January 11th, 2019 Newsletter

New Year's Resolution for the markets outlook by trade the news, reviewing what will the markets watch for as we start 2019. John Thorpe provides us with some insight into US treasury bonds.

January 11th, 2019 - Issue #949

In This Issue

1. New Year’s Resolutions
2. Hot Market Report: US T-Bonds "Don't fight the Fed...."
3. Economic Calendar

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1. New Year’s Resolutions

Source: TTN - TradeTheNews.com

The New Year has started on unsteady footing, tipsy from swallowing months of uncertainty about the global economy; market sentiment has shifted and thrust many stock indices into an official bear market. The bugaboos that have haunted the markets all year – Brexit, slowing global growth, dysfunctional politics, dwindling central bank largesse, and trade conflicts – have finally taken their toll and shaken the risk-on regime that has held sway for most of the last decade.

2018 was the worst year for US stocks in ten years, seeing the S&P500 contract by more than six percent. With traders looking to technical levels and other guideposts for sentiment, the adage ‘As January goes, so go the markets’ may seem more relevant this year. The last time US stocks fell in January was in 2016, and should it happen again this year the stock market pain could create a self-reinforcing downward spiral, bleeding into confidence indicators and even the hard data. Investors are now trying to suss out if corporate earnings peaked for the cycle in 2018, and await fundamentals to reassert themselves in commodity and stock markets, hoping to overcome the eroding sentiment that has dragged down asset prices in the last couple of months.

Many of the big picture issues overhanging the markets will finally be resolved in 2019…for better or for worse. If enough fall on the happy side of the resolutions ledger, the global economy and markets could put their party hats back on and revel in more prosperity in the New Year. If not, these issues could linger as an unshakable hangover, and 2019 will be characterized by a bear market and possibly recession in some economies.

Global Trade: The Clock Strikes Midnight The S&P500 has tumbled more than 10% since President Trump declared himself a “tariff man” in early December, and a self-imposed clock is ticking down to early March when a temporarily postponed tariff increase could go into effect, opening up an all-out trade war. Market optimism about the US reaching a trade deal with China has faded and its becoming clearer that tariffs are contributing to a slowdown in China that is spilling over into the global economy. The latest sign was the December reading of the China Caixin manufacturing PMI, which entered contraction for the first time in 19 months. A holiday quarter earnings warning from Apple added to the angst about the health of the Chinese economy. It also raises the question of how many other companies, especially in tech, will follow suit with lowered guidance in the weeks ahead, laying blame on China and trade tensions.

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2. Hot Market Report: US T-Bonds "Don't fight the Fed...."

By John Thorpe, Senior Broker

Click on image below to enlarge

ZB futures;

As the saying goes “Never fight the Fed”

Global markets have seen Fed action and commentary since Oct 3rd of last quarter, mostly commentary, as creating more uncertainty on the future of rates and hence the direction of many global markets with few untouched by the Fed’s commentary.

The global markets see the nature of the Federal Reserve Banks two pronged mandate, hold inflation at 2% and full employment, as having largely been met. When commentary suggests more Fed tightening, it confused the global market, Stocks sold off lower, Bonds sold off, precious metals went lower and the US Dollar Strengthened.

The Fed now has since recanted on it’s aggressive stance to raise short term rates and has reiterated publically they will be more patient. in late November FRB ChairmanJerome Powell said the Fed’s key benchmark interest rate is near the neutral rate — the rate where the Fed could consider stopping rate hikes. That’s an important change from a comment he made in early October about the neutral rate being a long way off. As a direct and immediate result, market disruptions began,; traders and institutions knew not to fight the Fed

When Jerome Powell on December 19th announced the Fed’s Decision to raise rates for the last time in 2018 another .25 to 2.25 ( see St Louis Fed ), That signaled an even more dovish stance from the FRB Chair and Bond yields continued to drop further.

Watch factors that effect PCE (rather than CPI) and the jobless numbers, these two key data sets are critical to the decision making of the FED. The PCE price index, released each month in the Personal Income and Outlays report, reflects changes in the prices of goods and services purchased by consumers in the United States. Quarterly and annual data are included in the GDP release. The Jobless numbers also known as Non Farm Payrolls are released on the first Friday of every month also known as Non Farm Payrolls. If our unemployment rate edges higher, you would expect bond prices to go higher, ( less risk of Fed raising rates) if PCE is Higher ( more risk of fed raising rates, ) Bond Prices should go lower, Remember, Bond prices react inversely to yield changes) Lower interest rates = Higher bond prices.

Daily chart from this morning, (Jan. 11th 2019).After making double bottom begining of November, bonds switched into an uptrend and moved nicely upwards. You can see the bars are marked either blue ( bullish) or black( neutral) since the begining of November. Currently the market pulled back from highs made recently but the uptrend is still strong as long as we can hold the 144.00 support level.

Bonds are a very liquid market with a relatively LARGE tick size of $31.25. This market offers different type of day-trading vehicle. Different behavior and personality. I like to look for set ups in this market and the 10 year notes in different ways. One is trying to "SCALP" the large tick size and the other, which I prefer is to look for "longer day trades " using the 15, 30 and 60 minutes charts. If you are a day-trader, you may want to watch this market, get a feel for the different type of trading it offers versus Indices or crude oil for example and see if it is a "worthy" market to add to your day-trading markets list. It goes without saying that bonds are an excellent market for options, swing trading and long term trading as well with 23 hours trading, strong volume and excellent liquidity.

This chart was prepared using CQG Q Trader software, which you can demo for 14 days with real time data.
To access a free trial to the ALGOS shown in the chart ( "early trend identifier" included) along with other tools, visit and sign up for a free trial for 21 days with real time data.


30 yr Treasury Bond Futures Specs
Hours: 05:00 PM previous day to 4:00 PM Central Time
Margins: $2805 initial, $2550 Maint. ( as of the date of this newsletter)
Point Value: full point = $1000 ( Example: 144.16 to 145.16 ). Min fluctuation is 0.01 = $31.25 ( Example: 144.16-144.17) Settlement: Physical Delivery
Months: Quarterly (March,June,Sep,Dec) Weekly Options:YES

Some of the basic fundamentals to keep in mind when you are considering trading the U.S.30yr Treasury Bonds for this matter:
1. Interest Rates.
2. FOMC Rate decisions and Language
3. Focus in macroeconomics
4. Bond Prices have an inverse relationship to Interest rates
5. Correlation to US Dollar prices
6. Inflationary prospects
7. Geopolitical Stability
8. U.S. Fiscal and Monetary Stability

Our brokers here at Cannon will be happy to chat about the Bond market, other interest rate products, other futures, options, futures spreads and much more! Feel free to contact us at any time.

3. Economic Calendar

Source: Moore Research Center, Inc.

Date Reports Expiration & Notice Dates
01/10
Thu
7:30 AM CST - USDA Weekly Export Sales
7:30 AM CST - Initial Claims-Weekly
9:00 AM CST - Wholesale Inventories(Nov)
9:30 AM CST - EIA Natural Gas Report
3:30 PM CST - Money Supply
LT: Jan Orange Juice(ICE)
 
 
 
01/11
Fri
7:30 AM CST - Core CPI & CPI(Dec)
11:00 AM CST - WASDE Report & Crop Production(& Annual)
11:00 AM CST - Winter Wheat Seedings
11:00 AM CST - Grain Stocks
1:00 PM CST - Treasury Budget(Dec)
LT: Jan Eurodollar Options(CME)
Feb Coffee Options(ICE)

 
01/14
Mon

 
 
 
LT: Jan Canola(CBT)
Jan Rough Rice(CBT)
Jan Soybeans,Soymeal,Soyoil(CBT)
Jan Eurodollar(CME)
Jan Mx Peso(CME)
01/15
Tue
7:30 AM CST - Core PPI & PPI(Dec)
7:30 AM CST - Empire State Manufacturing Survey(Jan)
11:00 AM CST - NOPA Crush
3:30 PM CST - API Energy Stocks
LT: Jan Lumber(CME)
Feb Sugar-11 Options(ICE)
 
 
01/16
Wed
6:00 AM CST - MBA Mortgage Index
7:30 AM CST - Export(ex-ag) & Import(ex-oil) Prices(Dec)
7:30 AM CST - Retail Sales(Dec)
7:30 AM CST - Retail Sales Ex-Auto(Dec)
9:00 AM CST - Business Inventories(Nov)
9:00 AM CST - NAHB Housing Market Index(Jan)
9:30 AM CST - EIA Petroleum Status Report
1:00 PM CST - Fed's Beige Book(Jan)
2:00 PM CST - Dairy Products Sales
3:00 PM CST - Net Long-Term TIC Flows(Nov)
FN: Jan Lumber(CME)
Feb Crude Lt Options(NYM)
Feb Platinum & Palladium Options(NYM)
01/17
Thu
7:30 AM CST - USDA Weekly Export Sales
7:30 AM CST - Initial Claims-Weekly
7:30 AM CST - Building Permits & Housing Starts(Dec)
7:30 AM CST - Philadelphia Fed Index(Jan)
9:30 AM CST - EIA Natural Gas Report
3:30 PM CST - Money Supply

 
 
 
01/18
Fri
8:15 AM CST - Capacity Util & Industrial Prod(Dec)
9:00 AM CST - Univ of Michigan Consumer Sentiment-Prelim(Jan)
 
 
LT: Jan Nikkei Options(CME)
Feb Orange Juice Options(ICE)
 
 
01/21
Mon
MARTIN LUTHER KING, JR DAY
 
 
 

 
 
 
01/22
Tue
9:00 AM CST - Existing Home Sales(Dec)
2:00 PM CST - Cold Storage
 
 
LT: Feb Crude Lt(NYM)
 
 
 
01/23
Wed
6:00 AM CST - MBA Mortgage Index
8:00 AM CST - FHFA Housing Price Index(Nov)
3:30 PM CST - API Energy Stocks
 

 
 
 
FN=First Notice, OE=Option Expiration, LT=Last Trade

Disclaimer: This calendar is compiled from sources believed to be reliable. Moore Research Center, Inc. assumes no responsibility for any errors or omissions. It is meant as an alert to events that may affect trading strategies and is not necessarily complete. The release dates for certain economic reports may have been rescheduled.

* Please note that the information contained in this letter is intended for clients, prospective clients, and audiences who have a basic understanding, familiarity, and interest in the futures markets.

** The material contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.

*** This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!

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