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Federalreserve

Free Market vs The FedAs of late, the vast majority of us probably have been hearing about "too big to fail" or " a free market vs. a central market" What does all of this mean?" Well, let's go over some of the basic stuff. As in some of my prior posts, it is important to understand that the "Fed" does NOT control mortgage rates or loan rates from your local banks. Let me repeat that the Fed does NOT control mortgage rates or consumer loan rates So now you might ask yourself why the Fed raises rates matter? Well, that's a great question. Because, in short, it should not matter if we were in a free market. Well, sadly, we are not in a free market. We are in a centralized market with different flavors available to us. "Ah, but Guy, you just contradicted yourself by saying the fed does not control mortgage rates, and now you're saying we're in a controlled market rabel rabel rabel " Let me explain... The Fed cannot have any direct contact with "average" consumers; it's currently illegal FOR NOW . Now, everyone, the biggest fear with CBDC is a rightfully placed fear. And we will discuss this in a separate post. So, view the Federal Reserve's manipulation of the economy as a game of pool (billiards) or snooker; what have you. In billiards (for the purpose of the post, billiards = pool), the player cannot directly hit the numbered balls with the stick (cue). Instead, one must use a medium to engage the cue ball. So, to pocket your balls, you must have a small degree of understanding of physics to transfer energy from you to the stick to the cue ball to the desired ball into the desired pocket. The Fed (cue) is the same way. They set the FFR (cue ball), which then goes to the regional and big banks (numbered balls), which then sink into the economy (pocket) So, how does this work? To explain that, you need to understand how a bank makes money. (The Following is highly watered down for simplicity's sake) A bank does not make money because you have an account with them. On the other hand, a bank makes money BECAUSE you have an account with them. So when you use your local JPM, WFC, or C bank :) as a piggy bank, they pay you an interest rate of something like a percent of a percent; however, it's still considered a liability to the bank because that's cash flow going to you from them even if it's a penny a year. So, how can they make money then? The fractional Reserve system. Mike Maloney debates this, and I'm super interested in hearing his thoughts on this... another post for another time. What is the Fractional Reserve System? Basically, for every dollar you put into your account, the bank can lend out 10$ It's basically in place because you're not running to the bank to close your account. So, they can do this. When you put money into your account, it's already out the door into someone else's pocket in the form of a loan by the time you place your wallet in your pocket/ purse what have you. And that's probably too slow for the bank. (velocity of money) Well, that bank's balance sheet of physical liquid cash probably only is enough to pay the onsite staff hourly wage the bank needs more. so they have one of two options 1. go to the Fed and borrow money at the FFR 2. go to the repo market and borrow from another bank by offering t-bills and bonds as collateral. (shadow banking) Typically they go with number one because it's cheaper. The vast majority of times they use the repo market is for cash now! or if their risk management department is trying to make some quick cash off the bond market. (shadow banking is outside the purview of this post, and I'm still learning about it. I will post about it later) ( the fed lining up their billiard shot) So, the Fed has decided the US economy needs to grow more... (the Fed hitting the cue ball) So, lets say the Fed makes the FFR 0% (hypothetically LOL) ( the cue ball hits the numbered ball) So your local JPM will go to the Fed and take out a loan at 0%, so they need to lend this money out and make money, and make their, JPM's rate, interest rate on that money 3% LOL! (The numbered ball sinks into the desired pocket) you the consumer want to go out and buy something you can afford on your 9-5 salary. So you go to the bank and qualify for a loan at their 3% rate to be amortized over 10-30 years, and the economy grows. If that sounds familiar its coincidence LOL However, in a free market how it would work is the loan system would be heavily dependent on the local economy and local wage potential. How? If a bank is set up in an area with low-income earning potential, then the market will tell the bank exactly how much they can charge on money. Example: let's say the Risk Manager at your local WFC decides he is conservative and makes the DTI Ratio for loans 30%. That means the minimum someone must make for a 200,000$ loan is around 60,000$. If the local median income is 45,000$, no one can afford a 200,000$ loan. The maximum loan amount they can make is around 150,000$. So, for the bank to grow, it either needs to up the DTI requirements, it needs to be content with its current earnings and hope the area grows or wages increase, or it can close down and move. Now where the free market comes into play is when WFC is having their DTI at 30%, JPM is at 40%, and C is at 60%, (free market remember) in the same area as the example The following happens: WFC sees their default rate is less than 10% JPM sees thier default rate at 40% C sees thier default rate in the upper 80%. So, what this means is that the market is telling WFC they are leaving money on the table but are playing it safe. Because less people qualify for the loan JPM has almost found the sweet spot. 40% of their loans are in default, but more than half are paid on time. could use some minor tweaking but solid none the less. (With my risk tolerance, 30-35% default is a good number depending on loan size.) C is in trouble because they have lent out too much, and people can't afford that much money in the area. So in a free market, WFC will fail in the area because they're not seeing enough volume, and C will fail because they're seeing too much volume. which leaves JPM to buy up both of the failing banks and grow bigger LOL!
OANDA:SPX500USD
by ARegularGuy
Bitcoin PA & US inflation index & FED Rate RisesSo while we wait on the next instalment of the DXY support Group ( FED) and its expected 25 point rise, which may possibly be the last one for now, I post the updated chart of its effect on Bitcoin PA and the US inflation index, which the rate rises are meant to be curbing You will alos note that the rate rises have had a minimal effect on BTC PA really, it has been more the collapse of companies effected by higher interest rates that has knocked confidence int he market in general what some may also notice is how BTC PA is forming a very Bullish CUP pattern beneath the line I have drawn as the line of "recovery" and I expect PA to break above this later on, come back and retest it and then continue its Rise over the course of the next 18 months to 24 months There are a number o f reasons to expect this that include the New Model of Global finance coming int o play with BRICS and the Bitcoin "Halving" , expected Q2 next year but with the increase of Mining operations, this date could be advanced/ Overall, Bitcoin IS doing very well despite many moves to try and destabilise it and has actually outperformed GOLD as a Store of Value. Do not miss teh chance to buy BTC, it may never return to this price range again P>S that is NOT Advice in any form DYOR and do it well
BITSTAMP:BTCUSD
by Orriginal
Market AnalysisUnemployment claims are lower than expected (down) GDP is only 1.1% (the dollar will rise slightly) Personal expenditures are fronted by 1%, soaring to 3.7% (bad) Core PCE increased from 4.4% to 4.9% (bearish) Analysis: The U.S. economy is worse than expected and has clearly entered a recession. However, inflation and personal consumption are set to soar, proving that QT isn't enough. After this data, big possibility for FED to raise more interest rate. The stock market and crypto will at least dump for another 10% or more. Personal market analysis, for reference only
Short
by INFINITY8CADEMY
Dancing on the Ceiling In recent days, a variety of technology stocks have surged as a result of robust earnings reports. Microsoft's impressive cloud and AI performance have been particularly noteworthy, leading to a ~8% increase in its stock value. The company was on the verge of breaking its single-day record for market capitalization growth. In contrast, cryptocurrency markets have experienced a far more substantial upswing than equities over the past few days. Bitcoin has once again spearheaded the crypto rally, as expectations for future rate hikes dropped substantially due to continuing cracks in the regional banking system. However, this time, the change in the narrative was triggered by a larger-than-anticipated decline in deposits for First Republic (FRC), which has inflicted severe damage on FRC’s balance sheet and will be difficult to overcome. On Tuesday, FRC's stock plunged by about 49%, followed by another 25% drop on Wednesday morning. In other news, the ongoing U.S. debt ceiling crisis presents a compelling and potentially precarious situation that warrants close attention. Earlier in January, the U.S. government reached its borrowing limit and has since relied on "extraordinary measures" to manage its cash flow due to the absence of new treasury issuances. As a result, the Treasury's cash balance has been steadily decreasing this year, and financial markets are becoming increasingly concerned as funds are expected to run out by June, potentially leading the government to default on its debt obligations. This scenario merits close monitoring, as evidence suggests that a technical default could trigger contagion effects, which, in a worst-case scenario, could potentially double the U.S. unemployment rate to around 7%. Furthermore, a divided Congress will make raising the debt ceiling particularly challenging for Democrats unless compromises are reached. Market apprehensions are evident in soaring credit default swap spreads—an indicator of the cost to protect against a U.S. government default—as well as the spread between 1-month and 3-month Treasury Bill yields (approximately 3.4% vs around 5.1%) widening. Recently investors have sought 1-month Treasury Bills that mature before the predicted exhaustion of government funds, causing the price of 1-month Bills to rise and their yield to fall. From a technical standpoint, Bitcoin has experienced a minor pullback from its local top of around HKEX:31 ,000 and has since tested the 50-day moving average before regaining some bullish momentum. In the event of another pullback, traders will likely watch for the 50-day moving average to serve as support once again. MA9 and MA50 are also beginning to converge, with a potential crossing of MA9 below MA50 imminent. This would be a bearish signal. When MA9 previously crossed above MA50, Bitcoin gained significant momentum, underscoring the importance of a potential crossing of MA9 below MA50. Looking ahead, key dates to monitor include May 3rd and 4th, when the upcoming FOMC meeting is scheduled. The Federal Reserve has already hinted at a further 25 basis point hike, which the market has likely priced in. Nonetheless, exercising caution is advisable, as the Fed may take unexpected actions during this meeting.
BINANCE:BTCUSD
by Coinrule
EUR/USD's hidden clues & key levels? Here’s an interesting chart: the inflation differential of the US and the EU plotted against the EUR/USD pair. If we approximate the range of the inflation differential with an upper bound of 1.5 and a lower bound of -0.5, we get a compelling signal for trading the EUR/USD pair. Buying EUR/USD when the inflation differential bottoms has resulted in success 4 out of the 5 times this signal was triggered. Repeating the analysis using the preferred inflation measures for both central banks – PCE for the Federal Reserve (Fed) and EU HICP for the European Central Bank (ECB) – yields similar results. Is this spurious correlation or is there more to this? Our guess is that the inflation differential drives expectations of one central bank’s move versus the other which affects the currency pair. The upcoming US PCE release on 28th April will provide insight into whether the inflation differential between the US and EU will continue to narrow. The validity of this data remains to be seen, but it's certainly an intriguing observation to consider! The rather eventful economic calendar over the next two weeks offers opportunities for this pair. Starting with the PCE Price Index released on April 28th, it is followed by the Fed meeting on Wednesday, May 3rd and the ECB meeting on Thursday, May 4th. With these events in mind, we want to position ourselves for the flurry of announcements coming out, which could play into EUR/USD strength. The long-term price action still seems to point towards an uptrend, with the 100-day Simple Moving Average (SMA) crossing the 200-day SMA and clearly marking previous swings. The current price is also consolidating at the 1.1000 psychological level, with parity and 1.2000 levels roughly marking the EUR/USD range for the decade. Zooming in, the EURUSD has been trading in an uptrend. An attempt to break above the 1.11 level was quickly rejected, with prices trading back to the trend support shortly after. We are currently witnessing another attempt to break this same level once again. Hence, a risk-managed trade could yield opportunities here with the upcoming onslaught of announcements. Setting up a long position at the current level of 1.1074 with a tight stop just below the trend support at 1.0945 and take profit level of 1.1400 would give us a risk-reward ratio of roughly 2.5. Each 0.00005 increment per EUR in the EURUSD futures contract equal 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
CME:6E1!Long
by inspirante
EURUSD: "...It's not over yet!!"The title of this analysis reproduces with a clear synthesis the key concept about the FED's monetary policy. The inflation data released in recent weeks should not mislead us, the core data still remains high. My view at the moment is that Fed will still be hawkish through late 2023, so I expect more rate hikes at upcoming meetings. The banking sector is holding up well after Yellen reassured the markets several times about a potential banking crisis, and I also think the sector will not lack liquidity, at least for 2023. The US currency may have found a short-term bottom, but we need 1-2 sessions to confirm it. FX:EURUSD pair is still trading below its previous top, but should remain structurally well supported in medium-term. With this in mind, in next update we will try to follow the pair also from a technical point of view on intraday chart (setup). Trade with care! Like if my analysis is useful. Cheers!
by TheAnonymousBanker
The Fed Must Pivot When This Happens...We can try to predict when the Federal Reserve may pivot to a less hawkish stance by using charts. Below are some helpful charts. 1. Money Supply The chart shown above is a monthly chart of the U.S. money supply (M2SL). The white line shows the money supply over time. Below the white line is a stepped moving average (9 period), which I consider the 'steps of a debt-based economy'. In order for our debt-based economy to persist, the money supply must continue moving up these steps endlessly. For reasons beyond the scope of this post, if the money supply falls much below this level a financial crisis is likely to ensue due to credit and liquidity issues. Below are some examples in which money supply came down to the stepped moving average before climbing higher. Not even during periods of higher inflation did the Federal Reserve let the money supply fall below this level. Therefore, the closer the money supply comes to this stepped-moving average, the more likely we are to see the Fed pivot to a less hawkish stance. Since money supply is largely negatively correlated to the value of all assets priced in U.S. dollar, reaching this level may also be somewhat of a buy signal for these assets (e.g. stocks, Bitcoin). Indeed, the fact that money supply always goes up is a large part of the reason why the stock market always goes up, too. Whereas if inflation becomes so severe that it forces the Fed to take the unprecedented step of dropping the money supply below this critical level, then a financial crisis will likely ensue. Indeed, under the surface a crisis is already brewing. (You can see my posts linked below for more charts on this). 2. Eurodollar Futures It is generally accepted that the Eurodollar Futures chart is one of the best leading indicators for the Fed Funds Rate. (Don't know what Eurodollar Futures are? See the link at the bottom of this post.) Therefore, when Eurodollar Futures plateau or begin dropping, we can expect a Fed pivot. However, this assumes that the Fed Funds rate has actually reached the terminal rate implied by Eurodollar Futures, which has not yet happen because the Fed is so far behind the curve with hiking. Keep an eye on how markets react to quad witching on September 16th, the time at which stock-index futures, options on stock-index futures, single-stock options and index options simultaneously expire. This period has been known to generate significant volatility. See the bottom of this post for more information about quad witching if you're unfamiliar with it. 3. Yield Curve Inversion Usually around the time or shortly after the yield curve inverts, the Fed pivots to a less hawkish stance. Right now the 10-year and 2-year yields on treasuries are inverted. Below is a chart of the US10Y/US02Y ratio. In the below chart, I marked the points at which the Fed pivoted in the past (pivots were measured by marking the last date the Fed raised rates). The values that you see labeled on the bottom right are the values of the US10Y/US02Y ratio at the time the Fed pivoted in past hiking cycles. In the chart below, I zoomed into the current time. As you can see, the US10Y/US02Y ratio is currently below all the levels at which the Fed previously pivoted. Green is the highest ratio at which the Fed pivoted and red is the lowest ratio at which the Fed pivoted. The chart above shows that we are in uncharted territory in the scope of yield curve inversion that the Fed has created. The fact that the Fed has forced the yield curve invert to this extreme degree and has still not pivoted is likely reflective of one or both of the following hypotheses: (1) The Fed started hiking rates too late. (2) The factors of inflation from the demand side and/or supply side are worse than we experienced in the past (since at least 1988 -- the period covered by the data in the chart). Nonetheless, the Fed must pivot soon or risk causing a financial crisis. My hypothesis is that an inverted yield curve can have the effect, among others, of destroying money. Since some banks borrow at short term rates and lend at long term rates, an inverted yield curve makes this less profitable or even unprofitable. Therefore some banks will lend less. Since bank lending creates the most money, an inverted yield curve can decrease the money supply substantially. The Fed cannot let this monetary phenomenon continue for long without causing significant issues. 4. Inflation Of course the biggest consideration for the Fed is the rate of inflation. The next CPI report is not scheduled to be released until the morning of September 13, 2022, but we can use chart analysis to, with a high degree of certainty, predict the rate of inflation. The above chart is a chart of the price of gold (GOLD) multiplied by the Commodity Index Tracking Fund (DBC). This chart allows us to extrapolate both the supply and demand side of inflation to a high degree of certainty. It is a statistically valid leading indicator for the inflation rate. You can see how drastically it has fallen recently. You can also see how closely it matches the chart of the inflation rate on a lagging basis. For those interested in the statistics GOLD*DBC correlates to USIRYY as follows: r = 0.904, r-squared = 0.8844, p = 0 In the chart above I provide an even better correlation to the rate of inflation. In this chart I provide the total securities sold by the Federal Reserve as part of their overnight reverse repurchase facility, I then attempted to improve the correlation values by adjusting the value by using the price of gold as a multiplier. Although this may sound complex to those who are not familiar with the repo facility, in short it just represents the amount of dollars that the Fed is pulling out of the banking system. To diminish the effect of any non-inflationary factors that would cause the Fed to do this, I adjusted the value using the price of gold. Recently, the Fed has been pulling less dollars out of the system and on some days it has actually been putting more dollars back into the system. The Fed would not be putting more dollars into the system if inflation were still spiraling out of control. While anything can happen in the future, and additional inflationary shocks can occur, this equation gives us a tool to predict the rate of inflation before the CPI report is published. For those interested in the statistics, GOLD*RRPONTTLD correlates to USIRYY as follows: r = 0.954, r-squared = 0.94, p = 0 In the chart above, I've adjusted the values to match the inflation numbers as best as I could (I simply used a divisor that equates the peak values in both charts). It is far from perfect and it is definitely not something that you should use to trade on. The number that is actually reported by the government could be way different. The best that we, as traders, can ever do is use charts to try to predict what may happen, which is what I've done here. More information about Eurodollar Futures: www.investopedia.com More information about Quad Witching: www.investopedia.com
FRED:M2SL
by SpyMasterTrades
108
Digital Assets Outlook 2023Digital assets have had a strong early 2023 Digital asset prices, led by Bitcoin, have had a strong 2023 so far. Bitcoin is up by over 70% this year and Ether is up by over 50%1. Together, these two assets still account for over 63% of the total market cap of the digital assets space. While the US Federal Reserve (Fed) is still raising interest rates, the market seems to expect that the recent bank failures (Silvergate Bank, Signature Bank, Silicon Valley Bank, Credit Suisse) will lead to central bank easing. Lower interest rates would benefit long-maturity assets, such as digital assets. Moreover, several traders have been caught off-guard and short-sellers expecting more downside in digital assets have had to liquidate positions leading to higher prices. We believe we could be on the cusp of the fourth major bull market in crypto, although the exact timing is uncertain. Our belief is that the next bull market will be enabled by advancements in speed and scalability of the blockchain networks, more intuitive user interfaces, and innovations in blockchain wallets, as well as developments in digital identity, which will pave the way for Web3 applications. The critical determinant, of course, will be the user applications that will take the market by storm and we will keep monitoring potential candidates on a continuous basis. Despite dismal price action last year, digital assets are supported by a healthy and vibrant software developer community. The number of monthly active developers actually rose last year by 5%2, which is significant, and confirms our view that developers remain actively engaged in their respective blockchain ecosystems. Layer 2 networks finally coming into their own, promising to solve the scalability issue The main impediment of current Bitcoin and Ethereum networks has been their inability to handle a large volume of transactions. It is estimated that, without a layer 2 solution, Bitcoin can only handle approximately 7-10 transactions per second while Ethereum can only handle approximately 15-30 transactions per second. While it is on Ethereum’s road map to be able to ultimately handle 50,000-100,000 transactions per second, this is not a reality at the moment. As a contrast, Visa is said to handle at least 1,700 transactions per second although there are some estimates that Visa could handle up to 24,000 transactions per second and Visa itself is claiming this number to be as high as 65,000 transactions per second3. One way to solve the scalability issue of blockchains is to use a layer 2 network, which is built on top of a layer 1 blockchain. Layer 2 networks move transactions off-chain, roll them up and bundle multiple transactions into a single transaction, which can then be secured on the layer 1 blockchain benefiting from underlying blockchain’s security and robustness. This bundling enables faster throughput, faster settlement, and lower prices. For Bitcoin, the most well-known layer 2 solution is the Lightning Network, while for Ethereum there are several options available, including optimistic rollups, zero-knowledge rollups (ZK rollups) and sidechains. It is also worth mentioning that the Ethereum network is expected to go through so called ‘sharding’ later this year, which is expected to split the network into separate ‘shards’ thereby increasing the capacity of the network and reducing the transaction (gas) fees in the process. Digital USD tokens emerging as a major use case Stablecoins, digital tokens issued on public blockchains and pegged to an underlying asset, such as a currency or a physical asset, were initially used in trading and interexchange settlement but have become increasingly popular in payments and remittances. Because stablecoins are global and accessible to anyone, they offer an attractive way to cheaply and securely transmit money around the world 24/7 and settle transactions (almost) instantaneously. The world’s largest stablecoin, Tether’s USDT, is particularly popular in Asia, while in the West Circle’s USDC is widely used. Stablecoins are designed to offer stability while an asset like Bitcoin is more volatile. To give an idea of the magnitude of transaction volumes, last year, Visa settled HKEX:12 trillion worth of payments, mainly related to consumer spending, while stablecoins settled HKEX:8 trillion worth of on-chain transactions, higher than the $2.2 trillion settled by Mastercard or HKEX:1 trillion settled by American Express4. This year, it is possible that the combined amount of stablecoin transactions exceeds the payments settled by Visa. These stablecoin transaction volumes, of course, are not related to consumer spending but rather to payments, trading and decentralised finance, and do not take into account trading volumes on centralised exchanges. Competition for instant payments heating up The market for instant settlement of payments seems to be in flux at the moment. Crypto regulation in both Europe and the US are focusing on stablecoins and are expected to set stringent reserve requirements for stablecoin issuers and also forbid interest being paid to stablecoin holders. We view transparency requirements into reserve assets of stablecoin issuers important but also believe that attention should be paid into issuers’ risk management, cybersecurity, and blockchain code testing quality. In the US, the Federal Reserve is planning to launch an instant payment system called FedNow in July 2023. The network will not be based on blockchain but will be able to settle payments in seconds and can support transactions between consumers, merchants, and banks. Some believe that the closure of Silvergate’s SEN network and Signature Bank’s SigNet network in mid-March 2023, both offering instant settlement service where clients were able to move assets between fiat currencies and crypto exchanges at any time, could have had something to do with the launch of FedNow. Around the world, central bank digital currencies (CBDCs) are also being actively developed. They offer a digital form of a government-issued currency that is not pegged to any physical commodity and these digital currencies will continue to be based on the fractional reserve banking system. In Europe, the European Commission adopted a legislative proposal in late October 2022 that mandates all banks to offer instant euro payments to any individual with a bank account in the eurozone. At the moment, the EU banking sector, on average, lags behind other major international markets in instant payments, although single-country solutions have been adopted and variations between countries are large. In some European countries, instant payments cover 70% of banks but, in others, only 1% of payments are settled instantly. The European banking sector has stated that they need up to two years to make banks instant-payment ready5. Europe has its own version of an instant settlement network. BCB Group, regulated in the UK and Switzerland, offers BLINC network that links crypto companies to the banking system and enables business accounts to trade in fiat and digital assets 24/7. The company already offers fiat-to-crypto rails in sterling, euros, Swiss francs, and yen in Europe and plans to add USD fiat-to-crypto rails by early Q2 2023. BCB’s goal is to plug the gaps left by the SEN network. Unlike SEN, BLINC is multicurrency-based and is not tied to any single credit institution. It was designed as a payment institution to provide on-ramps to banks in Europe, the UK and Switzerland. The company emphasises that its funds are always 1:1 backed and are unleveraged and un-rehyphothecated6. Sources 1 Source: Coingecko.com 2 Source: Electric Capital, 2022 Developer Report 3 Source: Visa Fact Sheet, 2022 4 Source: CoinMetrics 5 Source: Euromoney 6 Source: BCB Group, Coindesk
CME:BTC1!
by aneekaguptaWTE
Relationship of the Fed interest rate + SP 500 index Logarithm. The time frame on both charts is 1 month. It is worth considering as an indicator of large market cycles in general. I will not describe it, because I have already said a lot about it before. There is a correlation, which is logical, but not always. There are also reasons for this, which I have voiced before. Expensive and cheap money - the regulation of the growth and decline of the U.S. economy (the whole world). The Fed Funds rate , is the target interest rate set by the Federal Open Market Committee (FOMC) on the basis of which commercial banks borrow and lend their excess reserves to each other for short periods (usually overnight). The Federal Open Market Committee (FOMC), the monetary policy setting body of the Federal Reserve, meets eight times a year to determine the federal funds rate. The federal funds rate can affect short-term rates on consumer loans and credit cards, as well as the stock market. By law, banks must maintain a reserve equal to a certain percentage of their deposits in a Federal Reserve Bank account. The amount of money a bank must keep in its account at the Fed is known as the reserve requirement and is based on a percentage of the bank's total deposits. The rate target set by the Federal Reserve is achieved through open market operations. Since the Fed cannot set the rate's exact value through such operations, the actual value may fluctuate near the target rate. The Fed Funds rate is one of the most important interest rates in the U.S. economy because it affects monetary and financial conditions, which in turn affect critical aspects of the overall economy, including employment, economic growth and inflation. SP 500 Index . S&P 500 (SPX) is a stock index whose basket includes 503 stocks of the 500 selected publicly traded companies with the largest capitalization on U.S. stock exchanges. The list belongs to and is compiled by Standard & Poor's. The index is published since March 4, 1957. Major trend (long term) SP500 index. The entire trend. 100th Anniversary Plot of the index during the "Great Depression." SP500 index. Pumping before the "Great Depression" Code 372-69
SP:SPX
by SpartaBTC
19
S&P 500: Roaring Twenties 2.0 Bullish Harmonic FractalIn the lead up to the 1920s, the US Federal Reserve significantly increased its balance sheet by almost nine times, starting from 700 Million Dollars in December 1916 to 6.6 Billion Dollars by January 1920. This move was presumably to fund the US's entry into the First World War, which led to an increased demand for US government debt globally and loose lending conditions domestically, and low rates thereby encouraging a round of inflation in the US. However, after the war ended, the Fed stopped increasing the balance sheet, and between 1920 and 1922, they began to reduce it from the already elevated $6.6 billion to $4.8 billion, almost a 30% cut in just two years. This action successfully controlled inflation but did not eliminate it completely, yet the dollar gained significant buying power, resulting in a somewhat disinflationary period. As a response to this, the Fed maintained the balance sheet within a tight range around $4.8 billion for a decade, neither raising nor lowering it much but the federal reserve did continue to significantly lower the interest rates; During this time, equities rallied. While the 1920s were a period of economic growth and prosperity, there were warning signs of overheating towards the end of the decade. Investors were becoming overly speculative, leading to a surge in stock and real estate prices, while lending standards declined and consumer spending continued to rise rapidly. To counteract these inflationary pressures, the Federal Reserve implemented policies to tighten credit conditions; They doubled interest rates and also raised reserve requirements for banks, which reduced the amount of money available for lending. In essence this would kickstart The Great Depression which could have instead been a Simple Recession if only the fed had acted sooner as it wasn't their intention to crush the market but rather they just wanted to cool the market down a bit to contain inflation. Years deep into the Great depression, the Federal Reserve realized they had gone too far. So, to fix this, they would begin to raise the balance sheet again while also cutting rates drastically in an effort to relieve pressure from the economy and promote new opportunities for economic growth, which then led to a new expansionary cycle. With that all being said, it would appear that the Fed is doing now what it was doing back then. Over the last decade, they raised the balance sheet by 900% and lowered interest rates by over 95%. Only over the last year, they have begun to reduce the balance sheet by about 10% while raising rates by over 1500%. If we are to go off of the Harmonic Fractals on the chart, then we are likely nearing a point in time where the Fed will begin to loosen rate policy and bring the balance sheet back to all-time highs. This would align with the S&P reaching a 2.618 - 4.00 Retraces as the Fed attempts to keep policy as loose as possible in the hopes that inflation won't come back to bite them. But once we reach harmonic targets, we will likely see inflation return in a great way, which would then force the Fed to induce another Great Depression in the next several years rather they want to or not. Technical Argument: ABCD BAMM, after breaking a long accumulation range and entering a long term expansionary cycle, we are now in the later phases of said cycle while showing heavy amounts of MACD Hidden Bullish Divergence and harmonically have room to go up significantly higher before it ultimately reaches D and comes to an end.
TVC:SPXLong
by RizeSenpai
2
US Inflation Slows for Ninth Month: What's the Plan, Jay Powell?The US annual inflation rate has slowed down for the ninth month in a row, hitting 5% in March of 2023. While this is the lowest it's been since May of 2021, it's still well above the Fed's target of 2%. Investors are trying to figure out when the central bank will put the brakes on its hiking campaign to slow inflation. The March FOMC minutes (released this morning) revealed that some Federal Reserve policymakers discussed hitting the pause button on interest rate increases, following the collapse of two regional banks. However, ultimately, all policymakers decided that tackling high inflation was still the top priority. In the end, they went ahead with a rate hike, despite the potential risks Complicating matters, core CPI (which excludes food and energy components) has gone up to 5.6%, after rising by 5.5% in February. This has led some people to believe that more tightening is in the cards. Initially, money markets thought that the Fed might not raise interest rates in May, but expectations have since risen to 70.5%. The Dollar index remains at its lowest since February 2nd, steady near 101.5. As for Canada, things are looking up - the Bank of Canada has left its key overnight interest rate on hold at 4.50% as expected, while curbing language warning of a potential recession. The Canadian dollar has responded positively, inching up to around 1.34 per USD. Meanwhile, the British pound has risen towards $1.25, nearing a ten-month high of $1.2525 that was touched on April 4. Bank of England Governor Andrew Bailey has stated that he doesn't see any signs of a repeat of the 2007/8 global financial crisis, which is reassuring news for investors. They're betting that the Bank of England will continue to raise interest rates to combat inflation, adding some fuel to the GBP.
TVC:DXY
by BlackBull_Markets
Trade Data Confirms Decoupling Well UnderwayCME: Offshore RMB ( CME:CNH1! ), Micro RMB ( CME_MINI:MNH1! ) On April 5th, the Bureau of Economic Analysis reported the latest U.S. global trade data. For the first two months of 2023, total export and import were $328.9 and $489.7 billion, respectively. U.S. international trade balance was $160.9 billion in deficit. Export growth was very strong, at 9.5% year-over-year, while import was up modestly (+0.5%). As a result, trade deficit was reduced by $25.8B from last year period. My analysis focuses on Exhibits 14 and 14a of the report, which detail global trades by trading bloc and country in 2022 and 2023, respectively. Here are what I found: • NAFTA: Canada and Mexico together have total trade (import plus export) of $245.6B. NAFTA is the largest US trading partner with a 30.0% share. So far in 2023, we see trading growth of 8.5% and 1.3% in share gain y/y. • EU+UK: Total trade is $173.9B, up strongly +20.2% y/y. This is the second largest trading bloc with a market share of 21.2%, up 2.8% y/y. • China+HK: Total trade is $98.6B, down sharply -14.5% y/y. Traditionally the largest US trading partner, China is now the 3rd largest, with a 12.0% share, down 2.6% y/y. • India: Total trade $20.1B (-1.1% y/y) with a 2.46% share (-0.1% y/y) • Vietnam: Total trade $19.1B (-3.0% y/y) with a 2.33% share (-0.2% y/y) • Taiwan: Total trade $19.2B (+72.2% y/y) with a 2.35% share (+0.9% y/y) Shifting of Global Supply Chain The U.S. has determined to reduce its reliance on China for manufactured goods. Decoupling aims to shift global supply chain out of China. Where would they go to? • On-shore: moving manufacturing back to the U.S. (Made-in-America); • Near-shore: moving manufacturing to NAFTA partners Canada and Mexico; • Moving to democratic countries with shared values, including the European Union, Asia (Japan, Korea, India, Vietnam, Taiwan) and South/Central America. Based on BLS nonfarm payroll data in March, total employment in manufacturing sector is 12.98 million. This is 600K more comparing to March 2017 level, before the US-China trade conflict. Manufacturing jobs are coming back to the U.S. What does the strong growth in trading with NAFTA, EU and Taiwan tell us? It shows the shifting of supply chain. This growth comes at the expense of China, which is the only major US trading partner that suffered a decline in both trading volume and market share. Implications of Decoupling Shifting of supply chain has long-term implications. Bringing manufacturing back to the U.S. means job creation as well as consumption and taxes. Companies may receive government incentives to offset the cost of relocation. In the long run, getting out of the expensive cross-ocean shipping and the punitive Trump-era tariff would lower the cost of production. Near-shore production in Canada and Mexico also benefits from a more reliable supply chain and lower transportation cost. Southeastern Asian nations have average labor cost at 1/3 or less comparing to workers of similar skills in coastal China. Vietnam and India prosper in recent years by taking production of clothes, shoes, toys, and low-end electronics away from China. What is the implication of trade decoupling on exchange rate? It will result in devaluation of Chinese Yuan against the US dollar. Firstly, currency exchange rate reflects the interest rate differential in the short-term. • US Fed Funds rate is 4.75%-5.00%, and China Shibor is 1.374%; • The Fed could raise rate again, while China’s central bank is easing to support the lackluster growth in economy. The widening US-China rate differential would cause RMB to devalue, holding all else constant. Secondly, exchange rate represents the relative strength between two economies in the long run. Decoupling has a positive impact on US economy, but a really negative one on China. Since China abandoned Zero-Covid policy last November, its economy has not rebounded as previously hoped. Export-oriented industries are seeing the horror of disappearing orders and clients. The housing sector, the bedrock of China’s economy, is suffering from a bust of real-estate bubble. Dedollarization: Fact or Fiction? Rhetoric about the pending doom of US dollar goes viral in recent weeks. While the Greenback is being challenged, no other candidate is capable of replacing it as global reserve currency. According to the BIS, 88% of international trade was settled in US dollars in 2021. The Fed estimates that from 1999 to 2019, dollar settlement accounted for 96% of international trade in the Americas, 74% in the Asia-Pacific region, and 79% elsewhere. IMF reports that the percentage of central bank reserve by currency in 149 countries is: US dollars, 59%; Euro, 20%; Japanese yen and pound sterling, 5% each; RMB, 3%; Others, 8%. A global reserve currency could retain its status for well over 100 years before being replaced by another. British pound was the last reserve currency since the start of 1800s. It wasn’t until the establishment of Bretton Woods system in 1944 when the US dollar became its replacement. At that time, the U.S. has been the largest economy for forty years and held over 70% of the world’s gold reserve. In a worst-case scenario, if an upstart currency were to successfully challenge the US dollar, its downfall would be decades away. If your investment horizon is months or years, this is not something stopping you from owning dollar. Trade Idea CME Offshore RMB (CNH) futures is settled at 6.8516 on Monday. The contract has a notional value of $100,000 and is quoted as the number of Chinese Yuan per $1. The next Fed meeting is on May 2-3. According to CME FedWatch, futures traders are pricing in a 71% chance that the Fed would raise 25 basis points. If the Fed raises rate and China’s central bank does nothing, futures price shall go up by mechanical calculation. Holding or selling 1 CNHUSD future requires HKEX:18 ,500 in minimum margin. If the exchange rate moves 1 tick, or $0.0001, the futures account would gain or lose 10 Yuan. Micro RMB futures (MNH) is 1/10 of the standard size CNH contract with a HKEX:10 ,000 notional. Margin requirement is also 1/10 of the original, at HKEX:1 ,850. 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:CNH1!Long
by JimHuangChicago
7
XAUUSD Potential Forecast | 10th April 2023 Technical Confluences 1. GOLD is reached the 2k regions. 2. Important psychological level/ all time highs at 2067. 3. Bullish trend on GOLD with HH and HL forming. 4. Price has rejected the H4 support at 1989 and is currently showing bullish PA. Idea We are looking for price continue heading bullish to tap into the nearest swing high at 2032. NOT FINANCIAL ADVICE DISCLAIMER The trading related ideas posted by OlympusLabs are for educational and informational purposes only and should not be considered as financial advice. Trading in financial markets involves a high degree of risk, and individuals should carefully consider their investment objectives, financial situation, and risk tolerance before making any trading decisions based on our ideas. We are not a licensed financial advisor or professional, and the information we are providing is based on our personal experience and research. We make no guarantees or promises regarding the accuracy, completeness, or reliability of the information provided, and users should do their own research and analysis before making any trades. Users should be aware that trading involves significant risk, and there is no guarantee of profit. Any trading strategy may result in losses, and individuals should be prepared to accept those risks. OlympusLabs and its affiliates are not responsible for any losses or damages that may result from the use of our trading related ideas or the information provided on our platform. Users should seek the advice of a licensed financial advisor or professional if they have any doubts or concerns about their investment strategies.
OANDA:XAUUSDLong
by OlympusLab
DXY AT IMPORTANT RANGEHello friends, today Jerome Powell indicated that they should increase interest rates further more, they said same thing last month but it didn't give much strength enough to DXY enough, so I expect such a move which I have indicated in the chart... and J Powell speech indicates that there's loads of supply of US dollar in the market, and to make US Dollar strong, they should lower down the dollar note printing... and they have to lower the supply of US Dollar.... this indicates that US dollar supply is high, which means collapse of DXY... and I expect US dollar crash anytime soon, and I predict that it may happen after NFP report on 10 March... Hope y'all wellness....
TVC:DXYShort
by rawayoussef0
2
QE or QT?Last week, the Federal Reserve (Fed) went ahead with the 25bps hike that many expected, causing a spike in the U.S. dollar and a temporary halt to the rally that equities and risk-on assets were experiencing. This rate hike has come under scrutiny from market analysts. In the past two weeks since Silicon Valley Bank ( SVB ) and Silvergate Capital collapsed, there has been a multi-billion dollar capital outflow from financial institutions. The primary driver of this depositor flight comes from individuals and asset managers moving capital from low-interest savings accounts to high-interest money markets in the form of treasury bills which pay upwards of 4%. In the week of the collapse of SVB, low-risk investment vehicles that invest money in short-term government and corporate debt saw net inflows of approximately $121 billion. This 25bps hike will increase the yield of newly issued treasury bonds (worsening depositor flight) and cause the value of existing bonds with lower yields to decrease. Ultimately, this initiated the collapse of SVB as the dollar value of the existing treasury bonds that the bank held as collateral fell below legally required levels, resulting in the bank announcing that they needed to raise capital, which culminated in a run on the bank’s reserves. Hence this rate hike further increases systemic risk within the market, displayed by the price of credit default swaps (the cost to insure bondholders against a default) going vertical for many banks within the economy. Consequently, it seems strange to some analysts that the Fed didn’t at least pause rate hikes after the latest FOMC, especially considering Powell stated that he considered pausing in the days leading up to the meeting. After SVB began to unwind, the Fed announced the Bank Term Funding Program (BTFP) in order to try and limit the contagion within the economy. The scheme provides eligible depository institutions with liquidity in return for posting collateral such as under-water treasuries and mortgage-backed securities. Some market participants initially interpreted this as the Fed commencing another round of quantitative easing ( QE ); however, the actual mechanism is very important here. QE is the Fed’s way of injecting the most liquidity into the economy. If the Fed were actively engaging in this, the medium-term outlook would become much more bullish. BTFP collateral posted to the Fed, at least for now, must be swapped back to the bank at the end of the term and comes at a cost. So without going deep into the details, the impact on liquidity is quite different from actual QE. In reality, the recent banking crisis and the Fed’s response display that, in the short term, a pivot to accommodative monetary policy is for now ruled out. The BTFP scheme perfectly displays how monetary authorities will utilise all available measures to preserve stability during further tightening, likely meaning that a hard landing is now firmly on the cards. From a technical perspective, the weekly Bitcoin chart looks good. The bullish momentum from MA9 crossing above MA50 has played out as Bitcoin has rallied towards the key psychological resistance of $30K. Bulls will hope for a weekly close above the $29K resistance level, which should ignite the rally to $30K and beyond. Should this bullish momentum break down, the market will likely test the $24 - $25K support range. A fall through this would likely result in a breakdown towards the $21K - $22K supply zone, where there are presumably a lot of unfilled longs that weren’t filled before the current rally. The fact that the relative Strength Index is hovering around overbought levels indicates that the market could be primed for a reversal and supports the bearish scenario. As we advance, the U.S. CPI data release on the 12th of April will have a bearing on short-term market direction. Soft CPI figures will provide risk-on assets such as crypto with bullish momentum while hurting the U.S. Dollar and yields. Again, volatility will be high around this time, so caution should be exercised, most notably in leveraged positions.
by Coinrule