here’s the breakout strategy we’ll be focusing on: Breakout to the Upside: Enter a buy trade if price breaks above 39515. Breakout to the Downside: Enter a sell trade if price falls below 38785. By leveraging this breakout strategy, traders can capture the volatility that usually follows a breakout from a tightly held range. 4. Breakout to the Upside: Trade Idea In the event of an upside breakout, we anticipate that the price will rally after breaking through the 39515 level. Here’s the breakdown for this trade setup: Entry: Buy at 39515, the upper boundary of the current range. Target: The target is set at 40285, where there is a significant UFO resistance and a technical resistance level. This level marks a strong area where sellers may come in, making it a logical point to exit the trade and secure profits. Stop Loss: To manage risk, place the stop loss a third of the profit zone below the entry price. In this case, the stop would be at 39258, minimizing downside exposure while allowing the trade to develop. o Risk/Reward Calculation: Profit zone: 40285 - 39515 = 770 points. Risk (1/3 of the profit zone): 770 / 3 = 257 points. Stop loss: 39515 - 257 = 39258. For standard Nikkei Futures, each point is worth 500 JPY, so: Potential profit: 770 points × 500 JPY = 385,000 JPY (approx. USD 2,580). Risk: 257 points × 500 JPY = 128,500 JPY (approx. USD 860). For the Micro Nikkei Futures, everything would be reduced x10 (approx. USD 258 and USD 86). 5. Breakout to the Downside: Trade Idea In the case of a downside breakout, we expect a decline once the 38785 level is breached. Here’s how the trade setup would work: Entry: Sell at 38785, the lower boundary of the current range. Target: Set the target at 37920, a level supported by a UFO support, a technical support, and two nested Fibonacci retracement levels (23.6% and 61.8%). Stop Loss: The stop loss is set at a third of the profit zone above the entry price. This protects against excessive losses if the market moves against the trade. The stop would be at 39073. For standard Nikkei Futures: Potential profit: 865 points × 500 JPY = 432,500 JPY (approx. USD 2,910). Risk: 288 points × 500 JPY = 144,000 JPY (approx. USD 970). For the Micro Nikkei Futures, everything would be reduced x10 (approx. USD 291 and USD 97). 6. Risk Management Effective risk management is key to long-term success in trading. In both breakout scenarios, the use of stop-loss orders ensures that traders can limit their losses if the market moves against them. Additionally, setting precise entry and exit points reduces the likelihood of emotional decision-making, allowing for more disciplined trading. The upcoming launch of Micro Nikkei Futures offers traders enhanced control over their position sizing and risk exposure. With smaller contracts, traders can engage in these setups with a fraction of the capital required for standard futures contracts. This flexibility is particularly beneficial for retail traders looking to manage risk effectively while still capitalizing on market opportunities. Whether you are a seasoned futures trader or new to the Nikkei market, these breakout setups provide a solid foundation for capturing momentum. As always, risk management should remain at the forefront of your strategy, ensuring you protect your capital while pursuing profits. 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. General 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.
CME:NIY1!
by traddictiv
Japanese Stocks Have Room for More Upside?Do Japanese stocks have room for move upside? It has been one of the best-performing markets since COVID. And what is the key reason for this rally? A falling Yen. Where is the Yen heading and do the Japanese stocks have room for more upside? Nikkei (JPY) Futures Ticker: NIY Minimum fluctuation: 5.00 index points = ¥2500 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
CME:NIY1!Short
by konhow
1
Hidden Link Between Hedge Funds’ Yen Positions & Nikkei225 TrendBy Eric Lee , Sales Director of Phillip Nova Tracking the GBP/JPY and Nikkei 225 Relationship for Futures Trading In my previous analysis of the Nikkei 225, I pointed out its strong correlation with the GBP/JPY currency pair, highlighting it as a key factor for traders to watch when trading Nikkei 225 futures. The Japanese yen’s strength is largely shaped by the monetary policies of the Bank of Japan (BOJ). While these policies can be complex and challenging for everyday investors to grasp, hedge funds, armed with advanced models and PhD-level experts, have a clearer understanding. But what if you could gain insight into the bets hedge funds are making on the Japanese yen? Wouldn’t that be a game changer? Understanding Hedge Fund Insights on Japanese Yen Through CFTC Reports Here’s how you can: The Commodity Futures Trading Commission (CFTC), a U.S. regulatory agency overseeing futures markets, mandates that all financial institutions= report their futures positions every Friday. This means hedge funds trading Japanese yen futures on the CME must disclose their positions weekly. Using Hedge Fund Trends to Anticipate Nikkei 225 and GBP/JPY Movements Take a look at the COT (Commitment of Traders) chart of CME Japanese yen futures. I’ve highlighted the key trend in purple. This shows the aggregate positions that leveraged funds, or hedge funds, are taking on yen futures. Notice how hedge funds began accumulating yen positions in July, and as of the most recent data, they’re more bullish on the yen than they’ve been in the past three years. Every Friday, traders should pay attention to the updated COT chart. If hedge funds continue to build long positions in the yen, it’s a strong sign that GBP/JPY may weaken, pushing the Nikkei 225 lower. Conversely, if hedge funds shift toward short positions, GBP/JPY could rise, causing the Nikkei 225 to move higher. Trade the smallest Nikkei Futures from $400 with Phillip Nova today
SGX:NK1!
by phillip_nova
Hedging Yen amid bullish Nikkei outlook? The Nikkei-225 is trading near 40,000 once more. The sharp decline in early August due to the BoJ rate hike has been swiftly reversed. The outlook for the Nikkei remains bullish with continued investor interest driven by market reforms as well as foreign investor interest. With the BoJ currently on pause and signalling no urgency to raise rates further, the Nikkei appears poised to retest its all-time high set in July. However, the significant influence of monetary policy on the Yen makes it advantageous to hedge a Nikkei position with a long Yen position. This approach offers similar upside potential while reducing downside risk. BOJ ON HOLD FOLLOWING FALLOUT FROM RATE HIKE The BoJ decided to maintain rates at 0.25% during its September 20 meeting. Their statement indicated that the economy is on a recovery path aligned with the BoJ's mandate, upgrading its assessment of consumption from a "resilient trend" in July to a "moderate increasing trend." Governor Ueda noted that the recent yen strengthening is reducing inflationary pressures, signalling positive trends for the economy in line with the BoJ's mandate. During the September 20 meeting, he reiterated that the BoJ would not raise rates amid market instability, which they attribute to recession risks in the U.S. This cautious approach likely results from the fallout after the BoJ raised rates to a 15-year high at its July 31 meeting. This decision triggered a sharp yen appreciation and a significant unwind of the yen carry trade, leading to a global decline in equities fuelled by fear. The Nikkei-225 dropped over 20% in the following week, erasing all gains made in 2024. MARKET STABILITY ANOTHER CONCERN FOR BOJ The BoJ's policy mandate focuses on achieving sustainable economic growth through wage growth and consumption while maintaining a stable 2% inflation rate. Under Governor Ueda's leadership, the BoJ aims for a neutral policy rate that is neither overly restrictive nor too accommodative, indicating that rates must increase from their current excessively loose levels. However, following the market reaction to the July 31 policy meeting, the BoJ faces an additional mandate: balancing its monetary policy trajectory with the risks of market volatility and its effects on business stability. This additional mandate introduces a complex variable into the BoJ’s monetary policy balancing act, making it prudent for the BoJ to wait and assess the effects of policy changes. As Governor Ueda stated during the policy announcement, "We can afford to spend some time in making a policy decision." The BoJ has two remaining policy meetings scheduled for 2024: October 30 and December 18. Following Governor Ueda's recent statement highlighting risks from market volatility, analysts unanimously agreed that September policy meeting would not result in a hike but majority still expect another hike by the end of the year. With the recent encouraging inflation prints, BoJ has room to hike rates towards the end of the year. PAUSE RATHER THAN HALT The decision to maintain rates may signal a pause rather than a halt to rate hikes. Governor Ueda indicated in an August parliamentary hearing that the BoJ would continue to raise rates if economic data aligns with expectations. With inflation around the target range, BoJ has room to raise rates further. Additionally, the recent election concluded with Shigeru Ishiba becoming the next Prime Minister. The former defense minister has backed the BoJ's rate hike strategy and expressed concerns about yen depreciation. His leadership may foster political support for further rate increases in Japan. Finally, recession fears in the US are subsiding with recent jobs data and GDP figures above expectations. This may help ease market instability concerns for the BoJ. JAPAN EQUITIES REMAIN COMPELLING, ATTRACTING INFLOWS Japan equities remain compelling for foreign investors. The TSE’s recent market reforms have led to a material improvement in the firm’s balance sheets with higher utilization of capital in the form of both returns to shareholders and capital expenditure. Furthermore, Japan equities remains undervalued despite the massive improvement in valuations this year. While, the P/B ratio for Nikkei-225 has increased from 1.75 to 1.93 over the past year, the P/E ratio has remained largely unchanged at 20.88 (compared to 19.38 last year). The much unchanged P/E ratio reflects the strong earnings growth despite the 23% rally in the index. The potential undervaluation has attracted global value investors including Warren Buffet. Warren Buffet has built up large positions in Japanese trading houses with the value totalling nearly USD 25 billion as of 12/June. Buffet has previously opted to increase stakes in these investments when they traded at P/E similar to the level during the downturn in August. Furthermore, YTD inflows into Nomura Nikkei 225 Fund (NTETF) have totalled USD 891 million. While the fund is only available OTC in the US, it is one of the largest Japan equity ETF with USD 71 billion in AUM. Notably, inflows into the ETF have been concentrated after large declines this year suggesting investors are using decline in price to increase positions. CHINA STIMULUS ADDS FURTHER WIND IN NIKKEI SAILS The announcement of the massive stimulus package in China last week has supported most Asian equity markets with the rising tide of Chinese equities rippling through Japanese equities. As the positive sentiment in China continues, other Asian indices are likely to benefit too. HYPOTHETICAL TRADE SETUP The Nikkei-225 is supported by strong tailwinds including market reforms that support foreign investment and a positive sentiment in Asia equities. However, given the market reaction to the previous BoJ rate hike, monetary policy and Yen moves remain a pertinent concern for the Nikkei. Nikkei and Yen are inversely correlated. The correlation is particularly tight during periods of Nikkei decline. With the Yen remaining volatile from the impact of monetary policy, hedging a long position in Nikkei-225 with a long position in the JPYUSD is prudent. A combined position of being long on both the Nikkei-225 and the Yen has delivered similar gains to a long position in the Nikkei-225 over the past three months. However, the combined position has also offered crucial downside protection, outperforming during periods of market decline. The Yen remains on an uptrend, supported by both a weakening dollar from Fed rate cuts and a strengthening yen from BoJ rate hikes. A position consisting of long CME Nikkei (USD) futures can be combined with a position consisting of 2 x long CME Japanese Yen futures to roughly balance notional across both legs. Investors can also deploy 21 x long CME Micro JPY/USD futures to balance notional more closely. CME provides margin offset amounting to 35% as of 27/Sept for this trade which reduces margin requirements from USD 18,720 to USD 12,168. A hypothetical trade setup consisting of long 1 x CME Nikkei (USD) December futures and long 21 x CME Micro JPY/USD December futures offering reward to risk ratio of 1.43x is provided below. MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/cme . DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
CME:NKD1!Long
by mintdotfinance
7
Long Nikkei 225 setup with momentum remaining bullishNikkei 225 futures look terrible on the dailies, with a shooting star candle followed up by a big bearish candle on Friday, completing an evening star pattern. Convention suggests downside risks are building, but I’m not going to follow convention today. Sitting just above the 50-day moving average, a decent long setup has presented itself, especially with USD/JPY moving off its lows in early Asian trade. RSI (14) and MACD continue to generate bullish signals, making me more inclined to buy dips, bolstering the case for longs. You could buy around these levels with a tight stop below the 50-day moving average for protection, targeting 38425 initially. A break of that level may bring a push towards 40000 into play. Good luck! DS
SGX:NK1!Long
by FOREXcom
Nikkei future coiling up for an explosive break?Nikkei futures look like a market where bulls and bears are waging war, all while the price continues to coil up within a symmetrical triangle, waiting for a potential explosive break. The sizeable wicks on the daily candles suggests the collective market hasn’t made up its mind yet, although having entered the triangle from above, the inclination is that directional risks are biased lower. It’s also noteworthy that down days are often accompanied by stronger volumes, suggesting bears marginally have the upper hand. RSI (14) and MACD continue to generate bearish signals on momentum. While I see more downside risk than upside, I’m not wedded to the view. Depending on what the Fed does with interest rates, and the subsequent reaction in the Japanese yen, the picture could easily change. My gut feel is the yen will be more influential on Japanese stocks than the lead from Wall Street, so that will help determine the higher probability setup. A 50-pointer from the Fed would likely create downside pressure on USD/JPY, amplifying headwinds for the Nikkei. A 25-pointer would likely do the opposite. If we see a downside break of the triangle, 35120 is the first level of note. Below that, 33750 has been respected on numerous occasions in recent years, making that a potential target. If we were to see the price break out of the triangle on the topside, 36875 has acted as both support and resistance recently. Beyond that, the former uptrend will provide a test with a break above that opening the door for a move to the 50 and 200-day moving averages. Good luck! DS
SGX:NK1!
by FOREXcom
From Tokyo with Love: Key Opportunities with Japan's Top Index1. Introduction The Nikkei 225 is Japan's premier stock market index and one of the most widely followed indexes in the world. As the representative of Japan's economy, the Nikkei 225 includes many of the country’s most influential companies across various industries, such as Toyota, Sony, and SoftBank. With Japan being the third-largest economy globally, traders who seek exposure to the Asian market find the Nikkei 225 to be a crucial addition to their portfolios. Now is an opportune time to study and potentially add the Nikkei 225 to your watchlist, as Micro contracts are set to launch later this year, offering greater accessibility to both institutional and retail traders. These micro contracts will allow traders to manage their positions with more precision, capital efficiency, and reduced exposure. With the futures contracts denominated in both US Dollars and Japanese Yen, traders can select their currency exposure based on market preferences. Contract Specifications: # Nikkei/USD Futures: Contract size: $5 USD per index point Tick size: 5 points = $25 USD per contract Margin: USD $12,000 per contract at the time of producing this article Trading hours: Almost 24-hour trading, covering Asian, European, and US sessions # Nikkei/YEN Futures: Contract size: ¥500 per index point Tick size: 5 points = ¥2,500 per contract Margin: JPY ¥1,200,000 per contract at the time of producing this article Trading hours: Mirrors the USD futures trading hours for global reach For traders looking for exposure to Japan’s economy, these contracts offer versatile trading opportunities with sufficient liquidity, price movement, and round-the-clock accessibility. You can access real-time data on these contracts through TradingView - view the data package at www.tradingview.com 2. Global Market Diversification The Nikkei 225 Index offers more than just exposure to the Japanese market; it’s a portal into Asia’s largest and most developed economy. With Japan being an export-driven economy, exposure to the Nikkei 225 allows traders to capitalize on trends in global manufacturing, technology, and industrials. Additionally, during periods of macroeconomic divergence—where the economic performance of regions like the US and Asia deviate—the Nikkei 225 can provide a non-correlated trading opportunity. 3. Correlation and Hedge Against US Equities While Japan is a developed economy like the United States, its market dynamics differ substantially. The Nikkei 225 often shows a lower correlation with US equity markets, meaning that the index tends to react differently to global and local economic events compared to indices like the S&P 500. This graph illustrates the rolling 30-day correlation between the Nikkei 225 and the S&P 500, highlighting the fluctuating relationship between the two indices and how they decouple at times, especially during periods of heightened market volatility. 4. Japanese Yen and US Dollar Denominated Contracts One of the unique aspects of the Nikkei futures is the ability to trade the index in either US Dollars or Japanese Yen. This flexibility allows traders to choose the contract that best suits their currency exposure preferences, providing a powerful tool for those who also wish to hedge or capitalize on currency movements. Nikkei/USD Futures: These contracts are settled in US dollars. Nikkei/YEN Futures: Conversely, for traders who want to factor in currency risk, the Yen-denominated futures offer exposure not just to the Nikkei 225’s price movements but also to the Yen's fluctuations against the US dollar or other currencies. As the introduction of Micro contracts approaches, this will add even more flexibility for traders, particularly retail traders who prefer smaller contract sizes and more precise risk management. These contracts will enable traders to adjust their positions with greater capital efficiency, allowing for a wider range of strategies—from short-term speculative trades to long-term hedging positions. 5. Monetary Policy Divergence Japan's monetary policy, led by the Bank of Japan (BoJ), has been historically distinct from the policies of the US Federal Reserve and European Central Bank (ECB). Understanding Japan's monetary policy divergence allows traders to better time their entry and exit points in the Nikkei 225, especially as the Bank of Japan navigates its unique approach to economic stimulus and potential shifts in strategy. 6. Sector Opportunities The Nikkei 225 is heavily weighted towards key sectors that represent the backbone of Japan’s economy, offering traders exposure to industries that may be underrepresented in other global indices. Some of the most prominent sectors within the Nikkei 225 include: Technology: Japan is a leader in technology and innovation, with major companies such as SoftBank and Sony leading the charge. Automotive: Japan’s automotive sector is world-renowned, with giants like Toyota, Honda and Nissan among the top constituents of the index. As global trends shift toward electric vehicles and sustainable manufacturing, Japan’s automotive industry stands to benefit. Manufacturing: As a global manufacturing powerhouse, Japan's output is closely tied to global demand. The Nikkei futures provide traders with a way to express their views on these industries, capitalizing on global demand trends in high-tech products, automobiles, and industrial manufacturing. 7. Volatility Trading One of the key attractions of the Nikkei 225 futures is the index's volatility, which is often higher than that of its Western counterparts, such as the S&P 500. Traders who thrive in volatile environments will find the Nikkei 225 particularly appealing, as it presents more frequent and larger price swings. This heightened volatility is especially noticeable during global economic shocks or shifts in local economic policy. Additionally, since Japan's market opens several hours before European and US markets, traders can use the Nikkei 225 to capture early momentum shifts that may influence sentiment in Western markets as they open. This graph highlights the elevated volatility of the Nikkei 225 compared to the S&P 500. 8. Japan’s Political and Economic Landscape Japan has been taking proactive steps toward economic reform in recent years. With initiatives aimed at corporate governance improvements, stimulus packages, and structural reforms. Several factors make Japan's political and economic landscape appealing for traders: Corporate governance reforms: Japan has been improving its corporate governance structure, making its market more attractive to both domestic and foreign investors. Economic stimulus packages: These government-led initiatives have provided a tailwind for many sectors within the Nikkei 225. Weakening Yen: Japan’s export-driven economy has benefited from a weaker Yen, which boosts the competitiveness of Japanese goods on the global stage. The potential for long-term growth makes the Nikkei 225 an appealing market for those who follow macro-driven opportunities. 9. Geopolitical Events and Trade Dynamics Japan remains one of the world’s largest exporters, and as such, the Nikkei 225 is heavily influenced by global trade relations, particularly with the US and China. Traders can use the Nikkei 225 to take positions based on their views of the global geopolitical landscape. For example: US-China trade tensions: Japan, being a major exporter to both countries, finds itself deeply connected to global trade trends. Global demand for Japanese exports: Changes in global trade agreements or tariff structures could either boost or harm the performance of these industries. 10. Liquidity Liquidity remains an important consideration, as the S&P 500 contracts offer greater liquidity, but the growing interest in the Nikkei 225 has resulted in increased volumes in recent months. As Micro contracts are introduced, the liquidity of the Nikkei 225 is likely to improve, making it an even more attractive trading instrument for all types of traders. This graph highlights the trading volumes for both Nikkei 225 and S&P 500 futures. 11. Cumulative Returns Comparison When comparing cumulative returns over time, the Nikkei 225 has demonstrated significant growth. However, this growth has come with a higher level of volatility than the S&P 500. The Nikkei 225's higher risk-reward profile makes it an attractive option for traders looking to capture short- to medium-term gains during periods of economic growth or policy shifts in Japan. This graph shows the cumulative returns of the Nikkei 225 versus the S&P 500. 12. Price Range Opportunities The average daily price range of the Nikkei 225 is another compelling factor for active traders. The Nikkei 225 frequently exhibits larger daily price movements than the S&P 500, especially during periods of high volatility. This makes it an ideal market for short-term traders looking to capitalize on intraday price swings. The graph, where daily price ranges have been multiplied by their corresponding point values, demonstrates how the Nikkei 225 has exhibited wider price ranges. 13. Conclusion The Nikkei futures offer a unique set of opportunities for traders looking to diversify their portfolios, capitalize on volatility, and gain exposure to Japan’s leading industries. It is a powerful tool for both short-term traders and those with longer-term macro views. In addition, the forthcoming Micro contracts will make the Nikkei 225 accessible to a wider range of traders, allowing for more precise risk management and exposure adjustments. Key takeaways for traders considering the Nikkei futures include: Global diversification beyond US and European markets. The ability to hedge against US equity volatility. Opportunities in high-growth sectors such as technology and automotive. The potential for higher volatility, offering both risk and reward. Flexible contract options in both USD and Yen, allowing for currency risk management. For traders looking to add a new dynamic instrument to their watchlist, the Nikkei/USD and the Nikkei/YEN futures are a potentially ideal candidate, combining diversification, volatility, and sectoral exposure into a powerful trading product. 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. General 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.
CME:NIY1!
by traddictiv
2
Navigating the Nikkei 225: A Pivotal Moment for TradersNavigating the Nikkei 225: Key Technical Indicators Suggest a Pivotal Moment for Traders By Eric Lee , Sales Director of Phillip Nova The Nikkei 225 index is currently at an inflection point, with several technical indicators pointing to a tug-of-war between buyers and sellers. Technical Indicators to watch out for: 1. GBP/JPY: The GBP/JPY currency pair had shown strong correlation to Nikkei225. Given the range-bound nature of both GBP/JPY and Nikkei 225 since August 14, 2024, a breakout in either could signal a similar move in the other. 2. Volume Profile Analysis: The volume profile indicator for the Nikkei 225 had suggested a resistance zone between 38,000 and 38,500, where trading volume has been concentrated. This suggests that there may be significant selling pressure at these levels. The next major resistance level is at 40,000, a psychological barrier that has historically acted as a cap on upward movements. On the downside, a minor support is observed around the 36,000 level, which could serve as a cushion in case of a downturn. 3.Stochastic Oscillator: The stochastic oscillator is currently hovering in the overbought region, indicating that the index might be due for a correction or at least a pause in its recent upward trajectory. Since the start of 2024, Stochastic at overbought and oversold levels had offered good signals in term of market timing. Trading Strategy Insights: Preparing for Breakouts or Breakdowns Traders can consider keeping an eye on the GBP/JPY currency pair, as its movements could provide valuable clues about the next direction for the Nikkei 225. Price action wise, a breakout of Nikkei225 above 38,500 could pave the way toward the 40,000 resistance level, while a breakdown below 38,000 could signal further declines to next support level of 36,000. Trade Nikkei 225 with Phillip Nova now.
SGX:NK1!
by phillip_nova
Nikkei rebound inline with expectations- Where Next?By Danish Lim Zhi Lin, Investment Analyst Current Performance of SGX Nikkei 225: The Nikkei 225 Index looks to have recovered from a dreadful start to the month where the Nikkei 225 Index plunged -12.40% on a single day on 5 August due to an unfavourable combination of carry trade unwinding, tighter BOJ monetary policy, and US recession fears. Since then, the index has rallied by over 20%. As mentioned in the previous post , this recovery was in-line with our forecast as we expected the BOJ to tread more carefully regarding monetary policy moving forward. At the same time, the importance of the increase in real wages, the first in 27 months, cannot be understated, as we view it as a key ingredient of the long sought-after wage-price cycle that will support consumer spending and boost sentiment. Lastly, US recession fears have eased following upbeat retail sales data and CPI readings that met estimates. Markets are now pricing in 100bps of rate cuts by year-end (CME FedWatch Tool). Japan seeing Green Shoots Japan Q2 GDP expanded by 3.1% QoQ, well above estimates of 2.3% and a notable increase from the previous reading which showed a decline of -2.3%. Growth was led by private consumption, which rose 1.0% vs estimates of 0.6%. Business spending also rose 0.9% vs estimates of 0.8%. This fuelled optimism that a virtuous cycle linking rising wages to increased spending may be emerging, helping spur stable demand-led inflation. Other developments BOJ deputy governor Shinichi Uchida played down any further chances of a rate hike, stating that recent market moves were “extremely volatile” and that they won’t raise rates when the market is unstable. Japan PM Fumio Kishida stepped down from his position and said he will not seek re-election on 14 August, paving the way for the ruling party to vote on his successor on September 27. The Yen moved slightly higher following his decision. It appears that the timing of the decision came as a surprise but the decision itself may not have been much of a surprise, given Kishida’s unpopularity and poor public support. Investors will be watching the leadership change closely and its potential implications on the Yen. Although we believe greater emphasis will be placed on the BOJ’s monetary policy. Nikkei 225 Outlook & Trading Opportunity: With the key downside catalysts having eased, we expect markets to re-focus on the medium- to long-term fundamentals that provide support for Japan. Private spending and consumption are likely to continue gaining momentum. The recent strengthening of the yen may also help soothe consumers’ concerns about imported inflation, with the Yen recently gaining amid expectations for the US-Japan interest rate differential to narrow as the Fed responds to cooling inflation and a slowing job market with rate cuts as early as September. Expressing Our View: We maintain our trade setup below to express our view: Long SGX Nikkei 225 Index Futures Based on a Fibonacci Extension drawn from the March 2023 low to the July 2024 high, the daily chart shows the contract having bounced back up from the 5 August low of 30,515 to around the 0.500% extension level at 38,185 as of noon on 20 August. Several technical indicators support our bullish bias: - The MACD line is shown to have crossed over the signal line. - The MACD histogram is also in positive territory. - RSI is not in overbought territory of 70 Entry is set at our previous target price of 37,870. We see near-term resistance at the 0.500% extension level at 38,650. If this level is breached, the contract could push higher towards the 0.618% extension level at 40,565. We set our target price at 42,000, close to the all-time high set by the index in July 2024. • Entry Level: 37,870 (Previous target that was hit) • Target Level: 42,000 • Stop Loss Level: 36,000 • Profit at Target: 3020 x ¥500= ¥2,065,000 • Loss at Stop: 1750 x ¥500= ¥935,000 • Reward: Risk Ratio: 2.21x Trade Nikkei 225 at only 50 cents* now Capitalise on the Nikkei 225’s movements—trade SGX Nikkei 225 Index Futures at only 50 cents* now with Phillip Nova. *For applicable terms and conditions and a full risk disclaimer, please refer to www.phillipnova.com.sg. This ad has not been reviewed by MAS.
SGX:NK1!Long
by phillip_nova
Navigating the Nikkei225's VolatilityNavigating the Nikkei225's Volatility: BOJ's Rate Hike, Market Reactions, and Future Implications By Eric Lee , Sales Director of Phillip Nova BOJ’s Surprise Rate Hike and the Initial Market Reaction After Bank of Japan surprised the market by increasing its interest rate by 0.25% on 31 July and BOJ Gov. Kazuo Ueda said at a news conference then of the possibility of further rate hikes, it sent Nikkei225 into a sharp dive, falling 8000 over points in less than a week. Compounding Factors: U.S. Employment Data and Middle-East Tensions To be fair, a confluence of other factors such as bad U.S. employment data and fear of Middle East conflict expanding into a full-out war between Iran and Israel, probably added fuel to the sharp decline. Yet, BOJ got the bad press for it as the rapid unwinding of Yen carry trades caused a selling down in the global markets as well as investors fled to safe haven assets such as bonds and gold. www.reuters.com The Yen Carry Trade Unwinds: A Global Market Phenomenon In a turn of events, BOJ Deputy Gov. Shinichi Uchida, in contrast to Ueda’s hawkish comments the previous week, then assured the market that they will not be hiking rates when market is unstable. Since then, Nikkei225 rebounded to the current level of 36,000.` Nevertheless, the can of worms had been opened, and market had woken up to their complacency of the Yen carry trade problem, and in view of the expectation of rate cut by Fed in September, global investors may make use of the rebound to continue unwind their carry trades, which may add some selling pressure in Nikkei225 and GBP/JPY. Looking Ahead: Potential Continued Pressure on Nikkei225 and GBP/JPY In my previous post, I’ve introduced referring to GBP/JPY as a proxy on the strength of Nikkei225 due to their correlation. From the attached 4-hourly chart of Nikkei225, we can determine that the resistance levels are around 38000 and 41000, based on the concentration of trades done around those levels, as highlighted by Volume Profile indicator. Short-term traders can refer to MACD indicator and GBP/JPY to signal them on the possible change of trends on the 4-hourly chart. Trade Nikkei 225 at only 50 cents* now
SGX:NK1!Long
by phillip_nova
Hey mates! What just happened? What happens next?Why Has the Equities Market Tanked? Several factors have contributed to the recent decline in the equities market. One significant factor is the impact of the Bank of Japan's (BOJ) actions. Although the BOJ has only recently begun to raise rates, with the overnight rate currently at just 0.25% compared to around 5.5% for dollar rates, its move has triggered substantial turbulence. Specifically, global stock and bond markets, particularly in Japan, are being unsettled by the unwinding of the yen carry trade. Understanding the Yen Carry Trade The yen carry trade involves borrowing yen at a low interest rate to invest in currencies and assets that offer higher yields. This trade has been particularly popular due to Japan's historically low rates. Investors use borrowed yen to purchase higher-yielding currencies and invest in assets like bonds. The typical annualized returns on dollar-yen carry trades are around 5%, reflecting the difference between U.S. and Japanese rates, with additional gains possible if the yen depreciates. The yen carry trade has its origins in 1999, following Japan's policy rate cut to zero after the burst of its asset price bubble. The scale of this trade is substantial, though not precisely measured. Analysts estimate that Japanese banks have about $350 billion in short-term external loans related to yen-funded trades. This estimate likely underrepresents the true scale due to leverage used by hedge funds and computer-driven funds. Japanese pension funds, insurers, and other investors have significant foreign investments, with Japan's foreign portfolio investments totaling approximately ¥666.86 trillion ($4.54 trillion) as of March. More than half of this is in interest rate-sensitive debt assets, most of which are long-term. Recent discussions about potential further rate hikes in Japan and anticipated rate cuts by the Federal Reserve have led to a 13% increase in the yen over a month and reduced the yield gap. This has wiped out the modest gains from yen-dollar carry trades. Consequently, investors with large, leveraged yen carry positions are forced to de-leverage, leading them to sell off other stock and bond holdings. www.cnn.com Current Market Conditions and Implications Despite these market upheavals, there are bullish factors to consider. Recent weakening in U.S. unemployment data, coupled with a growing U.S. deficit, suggests that rate cuts might be on the horizon. Additionally, the recession, which many overlook, has already affected debt-intensive sectors of the market. However, sectors with less reliance on debt have not been as severely impacted. The increase in multiple job holdings indicates that high interest rates have had a more nuanced effect. Furthermore, the Treasury Department's buyback programs, authorized under Section 3111 of Title 31 of the United States Code, play a crucial role. These programs include: Cash Management Buybacks: Aimed at reducing volatility in Treasury's cash balance, minimizing disruptions in bill supply, and lowering borrowing costs over time. treasurydirect.gov Liquidity Support Buybacks: Intended to enhance market liquidity by offering regular opportunities for market participants to sell off-the-run Treasury securities. The combination of these programs and the BOJ's likely pause on further rate increases, along with anticipated domestic rate cuts, creates a potentially bullish environment. www.wsj.com Moreover, the recession indicators are strong : aside from the ongoing inverted yield curve the Manufacturing PMI is contracting at 46.8 , marking its fourth consecutive month of decline. www.ismworld.org Any PMI reading under 50 is indicative of contraction. The PMI also reflects that New orders have also dropped to 47.4 . Despite Prices growing for seven months, the overall economic picture shows severe weakness in manufacturing and transportation sectors, with trucking rates at recessionary levels, when including inflationary cost pressures, not seen since 2009 . www.dat.com Federal Reserve and Treasury Department Actions The Federal Reserve's policy of "beyond maximum employment" suggested that job losses were acceptable to combat inflation. However, the Fed's actions often appear reactive rather than proactive. With Treasury Secretary Janet Yellen's announcement of the U.S. Treasury Quarterly Refunding and the planned injection of $300 billion to $1.05 trillion by year-end , the outlook includes both anticipated rate cuts and substantial Treasury market support. treasurydirect.gov During the second quarter of 2024, U.S. economic data indicated robust growth in output and labor markets, even as inflation slowed. Real GDP growth accelerated to 2.8% from 1.4% in the first quarter, driven by increased private consumption, business investment, and government spending, particularly in national defense. While payroll job growth slowed and the unemployment rate edged up to 4.1%, it remains historically low. Inflation, measured by the consumer price index, slowed to 3.0% from a peak of 9.1% in June 2022. PCE inflation also approached the Fed's target of 2%, while housing markets showed mixed signals. Optimal Capital Deployment: Focus on Cryptocurrency In light of recent market dynamics, the cryptocurrency market presents an intriguing opportunity for capital deployment. Despite the severe downturn in the altcoin market, Bitcoin has shown resilience, bolstered by several positive developments. This includes the resolution of the Mt. Gox distribution issue and the alleviation of selling pressure from the German government. Moreover, a significant catalyst has emerged with the People's Bank of China (PBOC) cutting key interest rates, which could have far-reaching implications for global markets and, notably, for cryptocurrencies. www.cnbc.com Catalysts for the Crypto Market China's Interest Rate Cut: The PBOC’s recent decision to cut key interest rates is an additional bullish catalyst. China's equity market has felt severe pain. China just announced a reduction in the seven-day reverse repo rate from 1.8% to 1.7%, alongside improvements in open market operations. Additionally, benchmark lending rates were lowered: the one-year loan prime rate (LPR) dropped from 3.45% to 3.35%, and the five-year LPR fell from 3.95% to 3.85%. This action, which precedes any Federal Reserve rate cuts, reflects China's proactive stance to counteract economic weakness and a housing market crisis. This move signals a potential boost for global growth and could positively impact asset classes like cryptocurrencies. www.nytimes.com Current Market Conditions: The broader global recession, often only recognized in hindsight, sets the stage for a potential economic rebound. Recessions, while challenging, can lead to recovery phases where the economy "catches up" to previous projections. Although recessions vary in duration and impact across different sectors, they often follow cyclical patterns of peaks and troughs. In the current climate, where various sectors experience disparate impacts, capital deployment in sectors poised for recovery could yield significant returns. K-Shaped Recession and Sector Variability: The present economic environment suggests we might be witnessing yet another K-shaped recession. This type of recession features divergent recovery paths for different segments of the economy. Some sectors may rebound swiftly, while others may face prolonged struggles. The COVID-19 pandemic-induced recession, for example, displayed K-shaped characteristics, with technology and remote work sectors rebounding quickly, while industries like in-person dining and live entertainment lagged. In the current cycle, similar divergence is evident. For instance, transportation sector pricing varies significantly even in-sector: international container shipper rates are surging, while less-than-truckload (LTL) rates remain relatively stable, and full-truckload (FTL) rates have sharply declined. Such disparities highlight the importance of identifying sectors and assets likely to benefit from upcoming economic shifts. www.cnbc.com Why Cryptocurrency Could Be the Next Big Opportunity Given the current economic environment and sectoral variations, the cryptocurrency market appears to be a promising area for investment. Despite recent setbacks in the altcoin market, Bitcoin's stability and recovery potential, coupled with the positive effects of global economic policies, create a bullish outlook for crypto assets. The forthcoming economic recovery phase could see significant growth in the cryptocurrency sector, driven by both institutional interest and broader market acceptance. For those seeking a solid and reliable investment with long-term prospects, Bitcoin (BTC) and Ethereum (ETH) are currently the top choices. The inflows and education of ETH is only starting, and Bitcoin is only now or soon to be recommended by quality wire houses like Bank of America Merrill Lynch, Wells Fargo, and quality ones like Morgan Stanley. www.investopedia.com Specifically, if you’re planning a long-term hold, consider stETH or cbETH, which offer strong potential and stability in the Ethereum ecosystem will picking up that passive staking yield. For investors with a higher risk tolerance who are looking for potentially significant rewards, I continue to be bullish on Solana (SOL). Solana’s innovative technology and growth potential make it an appealing choice for those willing to embrace volatility for the chance of substantial returns. For extreme risk-reward scenarios, I highly recommend ONDO. ONDO is at the forefront of revolutionizing financial infrastructure by tokenizing US Treasuries on the Ethereum and Solana blockchains. They offer a US Dollar yield of 5.35% APY and have achieved over half a billion in Total Value Locked (TVL). With investments managed by top-tier bond managers and a team with expertise from firms like BlackRock, Goldman Sachs, Bridgewater, and Millennium, ONDO is a standout in the crypto space. However, be mindful of ongoing emissions of ONDO tokens, which involve a daily linear unlock of 0.001% of the maximum supply over a five-year period. This feature may impact the market dynamics, so proceed with caution and stay informed. In summary, for a balanced approach, BTC and ETH (particularly stETH and cbETH) offer stability ( relative to the crypto market ) and high growth potential. For those seeking higher returns with a tolerance for risk, SOL is a promising option. And for those willing to engage in high-risk, high-reward strategies, ONDO presents an innovative opportunity with significant upside potential. Good luck, and may your investments bring great success! So mates, while traditional sectors and markets exhibit mixed recovery prospects, the cryptocurrency market stands out as a potentially lucrative opportunity for capital deployment. With key economic indicators signaling a forthcoming rebound and structural issues in other asset classes, cryptocurrencies could emerge as a leading investment choice in the next economic cycle.
CME:NKD1!Long
by ZenMode
8
Navigating Volatility in Japan; LT Fundamentals UnchangedBy Danish Lim Zhi Lin, Investment Analyst Current Performance of SGX Nikkei 225: The Nikkei 225 Index plunged -12.40% on 5 August, its steepest single-day decline since 1987. Investors fled equities as a stronger yen hammered export stocks, tighter monetary policy led to an unwinding of carry trades, US recession fears, and a rotation out of Tech amid “AI bubble” concerns. While the decline was broad, Tech was particularly hard hit, with stalwarts like Softbank Group (-18.66%) and Tokyo Electron (-18.48%) down by nearly 20%. This is important as Tech has roughly a 49% weightage in the Nikkei 225 index, meaning a decline in Tech has an outsized effect on the index. Nevertheless, the index rebounded on 6 August. The SGX Nikkei 225 Index Futures contract rallied by 9.21%. We attribute this rebound to strong overnight US Services data that provided comfort economic growth could hold, easing recession fears. Thus, it seems apparent that US recession fears will take center stage moving forwards Dovish BOJ On 7 August, the SGX Nikkei 225 Index closed up by 1.19% as BOJ deputy governor Shinichi Uchida sent a dovish signal to markets, likely with the intention of stemming panic selling. He stated that recent market moves were “extremely volatile” and that they won’t raise rate when the market is unstable. Uchida added that the US economy is likely to have a soft landing and that the rate trajectory will shift if market moves affect the overall. Currency stability, US recession, and market volatility, are all key factors that will determine the path ahead for Japanese equities. The BOJ will likely proceed with more caution for future rate decisions. Unwinding of Carry Trades The elephant in the room is the ongoing unwinding of carry trades. A carry trade typically involves borrowing the lower-yielding yen and investing that borrowed money into higher yielding assets. Because of the BOJ’s recent rate hike which led to yen appreciation, and the potential for more rate cuts by the Fed due to recession fears, carry returns have seen a decline as interest rate differentials narrow. As carry trades get liquidated, traders will have to buy back yen to repay loans taken to fund the carry trade, traders may also sell off assets, including stocks, to cover their positions. Positives On the bright side, recent data showed an increase in real wages for the first time in 27 months. This could have contributed to the rebound in Japanese equities as traders saw hope that a virtuous wage-price cycle could emerge to support consumer spending and sentiment. Japanese households have also poured 7.5 trillion yen ($52b) of funds into new tax-free investment accounts called NISA during 1H 2024, according to Japan Securities Dealers Association. Should costs ease and real wages continue to grow, we expect domestic demand recovery to be the next key growth catalyst for Japanese equities. However, over the coming months, until recession fears recede and USD/JPY stabilizes, Japanese equity momentum could be limited due to the re-pricing of recession risks and the unwinding of carry trades. Nikkei 225 Outlook & Trading Opportunity: Volatility is likely to remain elevated due to the unwinding of carry trades and US recession fears which we believe are in the process of being priced-in. With the selloff bringing prices back down to more reasonable levels, we could see dip-buying provide temporary support to the market. Expressing Our View: We maintain our trade setup below to express our view: Long SGX Nikkei 225 Index Futures Based on a Fibonacci Retracement drawn from the October 2023 low to the July high, the 4 hourly chart shows the contract having broken below the 0.786% retracement level before bouncing back to around the 0.618% level at around 35,000 as of market close on 7 August. Based on the Moving Average Convergence Divergence Indicator (MACD), we maintain a long bias on the contract as: - The MACD line is shown to have crossed over the signal line. - The MACD histogram is also in positive territory. Entry is set at assumed market price of 34,850, although we prefer to enter on dips. We favour a 5% trailing stop loss to protect gains and limit losses amid elevated volatility. This brings us to a trailing stop at ~33,100 (roughly 5% below market price). We see near-term resistance near the 50-day moving average and 0.500% retracement level at 36,435. If this level is breached, the contract could push higher to the 0.382% retracement level at near 37,870. • Entry Level: 34,850 (Market) • Target Level: 37,870 • Stop Loss Level: 5% Trailing Stop loss at 33,100 • Profit at Target: 3020 x ¥500= ¥1,510,000 • Loss at Stop: 1750 x ¥500= ¥870,000 • Reward: Risk Ratio: 1.73x Trade Nikkei 225 at only 50 cents* now Capitalise on the Nikkei 225’s movements—trade SGX Nikkei 225 Index Futures at only 50 cents* now and stand to win a pair of air tickets to Japan. Learn more here . *For applicable terms and conditions and a full risk disclaimer, please refer to www.phillipnova.com.sg. This ad has not been reviewed by MAS
SGX:NK1!Long
by phillip_nova
Japan NKD1!I definitely don't trade this and only looked at it for 5 minutes, mainly because people are blaming Japan for our little flash crash. NKD1! demolished a handful of clear breakouts that needed backtesting and a major weekly trendline in order to get this thing some juice. Will it hold or is this just a short squeeze? After all, they do need buyers and buyers don't buy much when they are panicking. They buy when they are euphorically bullish and there is a lot of room to the top. Clearing $36,300 would be a step in the right direction. Until then I am on guard with all markets. The global instability is real and like it or not, Bidenomics fuckin sucks. EDIT: you can disregrard the MACD and RSI, didn't know those were on there and frankly didn't look much at them although RSI bearish and that was a big fat false breakout of prior all time high.
CME:NKD1!Short
by BartChartski