Nick Mastrandrea
Market Tea Leaves
USD: Dec '24 is Down at 104.655.
Energies: Dec '24 Crude is Down at 70.93.
Financials: The Dec '24 30 Year T-Bond is Down 6 ticks and trading at 116.02.
Indices: The Dec '24 S&P 500 emini ES contract is 44 ticks Higher and trading at 5969.25.
Gold: The Dec'24 Gold contract is trading Up at 2677.30.
Initial conclusion
This is not a correlated market. The USD is Down and Crude is Down which is not normal, and the 30 Year T-Bond is trading Lower. 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 Lower which is 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. Asia traded Mixed. All of Europe is trading mainly Higher except the London exchange.
Possible challenges to traders
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Unemployment Claims is out at 8:30 AM EST. This is Major.
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Prelim Nonfarm Productivity q/q is out at 8:30 AM EST. This is Major.
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Prelim Unit Labor Costs q/q is out at 8:30 AM EST. This is Major.
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Final Wholesale Inventories m/m is out at 10 AM EST. This is Major.
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Mortgage Delinquencies - tentative. This is Major.
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Natural Gas Storage is out at 10:30 AM EST. This is Major.
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Federal Funds Rate is out at 2 PM EST. This is Major.
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FOMC Statement is out at 2 PM EST. This is Major.
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FOMC Press Conference starts at 2:30 PM EST. This is Major.
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Consumer Credit m/m is out at 3 PM 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 leapt Higher at around 7:30 AM EST as the election results were reported. The Dow dived Lower at the same time. Look at the charts below and you'll see a pattern for both assets. The Dow moved Lower at 7:30 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 20 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 now Dec '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 - 11/06/24
Dow - Dec 2024- 11/06/24
Bias
Yesterday we gave the markets an Upside bias and the markets didn't disappoint. The Dow leapt Higher by over 1500 points and the other indices gained ground as well. Given that today is FOMC Day our bias is Neutral or Mixed.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Oh well, it's final. President Trump is now President-elect Trump once again. Trump gained 291 electoral votes versus Harris' 224. Upon realizing this the markets went wild yesterday. The Dow alone gained 1,508 points and the other indices skyrocketed as well. While all this elation is good, the question is will this hold or is it temporary? Today we have the FOMC meeting which will determine if the Federal Reserve will lower rates or stand pat. I am hoping this being this close to the Holiday spending season, the Federal Reserve will lower 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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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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