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Market News Posted by Team Topstep March 5, 2023

Interest Rates, Emerging Technology, and Energy Futures

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Top things to watch this week

The Economic Calendar:

MONDAY: Factory Orders, 3-Month Bill Auction, 6-Month Bill Auction, Investor Movement Index

TUESDAY: Jerome Powell Speaks, Wholesale Inventories, 3-Yr Note Auction, Consumer Credit

WEDNESDAY: MBA Mortgage Applications, ADP Employment Report, International Trade in Goods and Services, Jerome Powell Speaks, JOLTS, EIA Petroleum Status Report, 4-Month Bill Auction, 10-Yr Note Auction, Beige Book

THURSDAY: Challenger Job-Cut Report, Jobless Claims, EIA Natural Gas Report, 4-Week Bill Auction, 8-Week Bill Auction, 30-Yr Bond Auction, Fed Balance Sheet

FRIDAY: Employment Situation, Baker Hughes Rig Count, Treasury Statement

Futures Expiration and Rolls This Week:

THURSDAY: Currency futures roll from March (H) to June (M)

Key Events:

  • Jobs and Payroll Data is the focus of the week on Friday.
  • Fed Chair Powell’s testimony to the House Financial Services Committee.
  • USDA monthly WASDE and Crop Production report.
  • Grayscale’s lawsuit against the SEC to convert GBTC to a spot Bitcoin ETF.
  • Reaction to rates markets as the 10-year Treasury note yield hovers around 4%.
  • White House is expected to release a proposed budget on March 9.
  • Earnings reports slow down, updates from DICK’S Sporting Goods and Oracle.
  • Apple’s annual meeting could reveal consumer strength.

Stock Index Futures

The S&P 500 and Nasdaq gained 1.97% and 2.68% on the week.

Ah, the rollercoaster of markets! From recession worries to overheating fears in four short weeks.

News has shifted rapidly from recession to overheating, and the market is still trying to catch its breath. The recent news has been encouraging, with January’s bumper payroll and retail releases, despite a sharp repricing of rate markets.

We may be in for a rollercoaster ride as the data continues to shift and the focus moves between different geographies. When and where will the market find its balance?

A few key short-term levels for the S&P 500:
Upside: 4050,4070,4110,4125
Downside: 4023, 4005, 3985, 3975

Interest Rate Futures

Historically, the Fed has paused only for 6-months before cutting rates. Since the mid-1980s, the Fed has never hiked rates again following a pause after a series of hikes.

Traders are paying close attention to Treasury yields, especially the 10-year Treasury note, after its momentary breaching of the 4% level.

The Federal Reserve’s next FOMC meeting is March 21-22.

Where are we now?

U.S.– Economists continue to expect meaningful disinflation this year; unfavorable inflation news over the last month and large upward revisions to prior realized inflation have made the near-term outlook appear more challenging

ECB – Given the recent hawkish commentary by the ECB, and firmer-than-expected inflation data from the Euro area, some economists see a fourth 50 basis point hike in May (vs 25bp before) and a peak rate of 3.75% in June.

U.K. – Outlook remains uncertain, and economists forecast another 25 basis point Bank Rate hike in March but also highlight the risk that the MPC might need to continue tightening for longer—or resume hiking after a pause—if services pressures remain firm.

U.S. Treasury yields current yield compared to the last newsletter:
30-Year yield  3.87% vs. 3.93%
10-Year yield  3.95% vs. 3.94%
5-Year yield  4.24% vs. 4.21%
2-Year yield  4.85% vs. 4.82%
2-10 Yield spread  -0.89 vs. -0.87

Fed Rate Projections 03-06-2023Source: CME Fedwatch

energy Futures

Oh, the woes of the oil market! The supply squeeze seems to be no joke, with U.S. refiners coming out of maintenance and China’s data suggesting a massive surge in global demand.

U.S. oil demand has returned to its pre-pandemic level of 20 million barrels daily. Still, without production levels rising and SPR releases ending, it will be more challenging than ever to keep up, not to mention the dwindling supply of oil stored in floating tanks, as the wise Javier Blass pointed out.

On the bright side, natural gas is recovering from its crash and is getting a boost from reopening the Freeport LNG export terminal, plus potential relief from the weather. Ultimately, there’s no telling what the oil market has in store, but it’s certainly an interesting time!

Emerging Technology

The security think tank Australian Strategic Policy Institute reported China leads the U.S. in research output in 37 out of 44 critical emerging technologies.

Global emerging technologies are technologies and innovations expected to significantly impact how we live, work, and play in the near future. Examples of global emerging technologies include:

1. Artificial intelligence
2. Blockchain
3. Robotics
4. Internet of Things
5. 3D Printing
6. Autonomous Systems
7. Quantum Computing
8. Augmented and Virtual Reality
9. Natural Language Processing
10. Machine Learning

The countries considered leaders in global emerging technologies are China, the United States, Japan, Germany, the United Kingdom, and South Korea.

China is leading the way in artificial intelligence and robotics, while the United States is a leader in blockchain, the internet of things, and quantum computing. Japan is a leader in 3D printing and autonomous systems, while Germany is a leader in augmented and virtual reality. The United Kingdom is a leader in natural language processing, and South Korea is a leader in machine learning.

State of the Consumer

Oh boy, the online retail market sure had a wild ride last week! It started with a bumpy landing as eBay, Wayfair, and Etsy had disappointing earnings reports.

Understandably, investors were a bit wary since the pandemic-era surge in demand for online retailers had taken their stocks to such lofty heights.

But alas, the ProShares Online Retail Index has dropped around -32% from its peak, and even Amazon and Shopify had some weak moments. However, the bright spot was Etsy, which rallied after reporting substantial revenue in the holiday quarter, although the gross merchandise sales forecast was still slightly lower than expected.

Overall, it’s been a rollercoaster for online retailers, but here’s to hoping things will start looking up soon!

Crypto Markets

The offshore futures market volume is almost all perpetual swaps.

A perpetual swap is a derivative trading product that has become popular among crypto traders over recent years, with data showing daily trading volumes of over $180 billion. Perpetual swaps offer traders a chance to take on significant positions in a cryptocurrency with little money down.

Perpetual swaps dominate the offshore futures market, representing 89% of all open interest in offshore futures. In April 2021, perps represented 62% of all the offshore open interest, while traditional futures represented 38% of the OI.

Even after including CME data, we still see that traditional futures currently represents 28% of the open interest in the BTC futures market.

Asset Class Performance Summary

This performance chart tracks the daily, weekly, monthly, and yearly changes of various asset classes, including some of the most popular and liquid markets available to traders.

Asset Class Performance Sheet 03-06-2023

Thought of the Week

Let’s work on ideas this week.

Great Minds Discuss Ideas - Eleanor Roosevelt

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