PPI bolsters markets

USD: Sept '24 is Down at 101.065.

Energies: Oct '24 Crude is Up at 69.86.

Financials: The Dec '24 30 Year T-Bond is Up 8 ticks and trading at 126.19.

Indices: The Sept '24 S&P 500 emini ES contract is 40 ticks Higher and trading at 5612.50.

Gold: The Dec'24 Gold contract is trading Up at 2595.40.

Initial conclusion

This is not a correlated market.  The USD is Down and Crude is Up which is normal, but the 30 Year T-Bond is trading Higher.  The Financials should always correlate with the US dollar such that if the dollar is Higher, then the bonds should follow and vice-versa. The S&P is Higher and Crude is trading Higher which is not correlated. Gold is trading Higher which is correlated with the US dollar trading Down.  I tend to believe that Gold has an inverse relationship with the US Dollar as when the US Dollar is down, Gold tends to rise in value and vice-versa. Think of it as a seesaw, when one is up the other should be down. I point this out to you to make you aware that when we don't have a correlated market, it means something is wrong. As traders you need to be aware of this and proceed with your eyes wide open. Currently Asia is trading Mixed.  All of Europe is trading Higher.

Possible challenges to traders

• Import Prices m/m are out at 8:30 AM EST.  This is Major.

• Preliminary UOM Consumer Sentiment is out at 10 AM EST.  This is Major.

• Preliminary UOM Inflation Expectations are out at 10 AM EST.  This is Major.

Traders, please note that we've changed the Bond instrument from the 10 year (ZN) to the 2 year (ZT).  They work exactly the same.  

We've elected to switch gears a bit and show correlation between the 2-year Treasury notes (ZT) and the S&P futures contract.  The YM contract is the Dow Jones Industrial Average, and the purpose is to show reverse correlation between the two instruments.  Remember it's likened to a seesaw, when up goes up the other should go down and vice versa.

Yesterday the ZT migrated Higher at 8:30 AM EST as the PPI data was released and began its Upward climb.  Look at the charts below and you'll see a pattern for both assets. The Dow moved Lower at 8:30 AM and the ZT moved Higher at around the same time.  These charts represent the newest version of Bar Charts, and I've changed the timeframe to a 15-minute chart to display better.  This represented a Long opportunity on the 2-year note, as a trader you could have netted about 30 plus ticks per contract on this trade.   Each tick is worth $7.625.  Please note: the front month for ZT is Dec and the Dow is still Sept '24.  I've changed the format to filled Candlesticks (not hollow) such that it may be more apparent and visible.

Charts courtesy of Barcharts

ZT -Dec 2024 - 09/12/24

Dow - Sept 2024- 09/12/24

Bias

Yesterday we gave the markets a Neutral or Mixed as we didn't see much in the way of Market Correlation Thursday morning.  The markets migrated to the Upside after the PPI news was released.  Today we aren't dealing with a correlated market and our bias is Neutral or Mixed.

Could this change? Of Course. Remember anything can happen in a volatile market. 

Commentary

Yesterday we saw a similar situation liken to Wednesday's trading action as the PPI numbers came out at 8:30 AM EST and it showed the lowest rate of inflation for producers since 2020 and then the markets took off gaining hundreds of points.  The Dow advanced 235 points and the other indices gained ground as well.  Today we are light on economic news as we have UOM (University of Michigan) consumer sentiment and inflation expectations.  These are major and proven market movers.