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Inflation

USD/JPY shrugs after US GDPThe Japanese yen has edged lower on Thursday. In the North American session, USD/JPY is trading at 147.62, up 0.08%. The US economy continues to surprise with stronger-than-expected data. On Wednesday, the services and manufacturing PMIs both accelerated and beat the estimates, followed by first-estimate GDP for the fourth quarter earlier today. The economy sparkled with an expansion of 3.3% q/q, blowing past the consensus estimate of 2.0%. This follows the blowout gain of 4.9% in the third quarter. Consumer spending remained strong at 2.8%, compared to 3.1% in the third quarter. The US economy expanded in 2023 at 2.5% y/y, up from 1.9% in 2022. The US dollar's reaction to the positive GDP report has been muted. There were concerns earlier this year that the economy might tip into a recession, as the Fed continued to raise interest rates to beat down inflation. However, solid consumer spending and a resilient labour market have boosted economic growth and the Fed is well on its way to achieving the tricky task of a soft landing for the economy. On the inflation front, the core personal expenditure price index was unchanged at 2% in the fourth quarter, while the headline index rose 1.7%, down sharply from 2.6 in Q3. The week wraps up with the personal consumption expenditures (PCE) price index on Friday, considered the Fed's preferred inflation gauge. The PCE price index and core PCE price index are expected to edge slightly lower in January, which would be an encouraging sign that the inflation is moving lower. Japan releases Tokyo Core CPI, a key inflation indicator, on Friday. The consensus estimate for January stands at 1.9% y/y for January, after a 2.1% gain in December. If the estimate proves correct, it would mark the first time in almost two years that it has fallen below the BoJ's target of 2%. USD/JPY is testing resistance at 147.54, followed by resistance at 148.44 There is support at 146.63 and 145.73
by OANDA
TMV Triple Inverse Treasury Bill ETF LONGTMV on the 4H chart appears to be reversing a trend down since 12/28. YTD it is rising. The reasonable target is the Fib 0.5 retracement at $40 while support for a stop loss just below the POC line of the volume profile is $29.25. As such this is a 35% upside. The RSI indicator shows the fast RSI rising and crossing over the slower RSI while the relative volume indicator shows increasing volumes reacting to the price bottoming and accumulation underway. I see this as a long trade set up while recognizing that fundamentals such as interest rate adjustments and inflation data could impact the technicals.
AMEX:TMVLong
by AwesomeAvani
SW: Weak Wheat Prices Are Here to StayCBOT: Wheat ( CBOT:ZW1! ) In stark contrast to the rising stock market, most agricultural commodities have lost ground in 2023. In the Grain & Oilseeds market, CBOT Soybean (ZS) finished the year at $12.73 per bushel, down 14.7% year-on-year. CBOT Corn (ZC) closed at $4.63/bushel, down 30.8% YOY. CBOT Wheat (ZW) settled at $5.93/bushel, down 24.5%. In the Livestock & Meat market, CME Group Lean Hog (HE) lost 23.2%, while Pork Cutout (PRK) was down 13.0% YOY. Live Cattle (LE) was the only exception with a 10.3% gain. Despite bad weather, supply chain bottleneck, rising cost of borrowing, and escalating geopolitical conflicts in Europe and the Mideast, farmers around the world managed to produce higher outputs of grain and meat. With food demand remaining weak, this surplus supply pushed the prices of food ingredients downward. The WASDE Report Today, we will focus on wheat, which saw huge price volatility in the past five years. According to the latest World Agricultural Supply and Demand Estimates (WASDE) report, published by the United States Department of Agriculture (USDA) last week: • Global wheat output for 2022/23 was 789.17 million metric tons, up 1.2% YOY; • Output for 2023/24 was estimated at 783.01 in December but revised up to 784.91; • Global supplies are raised by 3.6 million tons to 1,056.5 million on higher beginning stocks and production. In the US, average yield per harvested acre was 46.5 bushels in 2022/23, up 5.0% YOY. • The WASDE estimated yield to grow 4.5% more to 48.6 bushels in 2023/24; • Across all wheat varieties, total US production was estimated at 1,646 million metric tons in 2021/22, 1,650 in 2022/23 (+0.2%) and 1,812 in 2023/24 (+9.8%); • The 2023/24 season-average farm price is forecasted by $0.10 per bushel lower at $7.20, based on prices received to date and expectations for the remainder of 2023/24. Quick Review of My Previous Trade Idea on Wheat Futures A rule of thumb for agricultural commodities: Their market prices are very sensitive to supply changes. Due to weather perils, deceases, shipping route blockage, among others, significant uncertainties surround food availability in terms of quantity and quality. On the other hand, demands for agricultural commodities are relatively stable, and have a smaller effect on price changes. In February 2022, the breakout of Russia/Ukraine conflict sent wheat prices up 70% within two weeks, from $7 to $12 a bushel. The two countries accounted for about 28% of the global wheat export market. Investors panicked that geopolitical conflicts could cut off the wheat supply. It turned out that the fear was overblown. Despite the ongoing conflict, Russia and Ukraine agreed to keep the Black Sea grain shipping routes open. By July 2022, wheat prices were back to $7.50 a bushel, down 60%. On June 2022, I published a trade idea on Long Strangle options strategy on Wheat Futures. Below is a follow-up report on how that wheat options trade performed: Trading with CBOT Wheat Futures The World Bank forecasts the global economic growth to slow for the third year in a row — from 2.6% in 2023 to 2.4% in 2024, which is almost three-quarters of a percentage point below the GDP growth average of the 2010s. Slowing economy points to a weak demand for wheat this year. Consequently, the expected wheat supply increase would put further pressure on wheat prices. Another supporting evidence: I observe that in the past five years, wheat price trend closely tracks that of the US CPI for food (see title chart). Food CPI peaked in August 2022 at 11.4%, but it is sharply down to 2.7% in December 2023. During the period of runaway inflation, food prices were a major contributor to inflation, which drove headline CPI and core CPI higher. Now, food inflation is below both. The January 16th CFTC Commitments of Traders report (COT) shows that “Managed Money” holds 73,485 long positions and 142,060 short positions on wheat futures. The long/short ratio of 1:2 indicates that speculative traders are bearish on wheat prices. Last Friday, the March wheat contract (ZWH4) was settled at $5.93 per bushel. In my opinion, wheat prices could fall further to test $5 a bushel, a level not seen since 2020. Each wheat contract has a notional value of 5,000 bushels, or $29,662 at current price. To acquire 1 contract, a trader is required to deposit an initial margin of $2,500. Hypothetically, if futures price falls by 50 cents a bushel, a short futures position would gain $2,500 (= 0.50 x 5000). Using the $2,500 initial margin as cost base, a short trader could realize a theoretical return of 100%, excluding commission. If crop yield is to grow less than expected, or if wheat demand increases more than expected, wheat futures could rise, and a short position will stand to lose money. 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
CBOT:ZW1!Short
by JimHuangChicago
GBP/USD dips as retail sales slideThe British pound has weakened slightly on Friday. In the European session, GBP/USD is trading at 1.2682, down 0.18%. The markets were expecting a letdown from December retail sales after a strong November reading, but nobody was expecting a multi-year drop. Yet that's what happened, as retail sales plunged 3.2% m/m, the lowest level since January 2021. Considering the sharp drop, the British pound's reaction has been muted. In November, retail sales jumped a revised 1.4%, as shoppers flocked to department stores to take advantage of Black Friday sales and other discounts. This meant that much of the Christmas shopping took place in November. The massive drop of 3.2% crushed the consensus estimate of -0.5%. There is more to this story than Black Friday sales. The weak December reading reflected a UK consumer who is pessimistic about the economy and is being relentlessly squeezed by high inflation and elevated borrowing costs. December retail sales were brutal but the struggles faced by consumers are nothing new - retail sales fell by 2.8% in 2023, the lowest level since 2018. The sharp drop in retail sales will have a negative impact on December GDP, which could mean that GDP for the fourth quarter is negative. If that is the case, the UK will technically be in a recession, with two consecutive quarters of negative growth. Even if the UK manages to avoid a recession, growth will be flat. The Bank of England has kept rates unchanged for three straight times and meets on February 1. The sharp drop in retail sales supports the BoE considering a rate cut, but December inflation rose unexpectedly from 3.9% to 4.0%, and the BoE will be hesitant to chop rates before inflation is closer to the 2% target. GBP/USD is testing support at 1.2689. Next, there is support at 1.2625 There is resistance at 1.2738 and 1.2802
by OANDA
GBP/USD eyes UK retail salesThe British pound has edged lower on Thursday. In the European session, GBP/USD is trading at 1.2655, down 0.20%. What goes up must come down. That has the markets fretting ahead of the UK retail sales report on Friday. Retail sales growth was brisk in November, with an impressive gain of 1.3% m/m. This followed zero growth in October and marked the strongest gain since April 2022. The problem with the strong November release was that consumers were enticed to spend big due to Black Friday sales in late November. This is expected to dampen December retail sales, with many shoppers taking advantage of the discounted prices and attending to their Christmas shopping a few weeks early. The market estimate for December retail sales stands at -0.5%. The Bank of England will be keeping a close look at the retail sales report, as it digests this week's inflation data with an eye to the next policy meeting on February 1. Inflation in December rose unexpectedly, climbing from 3.9% to 4.0%. The BoE has tried to dampen market expectations of up to six rate cuts this year, with Governor Bailey sticking to a script of "higher for longer". The BoE won't be entertaining rate cuts until it is convinced that inflation is closer to the 2% target and key economic releases point to an improving economy. The unexpected rise in inflation did not support talk of a rate cut, and all eyes are now on Friday's retail sales report. GBP/USD tested support at 1.2656 earlier. Next, there is support at 1.2616 There is resistance at 1.2715 and 1.2755
by OANDA
Gold price bounces off, downside remains bets easeHere is what you need to know on Thursday, January 18: Technical Analysis: Gold price finds a temporary support near $2,000 Gold price attempts a firm-footing near psychological support at $2,000 amid a nominal decline in the US Dollar Index. The near-term demand for the precious metal has turned bearish as it has slipped below the 50-period Exponential Moving Average (EMA), which trades around $2,017. The higher-high-higher-low formation in the Gold price is over and market participants could utilize pullbacks for building fresh shorts. The 14-period Relative Strength Index (RSI) has dropped to near 40.00. If the RSI fails to sustain above 40.00 levels, a bearish momentum will get triggered. •Gold price discovers bets near $2,000 but remains on backfoot amid easing Fed rate cut hopes. •Stubborn US inflation and robust Retail Sales data favour a maintenance of hawkish interest rate stance. •Market participants will focus on Fed Bostic’s commentary ahead. Gold price (XAU/USD) has executed a short-term recovery move in the midst of a persistent downtrend. Gold price printed a fresh monthly low near the psychological support of $2,000 on Wednesday, then bounced. Yet despite the rebound, the precious metal remains on the backfoot as investors continue to worry about when the Federal Reserve (Fed) will start its long awaited rate-cut cycle. The hopes of an early rate-cut decision from the Fed are easing as the last leg of inflationary pressures in the United States is turning out significantly more stubborn than previously thought, due to robust consumer spending and steady labor market conditions. Amid an absence of front-line economic indicators, market participants are expected to shift focus towards the first monetary policy meeting of the Fed, which is scheduled for January 31. The Fed is widely anticipated to keep interest rates unchanged in the range of 5.25-5.50%. Investors will keenly focus on how the Fed proposes to make three rate cuts of 25 basis points (bps) each in 2024, as projected in the December monetary policy meeting. Daily Digest Market Movers: Gold price finds an interim support as US Dollar corrects •Gold price discovers an intermediate support near the psychological $2,000 level after an intense sell-off. •The near-term demand is still downbeat as uncertainty about an interest rate cut from the Federal Reserve in March has deepened. •Trades have pared bets supporting a rate cut in March due to resilience in the US economy. •Bets supporting an interest rate cut of 25-basis points (bps) have increased slightly to 61% but are still below the 75% recorded last week, as per the CME Fedwatch tool. •Market expectations for early cuts from the Fed have been pushed back as price pressures in the US economy remained stubborn and consumer spending grew strongly in December. •Upbeat economic indicators have provided room to Fed policymakers to maintain a restrictive monetary policy stance for a longer period than that anticipated by market participants before their release. •This week, Fed Governor Christopher Waller said the central bank should not rush taking interest rates down as more evidence is needed to ensure that price pressures are returning to 2% in a sustainable manner. •Christopher Waller advised that the Fed should reduce interest rates “carefully and methodically”, considering resilience in the US economy. •Meanwhile, the US Dollar Index (DXY) has rebounded after a gradual correction to near 103.20, supported by risk-off market sentiment. 10-year US Treasury yields are maintaining a firm-footing above 4%. •Later the day, investors will focus on the weekly jobless claims for the week ending December 12 and commentary from Federal Reserve of Atlanta Bank President Raphael Bostic. •Bostic is expected to maintain a hawkish argument considering stubbornly higher price pressures. •On Monday, Fed’s Bostic commented that progress in inflation declining towards 2% could slow if policymakers cut interest rates soon.
OANDA:XAUUSDShort
by sniper_2022
1
GBP/USD eyes UK wage growthThe British pound has started the week with slight losses. In the European session, GBP/USD is trading at 1.2725, down 0.21%. The UK will release employment data on Tuesday and the spotlight will be on wage growth. Over the past few months, wages have been falling and the Bank of England would like to see that trend continue as wages have been driving inflation. Average earnings including bonuses dropped to 7.2% in the three months to September, down from 7.7% in the previous release. The market estimate stands at 6.8% for the three months to October. The UK economy is in trouble, although there was some good news on Friday, as November GDP rebounded with a gain of 0.3% m/m after a 0.3% decline in October. Retail sales drove the gain as shoppers took advantage of Black Friday sales late in November. Still, the probability of a recession, which is defined as two consecutive quarters of negative growth, remains high. The economy declined by 0.1% in the third quarter and a fourth quarter of negative growth would mean that the economy is technically in a recession. Even if a recession is avoided, the economy has flatlined and isn't showing any growth. The lack of economic growth puts the Bank of England in a dilemma. The central bank has sharply raised interest rates in order to curb high inflation and significant progress has been made. A year ago, inflation was in double digits, galloping at a 10.1% clip. Inflation has fallen to 3.9%, which is still double the 2% target. Governor Bailey has pushed back against rate cuts and insisted that the BoE would maintain a 'higher for lower' rate path, but lowering rates would increase economic activity and lessen the likelihood of a recession. The BoE has maintained the cash rate at 5.25% three straight times and meets next on February 1. GBP/USD is testing support at 1.2721. Below, there is support at 1.2687 There is resistance at 1.2753 and 1.2787
by OANDA
Core and Headline Producer Price Index (PPI) Release Core and Headline PPI (Dec 2023 figures) U.S. Headline PPI Prev: 0.8% / Exp: 1.3% Rep: 1.0% ✅ Lower than expected ✅ U.S. Core PPI (excludes food and energy) Prev: 2.0% / Exp: 1.9% Rep: 1.8% ✅ Lower Than Expected✅ What is PPI and why is it important? Producer Price Index is a crucial economic indicator that provides valuable information about inflationary pressures at the producer level. By tracking changes in producer prices over time, it provides insights into inflation trends before they manifest in consumer prices. Difference between Core and Headline PPI The Core PPI aims to provide a more stable measure of underlying inflation, while the headline index reflects all price changes, including those driven by more volatile components such as food an energy. You can see from the chart that Headline PPI in red is the swings more widely up and down due to the inclusion of these volatile components (food and energy). ✅ LOWER THAN EXPECTED PPI TODAY✅ Core and Headline PPI came in lower than expected this month and as you can see we are reaching down into the historically more moderate zone between 3% and -1.5%. This bodes will for inflationary pressures in general and may be an early indicator of lower Core and Headline inflation figures (for CPI) in the coming months. PUKA
ECONOMICS:USCPPYY
by PukaCharts
Reacceleration of inflation presents a trouble for the FEDYesterday, the market became slightly spooked by the release of higher-than-expected inflation numbers in the United States. The immediate reaction of the SPX to the news was negative, with the index erasing its early gains; the same price action could be observed in the Nasdaq 100 and Dow Jones Industrial Average. Nevertheless, market indices recovered much of their losses by the close and have been trending sideways. The reacceleration of inflation in the United States represents a hurdle for the FED in its quest to tame inflation (likely causing it not to cut interest rates at the next meeting at the end of January 2024 or in March 2024). In addition to that, it could shatter the investors’ expectations of premature rate cuts if no significant improvement is seen in the next print. In turn, that could negatively affect the stock market down the road. In regard to technicals, the resistance at $4,800 continues to play a crucial role; if the price manages to break above it and close there (ideally for at least two consecutive days), it will be very positive. The resumption of growth in RSI, MACD, and Stochastic on the daily chart will also bolster a bullish case. However, the flattening of these indicators and a failure of the RSI to break above 70 points will be slightly concerning. Illustration 1.01 Illustration 1.01 shows the 5-minute graph of the SPX. The yellow arrow indicates the moment when inflation numbers were released in the United States. Technical analysis Daily time frame = Neutral Weekly time frame = Neutral Please feel free to express your ideas and thoughts in the comment section. DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not serve as a basis for taking any trade action by an individual investor or any other entity. Your own due diligence is highly advised before entering a trade.
SP:SPX
by Tradersweekly
8
GBP/USD yawns after strong UK GDPThe British pound is showing limited movement on Friday. In the European session, GBP/USD is trading at 1.2769, up 0.05%. The British economy grew in November by 0.3% m/m, rebounding from a 0.3% decline in October and edging above the market estimate of 0.2%. This was the sharpest GDP growth since July and was driven by stronger activity in services, retail sales and manufacturing. The news was not as good from a three-month snapshot, however. The economy contracted 0.2% in the three months to November, unchanged from the previous release and missing the market estimate of -0.1%. The December GDP release will answer the question of whether the UK economy is in a shallow recession. Third quarter GDP was revised to -0.1% and if Q4 also posts negative growth, the economy would technically be in a recession. Even if the economy manages to avoid a recession, it will likely point to stagnation. The weak UK economy presents the Bank of England with a dilemma. The BoE is under pressure to lower rates to kick-start the economy, but inflation is running at a 3.9% which is almost double the 2% target. The BoE would prefer to maintain a 'higher for longer" rate path and let restrictive rates continue to push inflation lower. The central bank is likely to keep interest rates on hold at the next meeting on February 1. In the US, inflation was higher than expected in December, with a gain of 3.4%. This was a rude surprise for the markets, which have become accustomed to inflation heading lower. The Fed won't be losing sleep over the upswing, as Core CPI, which is a better indicator of inflation trends, dipped lower to 3.9%. The rise in US inflation is a reminder that the battle to bring inflation back to the 2% target will be bumpy. The Fed has done an admirable job in lowering inflation but the final stretch is looking to be the most difficult. Services and housing inflation remains sticky and deflationary pressures from goods and energy have been fading. The markets have pared their expectations for a March rate cut to around 70% but the Fed has been pushing back against these expectations. Cleveland Fed President Mester said on Thursday after the inflation report that it was "too early" to cut rates in March because the inflation release showed that restrictive policy was needed to bring down inflation to the 2% target. GBP/USD is putting pressure on resistance at 1.2795. Above, there is resistance at 1.2826 There is support at 1.2742 and 1.2711
by OANDA
GBP/USD flat ahead of US inflation dataThe British pound is unchanged on Thursday, trading at 1.2741 in Europe. We could see some movement from the pound in the North American session following the release of the US inflation report. On Friday, the UK releases GDP, which is expected to show a 0.2% gain in November, after a 0.3% decline a month earlier. US inflation fell dramatically in 2023 and we'll get a look at the December inflation report later today. Inflation was running at a 6.5% clip a year ago and the Federal Reserve has done an admirable job in slashing the inflation rate in half. US CPI is expected to have edged up to 3.2% y/y in December, compared to 3.1% in November which marked a five-month low. Monthly, CPI is expected to have inched up to 0.2%, following a 0.1% gain in November. The Fed will be more concerned with core CPI, which is a better gauge of inflation than the headline reading. Core CPI is projected to have eased to 3.8% in December, after two straight gains of 4.0%. Monthly, Core CPI is expected to remain at 0.3%. If the inflation readings are wide of the estimates, we could see some volatility from GBP/USD. The Bank of England was in the spotlight on Wednesday, as Governor Bailey testified before a parliamentary committee regarding the country's financial stability. Bailey didn't offer any clues about monetary policy but expressed satisfaction that mortgage rates have been falling. The markets are confident that the BoE's rate-tightening cycle is over and that the central bank will start cutting interest rates in mid-2024. Bailey has stuck to a 'higher for lower' stance on rates but there is pressure on the BoE to consider rate cuts as inflation fell sharply in November to 3.9%, down from 3.6% a month earlier. Bailey may prefer to keep rates in restrictive territory until inflation falls closer to the 2% target before lowering rates. GBP/USD is testing resistance at 1.2722. Above, there is resistance at 1.2753 There is support at 1.2678 and 1.2647
by OANDA
Core and Headline CPI (Release Tomorrow Thurs 11th Jan 2024)Core and Headline CPI NEW CPI Figures released tomorrow Thursday 11th Jan 2024 @ 7:30am Central (for the December 2023 month) U.S. Headline CPI Prev: 3.1% Exp: 3.2% Rep: TBC Tomorrow U.S. Core CPI Prev: 4.0% Exp: 3.8% Rep: TBC Tomorrow Will the US Core CPI finally fall below 4% for the first time since May 2021? Core vs Headline (the difference) You can clearly see how Core CPI is less volatile than Headline CPI on the chart. Core CPI removes the volatile food and energy expenditures to provide the underlying inflation trend. Food and Energy is included in the Headline inflation which as you can see from the chart is much more volatile and changes direction quicker than core inflation. Its almost like an oscillator around the core inflation line. The Feds 2% Target It is clear that we are not at the Federal Reserve’s target inflation rate of 2% on both fronts (purple line). It is critical to understand that we are still not at or below the target 2% level regardless of the FOMC’s determination of a likely hold on interest rates and reductions to interest rates in 2024. Lets see can the target be met first. You can see that since 2002 Core CPI has fluctuated one standard deviation above and below the 2% inflation level between 1% and 3%. It is clear that we are not back into this standardised zone between 1 – 3%. I’ll update you tomorrow with the released figures PUKA
ECONOMICS:USIRYY
by PukaCharts
Australian dollar falls despite solid retail salesThe Australian dollar is in negative territory on Tuesday. In the North American session, AUD/USD is trading at 0.6685, down 0.51%. Australia's retail sales sparkled in November but the strong rebound wasn't reflected in the Australian dollar. Retail sales climbed 2.0% m/m in November, blowing past the estimate of 1.2% and recovering from a revised 0.4% decline in October. This was the highest reading since November 2021 as consumers came out and took advantage of Black Friday sales in late November. The boost in November sales could come at the expense of December sales, however, as consumers may have brought forward their Christmas shopping. Consumer confidence has improved on expectations that interest rates have peaked. Last week's ANZ consumer confidence index indicated that consumer confidence was at its highest level in a year and homeowners are also feeling optimistic as house prices have been rising. Australia will release the November inflation report on Wednesday, with expectations that inflation fell to 4.4%, down from 4.9% in October. The markets have priced in the first RBA rate cut in June but that could be brought forward if inflation falls below the estimate. The US will release the December inflation report on Wednesday as well, which could mean a volatile day for the Australian dollar. With the Federal Reserve on board for rate cuts this year, Fedspeak is being carefully monitored as investors search for hints as to the timing of a first rate cut. The markets have priced in an initial rate cut in March, but had to trim the odds after Friday's nonfarm payroll report was stronger than expected. Atlanta Fed President Bostic said on Monday that he was comfortable with a restrictive stance while inflation continues to move down toward the 2% target. AUD/USD tested resistance at 0.6732 earlier. Above, there is resistance at 0.6824 There is support at 0.6625 and 0.6533
by OANDA
$US100 Another Bulls rally ends the sell off? This Friday we met the 0.5 Fib retracement level from the last breakout. Wall street snapped on its 9 week winning streak. Mixed with both fear and hope to number of expected rate cuts in the current year of 2024, recent commodities price had shown re-incarnation followed by increasing tension in regions including Mid-east, Korea, and Ukraina. Major AI stocks that carried the market throughout 2023 had cooled off a bit during the first week of Jan. But, is this really the end? All eyes are on the US inflation data for further cues on the Federal Reserve's monetary policy outloook. Forecasts suggest consumer prices likely edged up by 0.2%. We could assume the service sector laid off number of their employees to maintain their high-productivity rate continue from last year. With this expectation, 6 rate cuts may seem naive option to blindly follow. Although, I expect market to move up for the first three days just because of the false hope of dovish fed speech planned for this Thursday.
CAPITALCOM:US100Long
by Kim_CLSPX
Top 7 inflation-induced trading opportunities this weekThis week, the focus of many traders will be on US inflation data, which will provide valuable insights into the Federal Reserve's monetary policy outlook. The forecasts indicate a potential 0.2% increase in both headline inflation for December and the core rate. On an annual basis, the headline inflation rate is anticipated to rebound to 3.2% from November's five-month low of 3.1%. Meanwhile, the core rate is likely to ease to 3.9%, the lowest since May 2021. This crucial data will be released on Thursday. In the midst of the US inflation focus, there are noteworthy inflation data releases from other countries, including Switzerland, Australia, Mexico, Brazil, China, India, and Russia. This diverse set of data presents many potential trading opportunities for USD pairs throughout the week: Monday: Switzerland Inflation Rate Tuesday: Australia Monthly CPI Indicator Tuesday: Mexico Inflation Rate Thursday: Brazil Inflation Rate (before US inflation data) Thursday: China Inflation Rate (after US inflation data) Friday: India Inflation Rate Friday: Russia Inflation Rate
by BlackBull_Markets
As Inflation Retreats, How Will Equities Perform in 2024?During the 1990s and again in the 2010s, equity and bond investors celebrated a goldilocks economy. GDP and employment growth were solid and core inflation remained comfortably around 2% per year despite increasingly tight labor markets. That scenario was occasionally interrupted, notably by the tech wreck recession in 2001, the 2008 global financial crisis, and most recently by the pandemic-era surge in inflation. But by late 2023, inflation appeared to be coming down globally. Comparing the annualized inflation rates during the six months from December 2022 to May 2023, and the six months from June to November 2023, inflation rates have fallen sharply in every major economy (Figure 1). Figure 1: Core inflation rates are falling rapidly worldwide Source: Bloomberg Professional (CPI XYOY, CACPTYOY, UKHCA9IC, CPIEXEMUY, JPCNEFEY, ACPMXVLY, NOCPULLY, CPEXSEYY, SZEXIYOY, NZCPIYOY) Granted, things still don’t feel great for consumers, who appear to be less sensitive to the rate of change in prices than they are to level of prices which remain high and are still climbing, albeit at a slower pace than before. Nevertheless, it appears that the main drivers of inflation -- supply chain disruptions (Figure 2) and surging government spending (Figure 3) -- subsided long ago. Supply chain disruptions sent the prices of manufactured goods soaring beginning in late 2020. Depressed pandemic-era services prices initially masked the surge in inflation, but services prices began soaring as the world reopened in 2021 and 2022 driven by surging government spending, which created new demand but no new supply of goods and services. Since then, however, supply chain disruptions have faded despite Russia’s invasion of Ukraine, and with little impact thus far from the conflict between Israel and Hamas. Moreover, government spending has rapidly contracted as pandemic-era support programs have expired despite some increases in spending related to infrastructure and the military. As such, not even the low levels of unemployment prevailing in Europe, U.S. and elsewhere appear to be sustaining the rates of inflation witnessed in 2021 and 2022. Figure 2: Supply chain disruptions drove inflation in manufactured goods in 2020 and 2021. Source: Bloomberg Professional (WCIDLASH and WDCISHLA) Figure 3: U.S. government spending has fallen from 35% to 22.6% of GDP Source: Bloomberg Professional (FFSTCORP, FFSTIND, FFSTEMPL, FFSTEXC, FFSTEST, FFSTCUST, FFSTOTHR, GDP CUR$, FDSSD), CME Group Economic Research Calculations U.S. core CPI is still running at 4% year on year but its annualized pace slowed to 2.9%. What’s more is that in the U.S. most of the increase in CPI has come from one component: owners’ equivalent rent, which imputes a rent that homeowners theoretically pay themselves based off actual rents on nearby properties. Outside of owners’ equivalent rent, inflation in the U.S. is back to 2%, its pre-pandemic norm (Figure 4). Figure 4: U.S. inflation is much lower when excluding home rental Source: Bureau of Labor Statistics, Bloomberg Professional (CPI YoY and CPI XYOY) Moreover, inflation in China has been running close to zero in recent months and has sometimes even shown year-on-year declines. In China, real estate grew to be as much as 28% of GDP, and the sector is now rapidly contracting. China’s year-on-year pace of growth for 2023 looks solid at around 5%, but that’s not too impressive given than the year-on-year growth rate compares to 2022, when the country spent much of the year in COVID lockdowns. By the end of 2023, China’s manufacturing and services sectors were both in a mild contraction, according to the country’s purchasing manager index data. If growth doesn’t improve in 2024, China may export deflationary pressures to the rest of the world. That doesn’t mean that the are no upward risks to prices. If the Israel-Hamas war broadens and interrupts oil supplies through the Suez Canal, that could reignite inflation. Moreover, green infrastructure spending, rising military spending, near-shoring as well as demographic trends in places like South Korea, Japan, China and Europe that limit the number of new entrants in the global labor market could potentially keep upward pressure on inflation. For the moment, however, any inflationary impacts from geopolitical or demographic factors appear to be overwhelmed by the usual set of factors keeping inflation contained including technological advancement and large labor cost differentials among nations. So, what does this mean for investors? As we begin 2024, fixed income investors are pricing about 200 basis points (bps) of rate cuts by the Federal Reserve over the next 24 months, and the S&P 500 is trading close to a record high. Be warned, however, interest rate expectations have been extremely volatile over the past 12 months, oscillating between expecting rate hikes to rate cuts by as many as 200 bps or more (Figure 5). If we continue to see strong employment and consumer spending numbers combined with weakening inflation numbers, this may keep rate expectations caught in a volatile crosscurrent. Figure 5: Investors price steep Fed cuts but rate expectations are extremely volatile Source: Bloomberg Professional (FDTRMID, FFZ15...FFZ25), CME Economic Research Calculations Moreover, while equities did well in 2023, their rally was narrow, driven by only a handful of large tech and consumer discretionary stocks, while most other stocks including small caps were largely left behind. Finally, the stock market itself isn’t cheap. The S&P 500 is trading at 23.37x earnings and the Nasdaq 100 at 59x earnings. As a percentage of GDP, the S&P 500’s market is still close to historic highs. Finally, even with 2023’s rally, the indexes are trading at basically the same levels at which they ended 2021 (Figure 6). Part of the reason stocks did so well in the 1990s and 2010s is that they started out those decades cheap. The same cannot be said of the starting values for 2024 (Figure 7). Figure 6: Nasdaq and S&P 500 are near end of 2021 levels but the Russell 2000 lags behind Source: Bloomberg Professional (SPX, NDX and RTY) Figure 7: Going into 2024, equities aren’t cheap like they were in 1994 or 2014 Source: Bloomberg Professional (SPX, GDP CUR$, USGG10YR). 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 By Erik Norland, Executive Director and Senior Economist, CME Group *CME Group futures are not suitable for all investors and involve the risk of loss. Copyright © 2023 CME Group Inc. **All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
CME_MINI:ES1!Education
by CME_Group
EUR/USD slips, Eurozone inflation risesThe euro is in negative territory on Friday. In the European session, EUR/USD is trading at 1.0908, down 0.33%. Eurozone inflation has been falling and dropped to 2.4% y/y in November, within striking distance of the 2% target. The downward trend reversed itself in December, as CPI jumped to 2.9%, just below the consensus estimate of 3.0%. This was the first uptick in inflation since April. There was better news from Core CPI, which dropped to 3.4% y/y, matching the consensus estimate and down from 3.6% in November. This marked the lowest level for the core rate since March 2022. The eurozone inflation report should not have come as a surprise, as Germany, the bellwether of the eurozone, posted similar numbers earlier this week. German CPI rose to 3.7% y/y, up from 3.2%, while the core rate fell from 3.7% to 3.5%. I don't expect the European Central Bank to lose much sleep over a spike in one inflation report but policy makers will be on the alert for inflation continuing to rise. The drop in Core CPI is an encouraging sign, as the core rate is considered a more accurate gauge of inflation trends than the headline release. All eyes will be on the US payrolls release later today. The consensus for the December report stands at 199,000, up from 170,000 in November. The markets will be keeping an eye on wage growth, which is projected to ease to 3.9% y/y, compared to 4.0% in October. This would mark the lowest annual gain since mid-2021. The Fed would like to see wage growth decline as it is a driver of inflation. Fed policymakers will be pleased if the releases are within expectations, as it would indicate that the labour market remains solid but is slowly cooling. The US will also release the ISM Services PMI for December. The services sector has expanded for 11 straight months and is expected at 52.7 for December, little changed from 52.6 a month earlier. EUR/USD is testing support at 1.0944. Below, there is support at 1.0917 1.0974 and 1.1001 are the next resistance lines
by OANDA
EUR/USD stabilizes after slide, FOMC minutes loomThe euro has steadied on Wednesday after sustaining sharp losses a day earlier. In the European session, EUR/USD is trading at 1.0932, down 0.08% and its lowest level since December 21. The US dollar has been struggling in recent weeks but came flying out of the gates on Tuesday, the first trading day of the New Year. The euro fell 0.88% against the dollar, its worst one-day showing since October. The dollar's spike could be due to profit-taking as the data calendar was light on Tuesday and the dollar gained ground against all of the major currencies. It's a busy day for US releases after a lull during the week of Christmas. The ISM Manufacturing PMI is expected to rise to 47.1 for December, compared to 46.7 in November. The manufacturing sector has been in a miserable slump and hasn't shown expansion since October 2022. Manufacturers have been squeezed by weak demand abroad and high borrowing costs. With the Fed expected to start cutting rates in March, we could see manufacturing respond with increased business activity. The Federal Reserve releases the FOMC meeting of the December meeting later today. The meeting was highly significant as the Fed surprised the markets by failing to push back against rate-cut fever. The Fed signalled that it expected to trim rates three times in 2024, a major pivot from the well-worn script of 'higher for longer'. Investors will be looking for details about the shift in Fed policy which has boosted the equity markets and weighed on the US dollar. Germany and the eurozone will post the December inflation reports on Thursday. Last week, Spain posted lower-than-expected inflation numbers. Inflation has eased to 3.2% in Germany and 2.4% in the eurozone, as the ECB's target of 2% is getting closer. Will the December numbers show inflation continues to fall? If so, the European Central Bank will be under pressure to lower rates. ECB President Lagarde has so far dismissed talk of rate cuts, but she may need to shift her hawkish stance if inflation continues to fall, as the eurozone economy is struggling and could use some relief in the form of rate cuts. There is resistance at 1.1069 and 1.1102 1.0958 and 1.0887 are the next support lines
by OANDA
US Equities 2024 OutlookCME: E-Mini S&P ( CME_MINI:ES1! ), E-Mini Nasdaq ( CME_MINI:NQ1! ) Stock investors around the world had a banner year in 2023. Of the ten major stock market indexes I monitor, eight delivered solid 1-year returns. • North America: S&P 500, +23.9%; Nasdaq Composite, +53.6%; • South America: Bovespa (Brazil), +22.3%; • Europe: FTSE (UK), +3.0%; Stoxx (Germany), +11.3%; • Asia: Nikkei (Japan), +28.2%; Kospi (Korea), +18.7%; Nifty (India), +19.5%; • China: SSE (Shanghai), -3.2%; Hang Seng (HK), -13.7%. In this second installment of new year outlook for major asset classes, I will discuss what opportunities may lay ahead for US stocks. Subsequent writings will cover Energy, Agricultural commodities, Interest Rates, Forex, and Cryptocurrencies. FYI: The last writing was a year-end review for metal commodities – Gold, Copper, and Aluminum. If you haven’t read it yet, you may follow the link here: Record Gains Built from Lower Baselines While all four major US stock indexes booked double-digit returns in 2023, they each experienced a steep loss in 2022. The combined 2022-2023 returns aren’t so impressive. • Dow Jones: +5.3% • S&P 500: +3.3% • Nasdaq 100: +9.3% • Russell 2000: -5.9% You may think that adding the 2022 return of -18.1 and 2023 return of 23.9% will give the S&P a 2-year return of +5.8%. But the actual return is only +3.3%. Why? Simple Math: If you lose 20% first, you will need to gain 25% to make up for the loss and just get back to square one. Mathematically, 1/0.8 = 1.25, or (1-20%) * (1+25%) = 1. This matters a lot to hedge funds. An active manager may have a 2-20 arrangement with his investors, which is 2% fee on asset-under-management, and 20% on carry interest. If a fund closely tracks the Nasdaq, the manager received no carry for 2022, and the carry for 2023 is based on the 2-year return of +9.3%, not the 2023 return of 53.6%. The fund usually would have a “high water mark” clause that requires the manager to make up for prior loss before getting paid. Therefore, Wall Street bonuses may not be that big this year. 2024 Outlook for US Equities The December 26th CFTC Commitments of Traders report (COT) shows that: • E-Mini Dow: “Asset Manager” has 26,070 long positions and 3,098 short positions. • E-Mini S&P 500: Asset Manager has 1,147,149 longs and 275,037shorts. • E-Mini Nasdaq 100: Asset Manager has 111,046 longs and 20,662 shorts. • E-Mini Russell 2000: Asset Manager 229,229 longs and 142,312 shorts. The overwhelmingly Net Long positions on all major US index futures indicate that futures traders are very bullish on US equities. Investors eye in a soft landing for the US economy and expect aggressive rate cuts by the Federal Reserve. According to CME Group’s FedWatch Tool, the first rate-cut could occur at the March 20th Fed meeting, with a 73.5% probability. For June 12th, the odds of two or more rate cuts increase to 82.2%. By December 18th, investors expect the Fed Funds rate will be 1% to 2% lower than the current 5.25-5.50% range, with 98.5% odds (Data as of January 1st). (Link: www.cmegroup.com) US equity indexes could stay high as long as the Fed remains dovish. The past few months proved that investors are very resilient. The bullish market sentiment is very hard to break, unless really bad things happen. If an investor owns US stocks, there is no good reason to sell them now. We have seen that geopolitical risks had done little damage to US equities. Fed policy still drives the market. Staying with the ride and hedging the stock portfolio with put options may be a good strategy. Trading with CME E-Mini Equity Index Put Options As US equity indexes take turn making all-time high, it’s costly to buy the underlying stocks. Options are an inexpensive alternative to get exposure in stocks. Depending your stock portfolio and views, you could either long or short the options on E-Mini S&P 500 futures • Last Friday, the March E-Mini S&P 500 futures (ESH4) was settled at 4,812.75. Buying 1 long or short position requires initial margins of $11,800; • January end-of-the-month (EOM) Call options with a 4910-strike costed 23.50 points. Premium for 1 call is $1,175 (= 23.5 x $50 multiplier); • January EOM Put options with a 4710-strike priced at 27 points. Premium for 1 put is $1,350 (= 27 x 50). We could construct a similar strategy with E-Mini Nasdaq 100. • Last Friday, the March E-Mini Nasdaq futures (NQH4) was settled at 17,003.75. Buying 1 long or short position requires initial margins of $17,700; • January end-of-the-month (EOM) Call options with a 17,200-strike costed 208.50 points. Premium for 1 call is $4,170 (= 208.50 x $20 multiplier); • January EOM Put options with a 16500-strike priced at 127.70 points. Premium for 1 put is $2,551.40 (= 127.75 x 20). In a rising market, out-of-the-money put options could be a strategy for small odds with big payoff. In January, we will have new data releases for December inflation (CPI and PCE) and nonfarm payroll employment, as well as a Fed meeting on January 31st. My reasoning: If we see inflation rebound, stronger employment, or a hawkish Fed, the stock market could turn south, resulting in a gain for the put. Hypothetically, if the March S&P futures price drops 150 points by January month-end options expiration, the put would be 47.25 points in-the-money (= 4710 – 4,662.75) and earn $2,362.5 (= 47.25 x $50). Using the initial margin as cost base calculations, the theoretical return would be 75% (= 2362.5 / 1350 - 1). If the March Nasdaq drops 800 points (17,003.75-800=16,203.75) at January options expiration, the put would be 296.25 points in-the-money (= 16,500 – 16,203.75) and earn $5,925 (= 296.25 x $20). The theoretical return would be 132% (= 5925 / 2551.4 - 1). On the other hand, if stocks continue to rise, put options will lose money, but never go beyond the premium already paid. Options Calculator is a free tool CME Group provided for options traders. It generates fair value prices and Greeks for any of CME Group’s options on futures contracts or price up a generic option with this universal calculator. Traders could customize their input parameters by strike, option type, underlying futures price, volatility, days to expiration (DTE), rate, and choose from 8 different pricing models including Black Scholes. www.cmegroup.com 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 Group 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
SP:SPXShort
by JimHuangChicago
Euro extends losses after weak PMIsThe euro is down sharply on Tuesday. In the European session, EUR/USD is trading at 1.0969, down 0.62%. The euro hasn't posted a gain since Wednesday. The US dollar has hit a rough patch on market expectations that the Federal Reserve will cut rates up to six times this year and that the current rate-tightening cycle is over. The euro has pummelled the US dollar since November 1, falling 5.3%. The New Year started with manufacturing releases from Germany and the eurozone earlier today. German manufacturing PMI was revised to 43.3 in December from a preliminary 43.1, compared to 42.6 in November and above the consensus of 43.1. The Eurozone Manufacturing PMI was also revised upwards to 44.4, up from 44.2 in the preliminary estimate and above the consensus of 44.2. The manufacturing sector in Germany and the eurozone is mired in a prolonged slump and hasn't shown growth since June 2022. There isn't much to cheer about but there is hope that the worst of the downturn is behind us as we move into 2024. Germany and the eurozone will post their inflation reports on Thursday. Last week, Spain posted lower-than-expected inflation numbers. Inflation has eased to 3.2% in Germany and 2.4% in the eurozone, as the ECB's target of 2% is getting closer. If the data shows that inflation eased in Germany and the eurozone as well, it will put pressure on the European Central Bank to cut rates in the first half of 2024. ECB President Lagarde has pushed back against rate cuts but she may have to shift her hawkish stance or risk tipping the weak eurozone economy into a recession. If the upcoming inflation reports indicate that inflation continues to fall, we can expect the voices in the ECB calling for looser policy to get louder. There is resistance at 1.1069 and 1.1102 1.0958 and 1.0887 are the next support lines
by OANDA
Gold Watch: CPI Impact and Interest Rate DynamicsGreetings Traders, Our spotlight is on XAUUSD, where we are actively eyeing a potential buying opportunity around the 2015 zone. As gold trades in an uptrend, it currently finds itself in a correction phase, steadily approaching the trend at the critical 2015 support area. This numerical level carries historical significance, serving as a vital juncture where the correction may align with substantial market forces, creating an opportune entry point for traders. To comprehend the potential market dynamics, we must delve into the macroeconomic fundamentals. The Consumer Price Index (CPI) data, released on October 25, 2023, revealed an actual inflation rate of 1.2%, surpassing the forecast of 1.1% and the previous 0.8%. This ongoing trend of rising inflation is crucial, as it has the potential to influence the Federal Reserve's monetary policy decisions. The latest FOMC data, dated December 13, 2023, reflects a steady interest rate of 5.50%. Such a stance indicates a commitment to combat inflation, but the continuous dovish rhetoric and the decision to maintain the interest rate may suggest that the Fed is cautious about tightening too quickly. This dovish sentiment in the monetary policy can lead to further weakness in the USD. Considering the interest rate evolution, the Fed has been on a trajectory of cautious adjustments. For instance, in the FOMC meeting on September 20, 2023, the interest rate was held at 5.50%, maintaining the status quo. This steady approach is indicative of the Fed's commitment to managing inflation without overly hindering economic growth. The correlation between interest rates and the strength of the USD is pivotal in understanding gold's potential upsides. The negative correlation between gold and the USD implies that a weakening dollar could propel gold prices higher. As traders navigate the XAUUSD chart, the careful consideration of both CPI and interest rate data is imperative. The dovish monetary policy's potential impact on the USD's strength and the subsequent influence on gold prices should be a focal point in crafting effective trading strategies.
OANDA:XAUUSDLong
by JoeChampion