Nick Mastrandrea
Market Tea Leaves
US Dollar: Mar '23 USD is Down at 103.975.
Energies: Apr '23 Crude is Down at 75.30.
Financials: The Jun '23 30 Year T-Bond is Up 38 ticks and trading at 130.17.
Indices: The Mar '23 S&P 500 emini ES contract is 32 ticks Higher and trading at 3871.00.
Gold: The Apr'23 Gold contract is trading Up at 1890.20. Gold is 226 ticks Higher than its close.
Initial conclusion
This is not a correlated market. The dollar is Down, and Crude is Down which is not normal, and 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 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. At the present time all of Asia is trading Mixed with half the exchanges Higher and the other half Lower. Currently all of Europe is trading Lower.
Possible challenges to traders today
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No Major Economic News to speak of.
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Lack of Major Economic News.
Treasuries
Traders, please note that we've changed the Bond instrument from the 30 year (ZB) to the 10 year (ZN). They work exactly the same.
We've elected to switch gears a bit and show correlation between the 10-year bond (ZN) and the S&P futures contract. The S&P contract is the Standard and Poor's, 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.
On Friday the ZN hit a Low at around 9 AM EST. The S&P was trading Higher at around the same time. If you look at the charts below ZN gave a signal at around 9 AM and the S&P gave a signal at around the same time. Look at the charts below and you'll see a pattern for both assets. ZN hit a Low at around 9 AM and migrated Higher. These charts represent the newest version of MultiCharts and I've changed the timeframe to a 15-minute chart to display better. This represented a Long opportunity on the 10-year note, as a trader you could have netted about 50 ticks per contract on this trade. Each tick is worth $15.625. Please note: the front month for the ZN is now Jun '23. The S&P contract is still Mar' 23. I've changed the format to filled Candlesticks (not hollow) such that it may be more apparent and visible.
Charts courtesy of MultiCharts built on an AMP
ZN - Jun 2023 - 3/10/23
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S&P - Mar 2023 - 3/10/23
Bias
On Friday we gave the markets a Neutral or Mixed bias as it was Jobs Friday, and we always maintain a Neutral bias on that day. Why? Because the markets have never shown any sense of normalcy on that day. This past Friday was no exception. The Dow traded Lower by 345 points and the other indices traded Lower as well. 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
Another Jobs Friday has come and gone with the US economy creating 311,000 net new jobs last month, which exceeded the forecasted rate of 224,000. You would think that by all estimates the markets would celebrate this. Wrong. The Dow dropped 345 points and the other indices lost ground as well. Why? Because traders and the Smart Money are afraid the Federal Reserve will hike rates even Higher than 25 basis points predicted. The markets are reacting to what they think the Fed will do. So, it's all based on perception, not reality. The thing is the financial markets are one of the few places where perception becomes reality. Today we have no economic news to drive the markets one way or another, so the markets will rely on its own devices today.
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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