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LIQUIDITY MATTERS! Global liquidity vs #BitcoinLook at how the bullish green arrows and bearish red arrows show how global liquidity correlates HEAVILY with the direction of Bitcoin. T You don't have to be a genius to see how beautiful this correlation is. And how sensitive #BTC is to excess capital in the system. As a risk on asset When ppl have easy money to gamble with , a portion of that ends up in the #Crypto markets. Currently you can see how aggressive the withdrawal of liquidity is across the globe In the USA, EU, China & Japan.
FRED:WALCL
by BallaJi
Surprised by Fed hinting at another rate hike this year?The big story of the day is of course the Fed signaling one more rate hike this year. At the conclusion of its FOMC meeting a few hours ago, The U.S. Federal Reserve held interest rates unchanged, but projected another rate increase by the end of the year. Additionally, higher for longer is probably the new reality, with projections showing rates falling only half a percentage point in 2024 compared to the full percentage point of cuts anticipated at the meeting in June. Financial markets had widely expected that the Fed would leave rates unchanged, but the revision to its projected cuts has caught markets off-guard. The biggest mover of the day; GBPUSD was doubling impacted by the Fed decision and UK Inflation Rate Slowing Further to 1-1/2-Year Low (to 6.7% in August 2023 from 6.8% in the previous month, falling below the market consensus of 7.0%.) The GBPUSD moved from around 1.238 to a low at 1.233 (but not before some indecision and a shot up to 1.238 within the first hour). In the end, the price fell below the pre-decision (panicked?) low. The current price trades at 1.234 just above that level, but an eye will be kept on this new short-term resistance for the downside prospects of this pair
by BlackBull_Markets
Hawkish Fed! Strong Dollar! - What are the markets expecting?he Fed has kept interest rates steady as expected, but Chairman Jerome Powell's statements were much more hawkish than anticipated. In summary, 12 out of 19 Fed members are calling for one more interest rate hike this year. No interest rate cuts are expected this year. Inflation is expected to remain high over the next 12 months. Tightening and balance sheet reduction will continue. An increase in unemployment is expected for 2024. Even if there's no interest rate hike this month, there could be one more increase later in the year. Key takeaways from the monetary policy meeting minutes and Powell's remarks: The year-end interest rate expectation for 2023 has been raised to 5.6%, and the expected rate for 2024, initially at 4.6%, has been increased to 5.1%. Additionally, the expectation for 2025, previously at 3.4%, has been raised to 3.9%. Long-term interest rates will remain high, with the long-term rate expectation at 2.5%. Unemployment expectations: 3.8% for 2023 4.1% for 2024 There is a bias towards an increase in unemployment. Core inflation expectations: 3.7% for 2023 2.6% for 2024 2.3% for 2025 2.0% for 2026 Expectations suggest a gradual decline rather than a rapid one. With the release of the monetary policy minutes, 2-year U.S. Treasury yields have risen to 5.1%, which is particularly negative news for stocks and gold. MARKET EXPECTATIONS: Gold: Initially, gold may continue to rise to the range of 1,960-1,963 as an immediate response. However, the continued high-interest environment will exert downward pressure on gold, and we may see a decline to around 1,880 levels after reaching 1,960. U.S. Stock Indices: Given the high-interest rates and high inflation, we shouldn't expect significant gains in the stock market. Currently, it's prudent to view every increase as a selling opportunity. USD: The strengthening of the dollar is expected to persist, especially against currencies of countries signaling relaxation in their monetary policies. The dollar is likely to maintain its strength for some time. EUR: The European Central Bank (ECB) took a dovish stance in its recent interest rate decision, reducing the possibility of further rate hikes. Although there has been a slight decrease in Eurozone inflation data, we may see a chart indicating USD dominance and a downward trend in the EUR/USD pair. JPY: Japan remains the only country with negative interest rates (-0.10%) and a commitment to a loose monetary policy, suggesting that the depreciation of the yen will continue. GBP: The Bank of England (BoE) decision and statements tomorrow will be crucial for the pound. However, our expectation is that tomorrow's announcements will resemble the Fed's hawkish stance, leading to some strengthening of the GBP. We will publish a new analysis after tomorrow's meeting to provide an update on the pound's situation. Oil: Today's U.S. crude oil inventory data came in below expectations, indicating that OPEC's production cuts are still in effect. We expect oil prices to reach $100 due to ongoing production cuts, which will negatively impact both stock markets and inflation for some time.
by TradeAndMeApp
25
USD/JPY drifting as Fed decision loomsThe Japanese yen continues to have a quiet week. In Wednesday's North American session, USD/JPY is trading at 147.66, down 0.15%. If the Federal Reserve does not pause rate hikes at today's meeting, it would be a massive surprise. Still, that doesn't mean that investors aren't paying close attention. There is particular interest as to whether the dot plot projections in June will remain the same. Those projections indicated one more hike before the end of the year and a cut in rates in 2024 to the tune of 100 basis points. Any change in the dot plot could trigger volatility from the US dollar. It has been a light week for Japanese releases, which helps explain why the Japanese yen has shown very little volatility. That could change with the Federal Reserve rate decision later today. The yen could show some stronger movement on Friday, with the release of Japan's core CPI and the Bank of Japan policy meeting. The Bank of Japan has insisted that inflation is transient, yet core inflation has hovered above the BoJ's 2% target for seventeen consecutive months. That streak is likely to continue on Friday, with core CPI expected at 3.0% y/y for August, compared to 3.1% in July. The core-core CPI, which excludes fresh food and energy, is expected to accelerate to 4.4% y/y in August, up from 4.3% in July. High inflation has put pressure on the BoJ to consider a shift from its ultra-loose policy, and there have been a few signals from BoJ members that the central bank is examining a possible exit. This has raised speculation about interest rate hikes in early 2o24, although that could be wishful thinking on the part of some market participants, as a rate hike would be nothing short of a sea-change in BoJ monetary policy. The Bank of Japan meets on Friday and no shift in policy is expected. Still, BoJ meetings have gone from dull affairs to potential huge market movers and investors will be listening closely to Governor Ueda's follow-up press conference, especially on inflation. Will Ueda stick to the narrative that inflation is transient or will he acknowledge that inflation is showing signs of being substantive? There is support at 147.24, and 146.52 148.56 and 149.28 are the next resistance lines
by OANDA
Understanding Interest-rates & InflationHey Traders So, I have been asked by many of my clients to explain the relationship between interest-rates and inflation and how to translate that information into their analysis. For this reason I put this little mini lesson together to explain: - The core role of the central bank - Reason and objectives for interest-rates and inflation - How you can use this information to enhance your analysis - How to take advantage of this info when taking, managing or closing your trades. PS. if you would like me to do more of these types of videos be sure to leave a comment in the comment section.
TVC:DXYEducation
by DeanMuller
EUR/USD falters around its 2023 open price, ahead of FOMCYes, EUR/USD has fallen to a key support level around the May low. And that will likely deter some bears around current levels from entering short (depending on their timeframe). But given the potential for for the Fed to deliver a more hawkish message than money markets are pricing in whilst the ECB suggest they are done tightening, we're not discounting the potential for EUR/USD to break lower. The daily trend remains bearish and a shooting star formed following a 2-day retracement higher. Its high perfectly respected a 61.8% Fibonacci retracement level before the day closed back beneath 1.070. But what has really caught our eye is that prices also faltered around the 2023 open price. And that means the euro really has gone nowhere this year, and the market is paying attention to that open price. Given the corrective price action on the 1-hour chart, we'd prefer to fade into move up towards or around 1.0700 for a move back towards those lows. The bias remains bearish below 1.0730 (although keep in mind extra levels of volatility around the FOMC meeting can mess with such levels before the real move begins).
Short
by CityIndex
1
Triple Witching Signals Market Turning PointCME: E-Mini S&P 500 Futures ( CME_MINI:ES1! ) Last Friday was the infamous “Triple Witching Day”, where US stock index futures, stock index options, and single-stock options contracts all expired on the same trading day. These phenomena happen only four times a year: on the third Friday of March, June, September, and December. In 2023, Triple Witching occurs on March 17th, June 16th, September 15th, and December 15th. In folklore, the witching hour is a supernatural time of day when evil things may happen. Derivatives traders use this term to magnify the significance of options expiration. Hence the “Triple Witching Day”, and “Triple Witching Hour”, the last hour of trading on that day. Understanding Triple Witching A common expiration date for all three types of equities derivatives could cause increased trading volume and unusual price movements in both the derivatives contracts and the underlying equity assets. Most traders seeking derivatives exposure are either hedgers or speculators. Speculators must offset their open positions prior to the end of triple witching hour. Hedgers, on the other hand, may want to maintain the hedging of their stock portfolio. They could close the existing futures or options positions and roll them out to the next contracts. Some traders opened the contracts with the intention of buying the underlying securities. With any deliverable contract, the seller must deliver the underlying securities to the buyer when the futures contract expires, or if the options are exercised. Triple witching days could generate escalated trading activity and volatility. Although much of the trading during triple witching is related to the squaring of positions, the surge in trading also drives price inefficiencies, which draws short-term arbitrageurs. Traders with large short gamma positions are particularly exposed to price movements leading up to expiration. Arbitrageurs try to take advantage of such abnormal price action. Triple Witching Day on Friday September 15th US stocks fell last Friday as investors wrapped up a volatile week ahead of the Federal Reserve’s upcoming rate-setting meeting on September 19th-20th. The Dow Jones Industrial Average slid 288.87 points, or -0.83%, to 34,618.24. At its lows, the index completely eliminated Thursday’s 332-point rally. The S&P 500 was lower by 1.22% to 4,450.32. And the Nasdaq Composite dropped 1.56% to 13,708.33. In equity derivative market, I found that the high-volume day for CME E-Mini S&P 500 options on futures occurred on Thursday September 14th, the day before Triple Witching. The E-Mini S&P options had a daily volume between 100K and 200K contracts from August to Mid-September. On September 14th, trade volume shot up 92% from the prior trading day to 441,871, and open interest gained 157,913 contracts to 2,459,599. Both trade volume and open interest fell back to normal levels on the next day. This is evidence that traders planned their trades ahead of Triple Witching, so that they could avoid being squeezed on the last trading day and hours. Triple Witching and Market Turning Points Upon further review of the S&P price data, I found that Triple Witching Days in the past two years usually signaled a change in market directions. Following each of the seven such days under examination, the S&P moved up four times and moved down three times. • 12/17/2021: Closed at 4,620. By March, it was 455 points lower, or -9.8% (Down) • 03/18/2022: Closed at 4,463. It declined by 788 points or -17.7% by June (Down) • 06/17/2022: Closed at 3,675. By August, it rose to 4,314, up 639 or +17.4% (Up) • 09/16/2022: Closed at 3,873. It fell to 3,587 by October, down 286 or -7.4% (Down) • 12/16/2022: Closed at 3,852. By February, it reached 4,193, up 341 or +8.8% (Up) • 03/17/2023: Closed at 3,917. In the next 3 months, it rose 606 points, +15.5% (Up) • 06/17/2023: Closed at 4,523. It moved up nearly 100 points, or 2.1% by August (Up) A move by 7-18% in a short time span of three months is quite significant, statistically. The difficulty is to predict which way the S&P goes next, on the day of Triple Witching. The S&P 500: From now till the next Triple Witching Day On September 15th, the S&P 500 closed at 4,450. Where will the S&P be by December 15th, the next Triple Witching Day? One hint could be found in the futures market. The December 2023 contract of E-Mini S&P 500 futures (ESU3) was settled at 4,498, down 4.8% from 4,675 reached on July 27th. March 2024 contract (ESH4) was settled at 4,549, down 4.0% from its recent high. Our analysis from the last section shows that from one Triple Witching Day to the next, the S&P is more likely to make a big move than moving sideways. The December futures price (4,498) is just 1.1% above the cash index (4,450). Would there be a misprice? If the market follows similar patterns from the past two years, we could expect the S&P to go up to 4,800 (+8%), or down to 4,100 (-8%) by December. In my opinion, the S&P faces significant headwind, after running up 20% from its October low. Here are the top-3 that come to mind: • US CPI has rebounded, from 3.0% in June, to 3.2% in July, and 3.7% in August. The government narrative of inflation getting under control is starting to unravel. • The rise in energy and shelter cost will spill over to household cost-of-living and business operating cost. On the one hand, it raises the final price of good and service; on the other, it reduces consumer dispensable income available for other purchases. • According to the Fed, consumer credit card debt hit $1 trillion in Q2. Total student loans outstanding reached $1.78 trillion in Q1. High credit card interest rates and the resumption of student loan repayments will squeeze consumer budget. The Fed would face a difficult decision this week as it debates whether to raise interest rate or pause for the time being. In my view, the Fed is not done with its monetary tightening policy. Even if it holds rate unchanged for now, it could still raise it again in November or December meeting. The overheated inflation data just makes the Fed unlikely to call it a victory after 11 rate hikes. The remaining Fed meetings in 2023, September 20th, November 1st, and December 13th, all holding before the December Triple Witch Day. If the Fed turns out to be less accommodating than the market expects, the S&P could go further down. Each E-Mini S&P 500 futures contract is notional on $50 times the index. At Friday closing price of 4,498, one December contract is valued at $224,900. When the index moves 1 point, the futures account would gain or lose $50. Buying or selling one contract requires an initial margin of $11,200. Alternatively, investors could consider the Micro S&P 500 ( FWB:MES ). It is 1/10th of the E-Mini contract and requires a margin of $1,120. When the index moves 1 point, the futures account would gain or lose $5. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CME_MINI:ES1!Short
by JimHuangChicago
2
China is going to do something different this timeChina will print, there is no way around it, at the same time the dollar will fall, I do not know how they will pull that rabbit out of the hat but they will, China will get richer while the street americans get stiffed by tough financial conditions and high rates as it is right now, chinese money is going to push-up the SP500, SP500 at this time and place is a global market, not only american anylonger... does not matter how financial condition will get strict in america, international big and smart money will get in anyway, It is a new world order...
OANDA:SPX500USDLong
by awesomenewsforyou2
USD/CAD rises to 22-week high, BoC decision loomsUSD/CAD is trading quietly in Europe at 1.3651, up 0.06%. I expect to see stronger movement in the North American session, with the Bank of Canada making its rate announcement and the US releasing the ISM Services PMI which is expected to show little change. The Bank of Canada is virtually certain to hold rates at today's meeting, with just a 6% probability of a rate hike, according to the TMX Group. That would leave the benchmark cash rate at an even 5.0%. BoC Governor Macklem would certainly like to call it quits on the central bank's aggressive tightening cycle and perhaps he can look for advice from his peers at the Federal Reserve and the Reserve Bank of Australia. Both the US and Australian economies have seen inflation fall significantly, but Jerome Powell at the Fed and Peter Lowe at the RBA have sent the markets a hawkish message that inflation isn't beaten and the door is open for further rate hikes if necessary. The markets have taken a more dovish stance and are already looking ahead to possible rate cuts. Macklem appears to face the same challenge of acknowledging that rate hikes have cooled the economy and curbed inflation while sounding credible about keeping open the option of further rate hikes. Last week's GDP report indicated that the economy contracted by 0.2%, compared to the BoC's forecast of 1.5% growth. The BoC has hiked repeatedly in order to lower inflation but there are concerns that the rate hikes in June and July may have tilted the risk toward a recession. The Federal Reserve is widely expected to pause at the September 20th meeting. The pause could signal that rates have finally peaked, although don't expect any Fed members to publicly state that the rate-tightening cycle is over. Federal Reserve Governor Christopher Waller said on Tuesday that the Fed can afford to “proceed carefully” with rate hikes, given that inflation has been falling, and if the downtrend continues, "we are in pretty good condition". USD/CAD tested resistance at 1.3657 earlier. The next resistance line is 1.3721 1.3573 and 1.3509 are providing support
by OANDA
Exploring the Weekly OptionsCME: E-Mini Nasdaq 100 Weekly Options ($Q1D-$Q5D) When I first started trading two decades ago, I was overwhelmed by the amount of data that was available. I had a hard time correlating how data relates to price movement. While observing the stock market, I have one question in particular: why does the market often moves drastically immediately after the release of a major report? Over time, I learnt that these reports provide insight into how the economy works. New data validates our assumptions about the future. Take the United States as an example: • Consumers drive the U.S. economy; • Consumers need jobs to be able to buy things and keep the economy going; • The ebb and flow between the degree of joblessness and full employment drive economic activity up or down; • How easy or difficult for households and businesses to get credit affects consumption, jobs, and investment. The following reports have an outsized impact on global financial markets: • The Nonfarm Payroll Report, released by the Bureau of Labor Statistics (BLS); • The Consumer Price Index, also published by the BLS; • Personal Income and Outlays, by the Bureau of Economic Analysis (BEA); • Gross Domestic Product (GDP), also by the BEA; • Federal Open Market Committee (FOMC) meeting, this is where the Federal Reserve sets the Fed Funds interest rates, ten times a year; • Interest rate actions by other central banks, including European Central Bank, the Bank of England, the Bank of Japan, and the People’s Bank of China. Binary Outcomes: Ideal Setting for Options Trading For these highly anticipated reports, investors usually reach a consensus on the expected impact of the new data prior to its release. Market price tends to price in such investor expectations. The next FOMC meeting is on September 20th. According to CME Group’s FedWatch tool, the futures market currently expects a 94% probability that the Fed would keep the Fed Funds rate unchanged at the 5.25%-5.50% range. The September contract of CME Fed Funds Futures (ZQU3) is last settled at 94.665. This implies a Fed Funds rate of 5.335%, right in the middle of the target range. When new data is released, investors focus less on the actual data, but more on how it compares to the consensus. Because the prevailing price already reflected market expectation, new data serves to either confirm or dispute it. We could use a range of -1 to +1 to categorize these outcomes: • Well Below Expectations, -1; • Meet Expectations, 0; • Well Above Expectations, +1. The sign of the outcome does not necessarily correspond to a positive or negative price movement. It differs by the type of data and the respective financial instrument. We could further simplify the results into binary outcomes: • Within Expectation: 0, where actual data approximates previous expectation; • Beyond Expectation: 1, either below or above expectation by a pre-defined margin. Both human and computer think in binary terms: Light switch On or Off, Price goes Up or Down, Risk turns On or Off. In derivatives market, we could buy a Call Options if we expect the price to go up, and a Put Options if we think the price will decline. Weekly Options for Event-Driven Strategies The FOMC meeting is the most significant event that affects global markets. Market may stay calm if the Fed keeps rate unchanged (within expectation). However, if the Fed raises rate unexpectedly, you could hear investors screaming all around the world! To trade the Fed decision, investors could form different strategies using a wild variety of instruments, such as stock market indexes, Treasury bonds, forex futures, gold, WTI crude oil, and even bitcoin. Today, we focus on the Nasdaq 100 index. Here are some alternatives to consider: • Nasdaq 100 ETF: many asset managers offer them, including Invesco, iShares and ProShares. From a trader’s perspective, ETFs offer no leverage. A $100K exposure requires $100K upfront investment. If the market moves up 1%, you also gain 1%, minus the fees. • Nasdaq 100 Futures: CME Micro Nasdaq 100 ($MNQ) has a notional value of 2 times the index, valuing it at $31025, given the Nasdaq’s last close at 15512.5. Each contract requires initial margin of $1680. The futures contract is embedded with an 18.5-to-1 leverage. • Nasdaq 100 Options: As the nearby September contract expires on the 3rd Friday, or the 15th, ahead of the FOMC meeting date, we could not use it for our strategy. Instead, we could apply it with the December contract ($NQU3). On September 1st, the 15800-strike Call is quoted $541.50, and the 15400-strike Put is quoted $535. • Weekly Options: On September 1st, the 15800-strike Call to expire in one week is quoted $14.25, while the 15400-strike Put to expire in one week is quoted $54.50. Premiums for the standard American-style Options are expensive. They come with quarterly contracts and quarterly expirations. While our target date is September 20th, we have to use the December contract and acquire 3-1/2-month worth of time value. Weekly options, on the other hand, offer more precise trading and risk management with more expirations. Investors pay low premium to get the exposure they need and avoid the unnecessary and costly time value. For E-Mini Nasdaq 100, the weekly options that expire on Wednesday, September 20th will be listed on the prior Thursday, September 14th. If an investor forms an opinion about the FOMC decision, he could implement it with a weekly call or put next week. Nasdaq Weekly Options are deliverable contracts. If an investor owns a call and it expires in the money, he will settle the contract with a long position in E-Mini Nasdaq 100 futures. Likewise, if he owns an in-the-money put, he will get a short futures position. If the market moves in favor of an investor’s expectation, the potential payoff could be significant due to the leverage in weekly options. If the investor is incorrect, he could lose money, up to the amount of the entire premium. However, the low-premium nature in weekly options helps contain such loss at a tolerable level. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CME_MINI:NQ1!Education
by JimHuangChicago
3
Cracking the Fed Rate-Setting CodeCME: Micro Russell 2000 ( CME_MINI:M2K1! ) On August 25th, Federal Reserve Chair Jerome Powell delivered his annual policy remark, “Inflation: Progress and the Path Ahead”, at the Jackson Hole Symposium. The message is very clear: It is the Fed's job to bring inflation down to the 2% policy goal. The Fed is prepared to raise rates further if appropriate and intends to hold policy at a restrictive level until inflation is moving sustainably down toward its objective. In my opinion, there is a constraint when the Fed considers its policy choices. If monetary tightening pushes the US economy into a recession, it will likely pause or pivot. The Fed aims to cool the economy, not to put the flame out. The Fed Chair maintains that he iterates his decision at each FOMC meeting based on latest available data. I liken this process to a “For Loop” and an “If Statement” in computer programming. Below is my pseudo code in human readable form: • for (i = 0; i < n; n++), where n is the number of FOMC meetings; • if (inflation goes down to 2%), then execute “End Rate Hikes”; • else if (the US economy tanks), also execute “End Rate Hikes”; • else, execute “Continue with Restrictive Monetary Policy”); In other words, the only two conditions that could trigger the end of rate hikes are: • Rate hikes successfully bring the inflation down to 2%; or • Rate hikes break the US economy. To crack the code of the Fed rate-setting decisions, we need to gain some understanding of the US inflation trajectory and the economic growth potential. Inflation Outlook: Coming Down but Still Too High According to the Bureau of Labor Statistics (BLS), the US Consumer Price Index rose 0.2% in July to 3.2% on an annualized basis. • CPI peaked at 9.1% in June 2022. The declining inflation in the past year is a welcome development and signals that the Fed tightening policy is working; • The key driver of low CPI reading is the double-digit decline in energy cost when compared to the record gasoline price last year. This is misleading and lagging data. Gasoline and diesel prices are both on the way up for months; • The Core CPI, excluding energy and food, is 4.7%. Compared to 5.9% in July 2022, the decline is not fast enough, and it is still too high; • At 7.7%, Shelter leads all categories and has the highest price increases. Higher interest rates pushed up mortgage payments and rents. This could lift overall inflation higher in the coming months. The Fed’s preferred inflation metric is the PCE price index. According to the Bureau of Economic Analysis (BEA), PCE price index for June increased 3.0% on an annualized basis. Excluding food and energy, the core PCE increased 4.1% from one year ago. The BEA is scheduled to release July PCE data this week. The new reading would influence the Fed as it debates whether to pause or continue raising rates in the September 20th FOMC meeting. US Economic Outlook: Very Resilient According to the BEA, US real gross domestic product (GDP) increased at an annual rate of 2.4% in the second quarter of 2023. In the first quarter, real GDP increased 2.0%. • Current‑dollar GDP increased 4.7% at an annual rate, or $305.2 billion, in the second quarter to a level of $26.84 trillion; • After the US central bank aggressively raised interest rates from 0.25% to 5.50% in a year and a half, the US economy shows remarkable strength. According to the BLS, total nonfarm payroll employment rose by 187,000 in July, and US the unemployment rate changed little at 3.5%. Job gains occurred in health care, social assistance, financial activities, and wholesale trade. As long as unemployment remains low, American consumers would continue to buy goods and services, pay their bills, and service their debts. • US mortgage delinquency rate was 1.72% in Q2, the lowest in 17 years (vs. 1.74% in Q3 2006), according to the Federal Reserve Bank of St. Louis; • Auto loan delinquency rates have risen from Q1 2021's 1.43% to 1.69% in Q1 2023, according to a recent Credit Industry Insight Report (CIIR) by TransUnion. • US credit card loan delinquency rate was 2.77% in Q2, up from 2.43% in Q1 and 1.59% from year-ago quarter; Why are we seeing different trends? I think that most homeowners locked into low 15- or 30-year fixed mortgage rates before the Fed rate hikes. Auto loans have shorter duration, usually between 4 to 7 years. Since last year, car buyers now were hit by both higher prices and higher interest rates. Credit card default is elevated, but still low from a historical perspective. In the 1990s and early 2000s, delinquency rates hovered around 3-5%. It peaked at 6.77% in 2009 after the financial crisis. Credit card companies charge floating interest rates. In January 2022, before the rate hikes, interest rates averaged around 16%. They are now above 24%. My takeaways Overall, my assessment is that US inflation is not likely to go down to 2% by 2024. While consumers are under stress, it’s not enough to push the US economy into a recession. Therefore, I believe that the Fed would keep higher interest rates for a longer period. At each meeting, it would iterate whether to raise or to pause, but not to cut rates. Impacts to US Stock Market Valuation Up to now, investors were obsessed with the unrealistic assumptions of Fed cutting rates three to four times in 2024. The Jackson Hole speech is a wake-up call. Stock market valuation will have to be repriced based on new long-term interest rate assumptions. Higher interest rates raise the cost of capital for all US corporations. Using the Discounted Cash Flow (DCF) stock valuation method, a company’s present value will decline as a higher rate discounts all future cash flows by a greater percentage. The S&P 500 index has gained 14.75% year-to-date. In recent weeks, it has retreated 200 points (-4.4%) from its 52-week high. The prospect of higher long-term interest rates could put further pressure on the Blue-chip US stock market index. The Nasdaq composite index has gained 29.85% year-to-date. It has a drawdown of 850 points (-5.9%) from its 52-week high. Even a blowout quarterly profit from chip giant Nvidia failed to lift the leading technology stock index higher last week. Trade Ideas On August 11th, 2022, I published a trade idea, “A Tale of Two Americas”. In assessing the impact of Fed rate hikes, I concluded that smaller companies would be hit harder than their larger counterparts. I explored the idea of shorting the lofty valued Russell 2000. At the time, the Russell was quoted at 1,974 and had a trailing Price/Earnings Ratio of 68.96. Fast-forwarding to August 25th, Russell was settled at 1,853 (-6.1%) and the P/E has collapsed to just 27.61, according to Birinyi Associates and Dow Jones Market Data. Today, I still favor the idea of shorting the CME Micro Russell 2000 ( FWB:M2K ). Why? A year ago, the US Corporate BBB Effective Yield was 5.04%. It rose 112 basis points to 6.16% last week, according to Fed data. After the Jackson Hole speech, I expect the bond yield to move up with the new assessment of higher long-term interest rate. Therefore, Russell 2000 would face further downward pressure. The March Rusell 2000 contract (M2KH4) was settled at 1,888 last Friday. Each contract is $5 x Index and has a notional value of $9,440 at current market price. CME requires an initial margin of $620. While shorting a futures contract, an investor could consider setting a stop loss. Hypothetically, a stop loss at 1,800 would limit the loss to $440 (= (1888-1800) * 5). Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CBOT:ZQ1!Long
by JimHuangChicago
5
EUR/USD slips to 10-week low after soft German business climateThe euro has posted limited gains at the start of the trading week. In the North American session, EUR/USD is trading at 1.0803, up 0.08%. The week ended on a sour note as German Ifo Business Climate fell for a fourth straight month in August to 85.7, down from an upwardly revised 87.4 and shy of the market consensus of 86.7. Germany's GDP flatlined in the second quarter, after two straight declines. The eurozone's largest economy is sputtering and a string of weak data provides support for the ECB to take a pause at the September meeting. Federal Chair Jerome Powell delivered the keynote speech at the Jackson Hole summit on Friday and his message was one of caution and on the hawkish side. Powell reiterated that the battle to lower inflation to the 2% target "still has a long way to go". The Fed has lowered inflation to around 3% but the hardest part could be bringing it down to 2%. With regard to rate policy, Powell was cautious, saying that the Fed would "proceed carefully" in deciding whether to raise rates or pause and wait for additional data. There was no mention of rate cuts, a signal that the Fed isn't looking to trim rates anytime soon. The markets raised the odds of a rate hike in September in response to the speech, from 14% a week ago to 21% at the time of writing. ECB President Christine Lagarde also attended the Jackson Hole meeting but like Powell, played it safe with remarks that we've heard more than once in the past. Lagarde said that the ECB's rate path would be data-dependent at each meeting and that it was critical that inflation expectations remained anchored at the 2% target. Lagarde tried to sound optimistic, saying she was confident that inflation numbers would look different at the end of 2023. Eurozone inflation is heading in the right direction but is still high at 5.3%. The central bank meets next on September 14th and it's unclear whether the ECB will raise rates for an eighth straight time or take a pause and monitor how the economy is performing. The benchmark rate is relatively low at 3.75%, but the eurozone economy has not looked good and higher rates increase the chances of the weak economy falling into recession. . EUR/USD is putting pressure on resistance at 1.0831. The next resistance line is 1.0896 1.0795 is a weak support level. Below, there is support at 1.0731
by OANDA
Why the EURUSD might trade higherFollowing Powell's statement at the annual Jackson Hole symposium – “We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.” – markets seem more inclined towards expecting another rate hike in the US. This move, in our analysis, provides the Federal Reserve (the Fed) with added flexibility for future decisions. Meanwhile, the European Central Bank (ECB) echoes a similar sentiment, insisting on remaining stringent as the battle against inflation is ongoing. A dive into headline & core inflation shows a decline in the former for both the EU and US. However, Europe's core inflation remains stubbornly high, without evident signs of decreasing. Further, Europe's robust PMI, in contrast to the sub-50 US print, paired with this sticky core inflation, indicates that the ECB might maintain its tight monetary stance to combat inflation. The Futures and OIS market can give us some insights on market participants’ expectation of the forward rate path. Here we see similar expectations of an increase in rates before cuts are priced in. Generally speaking, interest rate differential is inversely related to the EURUSD, hence in the chart above we see this relationship in play with the US-EU Interest Rate, roughly marking out the inverted EURUSD path. From 2019 to 2022, where we saw the rate differential held constant after a period of decrease, the EURUSD traded higher during that period. Hence whether the ECB tightens further or keep in line with market expectations, we see potential for the EURUSD to trade higher given historical precedence. The US dollar is currently hovering near the upper threshold of a descending channel. The previous 3-times when RSI reached such levels marked the turnaround point for the dollar. On a longer-term chart, we see the EURUSD trading right above the 1.08 level which has been a key support & resistance level going back to 1970s. Zooming in, the EURUSD pair now trades on the lower band of an ascending channel with RSI pointing oversold. Again, the past 3 times when RSI were at this level marked the reversal point for the EURUSD. Hence, whether the ECB reacts with more hikes as expected by market participants, or it stays the expected course, the EURUSD is likely to trade higher as we look back in history. Supported by technical, and the potential for a weaker dollar as it trades near resistance, we favour a long position in the EURUSD Futures at the current levels of 1.0827 with a stop loss at 1.05 and take profit at 1.130. Each 0.00005 increment per EUR in the EURUSD futures contract equals to 6.25$. The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description. Reference: www.cmegroup.com www.cmegroup.com
CME:6E1!Long
by inspirante
🎯S&P 500 - weakness aheadA month ago SPX topped close by the previous ATH at a resistance area with an engulfing candle, a clear reversal signal, just a couple of weeks after DXY (dollar index) started to raise again. Yesterday we had the exact same pattern occur, an engulfing candle to the downside, at a previous resistance level. Today Jerome Powell presented a hawkish stance of the Fed for the foreseeable future. Combine the above with a DXY on the raise that broke its downtrend last week and it looks like we are in for more downside on the S&P. Zooming out, where do you think we are on the Wall Street Cheat Sheet? Here is an unpopular opinion from Gareth Soloway that I tend to agree with. Maybe even Bitcoin's double top in '21 is something relatable to S&P today - and BTC found its potential bottom one year later. What do you think? Share your thoughts below.
SP:SPXShort
by opripom