Nick Mastrandrea
Market Tea Leaves
US Dollar: Sept '21 USD is Up at 92.495.
Energies: Jul '21 Crude is Up at 74.27.
Financials: The Sept '21 30 Year bond is Down 24 ticks and trading at 160.00.
Indices: The Sept '21 S&P 500 emini ES contract is 28 ticks Lower and trading at 4296.00.
Gold: The Aug'21 Gold contract is trading Up at 1774.90. Gold is 29 ticks Higher than its close.
Initial conclusion
This is not a correlated market. The dollar is Up+ and Crude is Up+ which is not normal but the 30 year Bond is trading Lower. The Financials should always correlate with the US dollar such that if the dollar is lower then bonds should follow and vice-versa. The S&P is Lower and Crude is trading Higher which is correlated. Gold is trading Higher which is not correlated with the US dollar trading Up. 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. All of Asia is trading Lower. Conversely all of Europe is trading Higher.
Possible challenges to traders today
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Challenger Job Cuts y/y is out at 7:30 AM EST. This is Major.
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Unemployment Claims is out at 8:30 AM EST. This is Major.
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Final Manufacturing PMI is out at 9:45 AM EST. This is Major.
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ISM Manufacturing PMI is out at 10 AM EST. This is Major.
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Construction Spending m/m is out at 10 AM EST. This is Major.
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ISM Manufacturing Prices is out at 10 AM EST. This is Major.
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Wards Total Vehicle Sales - All Day. This is Major.
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Natural Gas Storage is out at 10:30 AM EST. This is Major.
Bias
Yesterday we gave the markets a Downside as both the USD and the Bonds were trading Higher Thursday morning and that is usually indicative of a Downside day. The markets had other ideas as the Dow closed Higher by 210 points, the S&P was Higher by 6 and the Nasdaq traded Lower by 24. Today we aren't dealing with a correlated market and our bias is Neutral.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Each and every day we say that the markets could change and they often do. Yesterday was no exception as the markets were correlated Lower but the economic news reported came in mainly positive and served to drive the markets Higher. ADP Employment Change came in at 692,000 versus 555,000 expected. Pending Home Sales came in much higher than the previous period at 8.0% versus a minus 4.4% reported last month. Today we have about 8 major economic reports that could serve to drive market direction today. Such reports as Total Vehicle Sales, Unemployment Claims, Construction Spending are all major and proven market movers. But as in all things only time will tell...
Trading performance displayed herein is hypothetical. The following Commodity Futures Trading Commission (CFTC) disclaimer should be noted.
Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance trading results is that they are generally prepared with the benefit of hindsight.
In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results.
There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.
Trading in the commodities markets involves substantial risk and YOU CAN LOSE A LOT OF MONEY, and thus is not appropriate for everyone. You should carefully consider your financial condition before trading in these markets, and only risk capital should be used.
In addition, these markets are often liquid, making it difficult to execute orders at desired prices. Also, during periods of extreme volatility, trading in these markets may be halted due to so-called “circuit breakers” put in place by the CME to alleviate such volatility. In the event of a trading halt, it may be difficult or impossible to exit a losing position.
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Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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