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The Economic Calendar:
MONDAY: Empire State Manufacturing Index (7:30a CT), SYP Global Composite PMI Flash (8:45a CT), NOPA Crush Report (11:00a CT)
TUESDAY: Retail Sales (7:30a CT), Redbook (7:55a CT), Industrial Production/Capacity Utilization (8:15a CT), Business Inventories (9:00a CT), NAHB Housing Market Index (9:00a CT), Retail Inventories (9:00a CT), NY Fed Treasury Purchases Bill (9:30a CT), 20-Year Bond Auction (12:00p CT), FOMC Meeting Begins
WEDNESDAY: MBA Mortgage Applications (6:00a CT), Building Permits (1:00p CT), Current Account (1:00p CT), Housing Starts Purchases, EIA Petroleum Status Report (9:30a CT), Fed Interest Rate Decision (1:00p CT), Fed Press Conference (1:30p CT)
THURSDAY: Jobless Claims (7:30a CT), GDP (7:30a CT), Philly Fed Manufacturing Index (7:30a CT), Real Consumer Spending (7:30a CT), Existing Home Sales (9:00a CT), EIA Natural Gas Report (9:30a CT), Kansas Fed Manufacturing Index (10:00a CT), Foreign Bond Investment (3:00p CT), Fed Balance Sheet (3:30p CT)
FRIDAY: Core PCE (7:30a CT), University of Michigan Consumer Sentiment (9:00a CT), Baker Hughes Rig Count (12:00p CT)
Key Events:
The Federal Reserve is widely expected to cut interest rates by 25 basis points at its meeting on December 18th. This move is largely anticipated due to recent economic data, including the November jobs report and inflation figures, which suggest a potential slowdown in economic growth and easing inflationary pressures.
While the Fed will likely pause rate cuts in January, the long-term outlook remains uncertain. The incoming administration’s economic policies, particularly regarding trade and fiscal stimulus, could significantly impact the Fed’s future actions.
Some analysts believe the Fed may need to cut rates further in 2025 to support economic growth. However, others argue that the Fed may adopt a more cautious approach, particularly if inflation risks resurface.
VIX call skew hit an all-time high of 1.5x (the 3-month 5/50 delta call). Volatility is low, but tails are priced extremely rich.
The infamous “50-cent trader” is back in VIX options.
The trader is an anonymous figure who has made significant profits by betting on market volatility. Their strategy involves buying VIX options, contracts that track the expected volatility of the S&P 500. These options are often inexpensive, typically around 50 cents each, hence the nickname. By purchasing these options, the 50-cent trader positions themselves to profit from periods of increased market turbulence.
The animal spirits stock market rally since the election. Animal spirits refer to how human emotion can drive financial decision-making in uncertain environments and volatile times.
The stock market has experienced a strong rally, particularly in the latter half of the year. However, as we approach the end of the year, it’s important to consider potential risks and opportunities.
Traders are looking to position themselves in the new year, and this has been a hot theme lately. Here are a few sectors to pay close attention to.
tate Street’s “Institutional Risk Appetite Index” offers valuable insights into the sentiment of large institutional investors. The index tracks changes in risk-taking behavior, providing clues about potential market trends.
The overall trend suggests that institutional investors remain confident in the near-term outlook for U.S. equities. The absence of a significant pullback in November 2024, even after periods of exuberance, further reinforces this bullish sentiment.
Historically, after a cautious approach in 2022, institutional investors have become increasingly bullish in 2023 and 2024. However, periods of excessive optimism have led to short-term market corrections, as seen in July-August 2023 and July-October 2024.
The Federal Reserve is expected to implement one more 25 basis point rate cut on December 18, bringing the federal funds rate to a neutral level.
After this, the Fed is likely to pause further rate cuts and assess the impact of its monetary policy on the economy.
Potential for a Hawkish Shift:
While Jerome Powell’s term as Fed Chair extends to May 2026, speculation about his potential replacement has gained traction. Christopher Waller, a known hawk on the Federal Open Market Committee (FOMC), is considered a strong contender for the position.
A potential leadership change to a more hawkish figure like Waller could lead to a steeper yield curve, with longer-term Treasury yields rising more rapidly than shorter-term yields. This could have implications for the overall shape of the yield curve and market sentiment.
Japan and England rate decision up to bat this week.
The global monetary landscape is shifting towards a more accommodative stance. Central banks worldwide are increasingly easing monetary policy in response to slowing economic growth and concerns about deflation.
The European Central Bank (ECB) recently cut interest rates for the third time, signaling a shift in its monetary policy stance. Removing the “sufficiently restrictive” language from the ECB’s statement indicates a more dovish outlook.
China has also announced plans to stimulate its economy through fiscal measures and potential interest rate cuts. However, the effectiveness of these measures remains to be determined as the country grapples with weak consumer confidence, deflationary pressures, and a struggling housing market.
The Bank of Canada (BoC) has also joined the trend of global central banks easing monetary policy. In September 2023, the BoC implemented a 50 basis point rate cut, bringing its key interest rate to 4.5%. This move aimed to mitigate slowing economic growth and inflationary pressures. However, the BoC’s future policy decisions will depend on the evolving economic landscape. If economic conditions weaken, further rate cuts may be on the table.
The Federal Reserve, while not explicitly signaling a rate cut, faces increasing pressure to ease monetary policy as global economic conditions deteriorate. The market is currently pricing in a high probability of a 25 basis point rate cut on December 18.
U.S. farmers are grappling with significant financial losses due to declining commodity prices and the new threat of increased tariffs on Chinese goods. The potential imposition of tariffs on Chinese imports could further exacerbate these challenges by disrupting global trade flows and reducing demand for U.S. agricultural products.
Farmers face an uncertain future as the trade war between the U.S. and China continues. A further escalation in trade tensions could lead to additional losses, a lack of credit for farming operations, and economic hardship for this vital sector.
Many are unable to generate profits at current market prices!
Gold prices have continued their upward trend, surpassing the $2750 level last week and approaching all-time highs. However, despite the bullish trend, they experienced a slight pullback late Thursday and Friday.
Several factors, including geopolitical tensions, economic uncertainty, and inflationary pressures, support this bullish momentum.
The recent breakout above the 50-day Simple Moving Average (SMA) is a positive technical signal, suggesting that the uptrend may continue.
Our short-term strategy of using call option spreads to capitalize on the upward movement in gold prices has yielded positive results. This strategy can offer significant leverage and potential for substantial gains as gold prices rise.
Bitcoin futures have very, very low margin rates, which offer leverage. Manage your risk, as the IBKR trading legend sends warning flags on crypto and overextended stock market.
