Top things to watch this week

The Economic Calendar:

MONDAY: Building Permits (7:00a CT), Chicago Fed National Activity Index (7:30a CT), New Home Sales (9:00a CT), Dallas Fed Manufacturing Index (9:30a CT), 2-Year Note Auction (10:30a CT), 5-Year Note Auction (12:00p CT)

TUESDAY: Durable Goods (7:30a CT), Redbook (7:55a CT), House Price Index (8:00a CT), Consumer Confidence (9:00a CT), Richmond Fed Manufacturing Index (9:00a CT), Dallas Fed Services Index (9:30a CT), 7-Year Note Auction (12:00p CT), Money Supply (12:00p CT)

WEDNESDAY:  MBA Mortgage Applications(6:00a CT), Goods Trade Balance (7:30a CT), Retail Inventories (7:30a CT), Wholesale Inventories (7:30a CT), EIA Petroleum Status Report (9:30a CT), FOMC Announcement (1:00p CT), Fed Chairman Press Conference (1:30p CT)

THURSDAY: Jobless Claims (7:30a CT), U.S GDP (7:30a CT), Real Consumer Spending (7:30a CT), Pending Home Sales (9:00a CT), EIA Natural Gas Report (9:30a CT), Fed Balance Sheet (3:30p CT)

FRIDAY: Core PCE (7:30a CT), Fed Bowman Speech (7:30a CT), Employment Cost Index (7:30a CT), Chicago PMI (8:45a CT), Baker Hughes Rig Count (12:00p CT)

Key Events:

• Trader focuses on monetary policy, with the Fed’s first rate decision of the year.
• Expect no change to interest rates this Wednesday.
• All eyes are on Trump’s tariff negotiations (expected before February 1).
• Notable economic reports on Durable Goods, PCE, FOMC decision, and GDP.
• The Fed’s favorite inflation indicator is the PCE report on Friday.
• Global Central Banks – The Federal Reserve will be on hold and the ECB, the BoC, and the Riksbank are set to cut rates.
• Earnings reports from TSLA, META, AAPL, MSFT, INTC, MA, XOM, LUV, IBM, BA.

STOCK INDEX FUTURES

Positive developments have contributed to a significant rally in the stock market, with the S&P 500 and other major indices looking toward new highs.

The stock market experienced an intense week, with major indices posting gains driven by positive earnings reports and encouraging economic data.

• Strong Earnings Season: Key financial institutions, including JPMorgan Chase, Wells Fargo, and Goldman Sachs, reported better-than-expected earnings, boosting investor confidence.
• Positive Economic Data: The release of strong economic data, including a better-than-expected jobs report, further fueled market optimism.
• AI-Fueled Growth: The advancements in artificial intelligence continue to fuel investor enthusiasm, particularly within the technology sector.

Looking ahead, the focus now turns to monetary policy, with the Federal Reserve’s first interest rate decision of the year scheduled for this Wednesday.

We are also closely watching the tape for news on tariffs from President Trump. He refrained from immediately announcing tariffs after his inauguration, though he said Canada and Mexico could be targeted as soon as February.

VOLATILITY INDEX FUTURES

Markets seem untouchable at the moment, but VIX seasonality is strong from here. Nobody we speak to talks about hedges these days, which is usually a good time to start leaning into some cheap put protection.

Source: TradingView

INTEREST RATE FUTURES

The upcoming Federal Open Market Committee (FOMC) decision, scheduled for this Wednesday, is drawing significant attention due to recent economic indicators and political developments.

Jawboning has begun by President Trump to try to influence the interest rate level. Last Thursday, he said he wanted the Federal Reserve to cut interest rates when the central bank hit pause for an uncertain duration. He argued that he understood monetary policy better than those charged with setting it.

At a White House event following those comments, Trump said, “I think I know interest rates much better than they do, and I think I know it certainly much better than the one who’s primarily in charge of making that decision” in an apparent reference to Federal Reserve Chairman Jerome Powell, who Trump appointed as Fed leader in his first stint as president.

Expectations for the Wednesday Meeting:

• No Rate Cut Expected: All 103 economists surveyed in a recent Reuters poll predicted that the FOMC would maintain the current interest rate range of 4.25%-4.50% at this meeting. This expectation is driven by ongoing concerns about inflation and economic uncertainty, particularly with the new Trump administration’s potential policy shifts.
• Market Adjustments: Interest rate futures have adjusted to reflect expectations of just one Fed rate cut in 2025, with the possibility of another cut being uncertain, a shift from earlier forecasts, which expected at least three cuts.

CRUDE OIL FUTURES

The market is reacting to Trump’s policies to make “U.S. oil and gas great again.” This includes expectations of increased domestic production, which might lower prices if supply significantly outpaces demand.

However, the immediate market response included a sell-off, likely due to the uncertainty and short-term implications of policy shifts, including potential tariff threats.

Trump has postponed the imposition of tariffs on Canadian oil until at least February 2nd, giving Canada and Mexico a few days to negotiate. This delay has reduced some of the oil tariff premiums in the short term, although the long-term intention is to lower energy costs. However, any tariffs on Canadian oil could paradoxically increase costs in the short term due to the U.S.’s reliance on this import for refining.

Source: TradingView

AI INVESTMENT STILL HOT THEME

The AI Boom is not over…

President Donald Trump announced a significant AI infrastructure project, Stargate, involving a coalition of tech giants, including SoftBank, OpenAI, and Oracle. The initiative promises an initial investment of $100 billion and a total commitment of up to $500 billion over four years. It aims to build AI data centers in the U.S., starting with Texas, to create 100,000 jobs “almost immediately.”

The announcement was made during a press conference alongside key figures like Sam Altman of OpenAI, Larry Ellison of Oracle, and Masayoshi Son of SoftBank. The announcement highlighted its scale as “the largest AI infrastructure project in history.”

Elon Musk and many on social media criticized the project’s effort. Elon Musk has openly criticized the Stargate project, particularly questioning the financial backing behind the commitments. On his social media platform, X, he stated that the companies involved “don’t actually have the money,” specifically calling out SoftBank for only having “well under $10B secured” for the initiative.

This skepticism directly challenges the credibility of the project’s funding and the announcements made by Trump and the involved companies. Musk also has a riff with Sam Altman and OpenAI.

Source: X.com

JAPANESE YEN FUTURES

The BOJ hiked. JPY futures barely noticed.

The Bank of Japan (BOJ) recently made a significant policy shift by raising its key policy rate to its highest level in 17 years. This move marks a departure from the era of unconventional monetary policy that has characterized the Japanese economy for many years.

For decades, Japan has grappled with weak prices and economic stagnation. While inflation has increased globally in recent years, the BOJ largely attributed domestic price pressures to imported inflation. However, with robust wage growth and signs of a more sustainable economic recovery, the central bank has gained confidence in achieving its 2% inflation target.

The BOJ has signaled its intention to continue raising interest rates gradually towards a neutral level, which neither stimulates nor cools the economy. This gradual tightening of monetary policy ensures stable and sustainable economic growth.

Source: TradingView

CRYPTO FUTURES & BLOCKCHAIN

We are watching a significant inflection point in crypto and blockchain.

Recent actions paint a picture of Bitcoin transitioning from a potential threat to a recognized asset class with governmental support, addressing past concerns about regulation, privacy, and the sustainability of cryptocurrencies in the U.S. financial system.

Bitcoin hit a new all-time high last week of $109,000. The fact this new record occurred on the same day that President Trump was sworn into office, while Wall Street’s market was closed, is about as poetic as it gets.

President Trump signed an executive order to establish a favorable regulatory environment for cryptocurrencies. This is described as the most comprehensive plan to date for the industry.

The order establishes the “Presidential Working Group on Digital Asset Markets,” led by David Sacks (White House AI & Crypto Czar), with key figures from the Treasury and SEC. The group’s mandate includes:

• Developing a federal regulatory framework for digital assets, including stablecoins.
• Evaluating the potential for a strategic national digital assets stockpile, possibly focusing on Bitcoin.
• Regulatory and policy changes. The order directs agencies to review and potentially modify or rescind regulations that negatively impact the digital asset sector.
• It explicitly prohibits the development of central bank digital currencies (CBDCs), addressing privacy and surveillance concerns.

Looking ahead, the Ross Ulbricht pardon, Wyoming Senator Cynthia Lumis’s involvement, SEC Commissioner Gensler’s exit, the acceleration of the blockchain peleton, and the high probability of a Bitcoin reserve are all huge game changers and a key inflection point.

U.S. DOLLAR FOREX FUTURES

Since the inauguration, U.S. Dollar futures have experienced a significant downturn.

The Dollar is on track for its worst weekly performance since November 2023, indicating a capitulation in the foreign exchange market following the initial expectations set by the inauguration day announcements.

The DXY (U.S. Dollar Index) had been trending towards highs last seen in 2022 before the inauguration, but it has since retreated from those levels. Anecdotal evidence suggests that around two-thirds of long USD positions might have been unwound, reflecting a shift in market sentiment. Despite this, there is an expectation that the USD will stabilize and hold its ground soon.

We still expect USD to hold in. Although President Trump’s softer tone on tariffs has helped to halt the DXY rally, we still believe it is too early to push tariff risks aside, as proper foreign trade negotiations have yet to commence.

The announcement and implementation of tariffs can have complex effects on the U.S. dollar, and the immediate reaction expected is “Strengthening of the Dollar.”

All content published and distributed by Topstep LLC and its affiliates (collectively, the “Company”) should be treated as general information only. None of the information provided by the Company or contained herein is intended as (a) investment advice, (b) an offer or solicitation of an offer to buy or sell, or (c) a recommendation, endorsement, or sponsorship of any security, Company, or fund. Testimonials appearing on the Company’s websites may not be representative of other clients or customers and is not a guarantee of future performance or success. Use of the information contained on the Company’s websites is at your own risk and the Company, and its partners, representatives, agents, employees, and contractors assume no responsibility or liability for any use or misuse of such information.

Futures trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the investor’s initial investment. Only risk capital—money that can be lost without jeopardizing one’s financial security or lifestyle—should be used for trading, and only those individuals with sufficient risk capital should consider trading. Nothing contained herein is a solicitation or an offer to buy or sell futures, options, or forex. Past performance is not necessarily indicative of future results.

CFTC Rule 4.41 – Hypothetical or Simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, because the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs, in general, are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

The post AI Investments, Volatility Futures, and Crypto & Blockchain Updates appeared first on Topstep.

Every Friday afternoon, Topstep Performance Coach John Hoagland fires up his charts to find his Weekly Kickoff Levels, which identify the trends and “areas of importance” futures traders should look out for in the coming week.

Read on to see what John’s keeping his eye on…

hoag’s levels for the week of january 27, 2025

Crude Oil

Contract: CLH5

Market Direction: Lower

Areas of Importance: 77.50 & 73.40

Gold

Contract: GCG5

Market Direction: Higher

Areas of Importance: 2815.0 & 2726.0

Euro FX Futures

Contract: 6EZ4

Market Direction: Higher

Areas of Importance: 1.0620 & 1.0315

dow jones

Contract: YMH5

Market Direction: Higher

Areas of Importance: 45,090 & 43,400

Nasdaq-100

Contract: NQH5

Market Direction: Higher

Areas of Importance: 22,300 & 21,380

S&P 500

Contract: ESH5

Market Direction: Higher

Areas of Importance: 6177.00 & 5988.00

The post Weekly Kickoff Levels from John Hoagland appeared first on Topstep.

Top things to watch this week

The Economic Calendar:

MONDAY: Martin Luther King Jr. Holiday – Early Close for CME Group Markets

TUESDAY: 52-Week Bill Auction (12:00p CT)

WEDNESDAY:  MBA Mortgage Applications (6:00a CT), Redbook (7:55a CT), 20-Year Bond Auction (12:00p CT)

THURSDAY: Jobless Claims (7:30a CT), EIA Natural Gas Report (9:30a CT), EIA Petroleum Status Report (10:00a CT), Fed Balance Sheet (3:30p CT)

FRIDAY: Building Permits S&P Global Composite PMI (8:45a CT), Existing Home Sales (9:00a CT), University of Michigan Consumer Sentiment (9:00a CT), Kansas Fed Manufacturing Index (10:00a CT), Baker Hughes Rig Count (12:00p CT)

Key Events:

• A holiday-shortened trading week with MLK holiday and President Trump’s inauguration.
• Traders are watching as the S&P 500 nears record highs. 
• Traders are watching the executive orders announced in the first days and weeks of the new administration. Pay close attention to the inflationary impact of executive orders.
• Lite economic report week with Existing Home Sales and 20-year bond auction results.
• Earnings season is busy with reports from Alcoa, Netflix, Procter & Gamble, Johnson & Johnson, American Express, and Verizon.
• Looking ahead to the FOMC interest rate decision on January 29.

PRESIDENTIAL INAUGURATION

• Currency Markets: The dollar might stay in a holding pattern, retaining its overvaluation against tariff-sensitive currencies. This cautious stance is attributed to anticipating policy announcements that could impact global trade and economic relations.
• Stock Markets: Traders are likely preparing for potential policy shifts, which could affect various sectors differently. There’s particular attention on how new administration policies might influence sectors like technology, manufacturing, and finance due to possible trade, regulation, and fiscal policy changes. The market might experience increased volatility as these policies unfold or are hinted at during the inauguration speeches or immediately thereafter.
• Bond Markets: Bond yields could see movements based on the perceived direction of fiscal policy, with potential impacts on inflation expectations and monetary policy adjustments by the Federal Reserve. If new policies suggest higher inflation or changes in interest rate expectations, this could pressure bond prices.
• Crypto Markets: While some analysts believe the event is primarily priced in, there’s still speculation about how executive actions could sway crypto markets, particularly if they touch on regulation or economic policies that indirectly affect digital assets.

EQUITY INDEX FUTURES

After a rocky start to the new year, the bulls roared back over the past few days.

The stock market experienced a rally driven by a slight slowdown in core inflation, providing some relief for bullish traders. This positive reaction highlights the market’s sensitivity to any signs of easing inflationary pressures.

However, core inflation remains significantly above the Fed’s 2% target, and the impact of specific policies, particularly those related to trade, could potentially lead to a resurgence of inflationary pressures.

Despite these concerns, asset prices have responded positively to the recent economic data.

Upbeat earnings results from major banks, including JPMorgan Chase, Wells Fargo, Goldman Sachs, BlackRock, and Citigroup, have further boosted market sentiment. While the official earnings season begins this week, these strong bank earnings have provided an encouraging start to the reporting period.

The Energy, Financial, Industrial, and Materials sectors are the YTD outperformers.

Technology and Consumer Staples have underperformed.

CRUDE OIL FUTURES

The recent surge in oil prices, pushing them above $80 per barrel, can be attributed to several factors:

• Tightening Oil Supplies: Global oil supplies have been tightening due to production cuts by OPEC+ and ongoing geopolitical tensions.
• Easing Inflation Under Control: The recent easing of inflation has boosted investor sentiment and increased risk appetite, leading to a stronger demand for oil.
• Sanctions on Russia: The toughening of sanctions against Russia, including the recent seizure of a tanker allegedly involved in evading oil sanctions, has further tightened global oil supplies.

Source: TradingView

JAPANESE YEN FUTURES

The dollar fell back and the Japanese Yen futures rallied, as speculation about another Bank of Japan interest rate rise builds.

Source: TradingView

INTEREST RATE FUTURES

The recent release of the Consumer Price Index (CPI) data has significantly impacted market expectations for Federal Reserve policy.

While headline inflation slightly increased, the core CPI reading, which excludes volatile food and energy prices, offered some relief, ticking down slightly. This modest slowdown in core inflation initially encouraged market optimism, with traders increasing bets on further rate cuts.

However, the market’s reaction was short-lived. The 10-year Treasury yield experienced a sharp decline to 4.62%, indicating a shift in investor sentiment towards a more hawkish Fed outlook. We are trading 1.5bp below the 20-day SMA (4.634%), and the 50-day SMA is down at 4.43%.

The market is now pricing in a lower probability of rate cuts in the near term, with expectations for a cut at the upcoming January FOMC meeting significantly reduced.
Despite this recent shift, the possibility of future rate cuts remains, particularly later in the year. The Fed’s stance will continue to evolve based on incoming economic data.

COPPER FUTURES

The recent surge in copper prices can be attributed to several factors:

• Softer-than-expected CPI: While inflation remains above the Fed’s target, the recent CPI report, which came in slightly below expectations, provided a short-term boost to copper prices.
• Supply Squeeze Concerns: Concerns over potential disruptions to copper supply chains, mainly due to the threat of U.S. tariffs on metal imports, have been a significant driver of the recent price increase. The New York futures market premium over the London cash market reflects this concern.
• Strong Chinese Demand: China’s plans to ramp up spending on its power grid, driven by the expansion of renewable energy sources, are expected to significantly increase demand for copper and other metals.
• Production Challenges: Production challenges faced by major mining companies, such as Rio Tinto’s lower iron ore shipments, have also contributed to tightening supply conditions in the market.

Source: TradingView

SURPRISES / RISKS

Evercore/ISI outlines some key risks we could see in 2025 and how we should consider structuring trades.

BITCOIN FUTURES

Traders anxiously await President Trump and his team’s actions on the crypto markets in the coming week. Most are cautiously optimistic.

We anticipate disclosing something about the Strategic Bitcoin Reserves (SBRs). We speculate that state entities will begin to accumulate BTC this year. Much of the initial buying will be done discretely.

Fidelity says to avoid stoking the asset’s reflexivity and preserve good entries. With this in mind, advocacy for smaller-scale SBRs has already begun: the Satoshi Action Fund says that as many as 20 different US states could introduce legislation establishing SBRs by this summer.

asset class performance summary

All content published and distributed by Topstep LLC and its affiliates (collectively, the “Company”) should be treated as general information only. None of the information provided by the Company or contained herein is intended as (a) investment advice, (b) an offer or solicitation of an offer to buy or sell, or (c) a recommendation, endorsement, or sponsorship of any security, Company, or fund. Testimonials appearing on the Company’s websites may not be representative of other clients or customers and is not a guarantee of future performance or success. Use of the information contained on the Company’s websites is at your own risk and the Company, and its partners, representatives, agents, employees, and contractors assume no responsibility or liability for any use or misuse of such information.

Futures trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the investor’s initial investment. Only risk capital—money that can be lost without jeopardizing one’s financial security or lifestyle—should be used for trading, and only those individuals with sufficient risk capital should consider trading. Nothing contained herein is a solicitation or an offer to buy or sell futures, options, or forex. Past performance is not necessarily indicative of future results.

CFTC Rule 4.41 – Hypothetical or Simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, because the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs, in general, are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

The post Commodities, Bitcoin, and a Few Surprises for 2025! appeared first on Topstep.

Top things to watch this week

The Economic Calendar:

MONDAY: Consumer Inflation Expectations (10:00a CT), Monthly Budget Statement (1:00p CT)

TUESDAY: NFIB Business Optimism Index (5:00a CT), PPI (7:30a CT), Redbook (7:55a CT), Fed Schmid Speech (9:00a CT), Fed Williams Speech (2:05p CT)

WEDNESDAY:  MBA Mortgage Applications (6:00a CT), CPI (7:30a CT), Core Inflation Rate (7:30a CT), Empire State Manufacturing Index (7:30a CT), Fed Barkin Speech (8:20a CT), Fed Kashkari Speech (9:00a CT), EIA Petroleum Status Report (9:30a CT), Fed Williams Speech (10:00a CT), Fed Goolsbee Speech (11:00a CT), NOPA Crush Report (11:00a CT), Beige Book (1:00p CT)

THURSDAY: Jobless Claims (7:30a CT), Import/Export Prices (7:30a CT), Philly Fed Manufacturing Index (7:30a CT), Retail Sales (7:30a CT), Business Inventories (9:00a CT), NAHB Housing Market Index (9:00a CT), Retail Inventories (9:00a CT), Fed Balance Sheet (3:30p CT)

FRIDAY: Building Permits (7:30a CT), Housing Starts (7:30a CT), Industrial Production/Capacity Utilization (8:15a CT), Manufacturing Production (8:15a CT), Baker Hughes Rig Count (12:00p CT), Foreign Bond Investment (3:00p CT)

Key Events:

• Traders focus on Wednesday’s U.S. and U.K. inflation reports.
• Rumors of President-elect Trump’s possible retreat from earlier tariff commitments.
• Busy report week with CPI & PPI (inflation), Retail Sales, and Housing Starts.
• U.K. CPI  on Wednesday.
• FOMC speakers – Schmid, Williams, Barkin, Kashkari, and Golsbee.
• Monitoring mitigation of California wildfires.
• DXY futures, SOFR futures (back reds and greens; expiration 2026-2027).
• Earnings season heats up, with megabanks such as JPMorgan, Goldman Sachs, Citi, and Wells Fargo reporting. Other notable reports are from UnitedHealth and SLB.

CPI (INFLATION) REPORT

U.S. CPI Preview: No Relief in Sight for the FOMC.

December’s inflation data is not expected to bring good news for the Federal Reserve. Following the recent positive surprises in the jobs reports last Friday, price growth data will likely show that inflation remained stubbornly high at the end of last year.

While markets anticipate a modest slowdown in core inflation to 0.2% month-over-month in December, this is likely only enough to stabilize headline core price growth at 3.3% year-over-year.

Source: Trading Economics

INDEX EQUITY FUTURES

Last week, the S&P 500 fell by -1.94% and the Nasdaq 100 declined by -2.2%

The stock market experienced a significant decline last week, driven by a stronger-than-expected jobs report and hawkish signals from the Federal Reserve. The robust labor market data reinforced expectations of a slower pace of interest rate cuts, prompting a sell-off across major indices.

Despite the recent market downturn, the S&P 500 has delivered strong returns in recent years, achieving consecutive years of positive returns, a feat not seen since the late 1990s. However, this sustained performance has led to elevated valuations, raising concerns among some investors.

Options positioning indicates a lack of fear ahead of the Earnings season despite significant macro equity selling in futures over the past three weeks. Earnings-day moves last quarter were larger than any time in the past 14 years, but options implied moves for the upcoming earnings season are at a six-quarter low.

INTEREST RATE FUTURES

The 10-year Treasury yield, 4.70% before the Friday jobs report, jumped to 4.78% in its aftermath, up nine basis points from yesterday. The 2-year yield, most sensitive to changes in the fed funds rate, rose from 4.29% just before the report to 4.40%, an increase of 13 basis points from yesterday.

The December US Non-Farm Payrolls report showed an increase of 256,000 jobs, significantly exceeding the forecasted 160,000 and beating the highest Wall Street estimate.

This news fuels speculation that the Federal Reserve might further slow down the pace of rate cuts in 2025. Earnings aligned with expectations, and the unemployment rate slightly decreased to 4.1%. Given the robust labor demand, the Fed will likely opt for an extended pause on rate adjustments for the time being.

Regarding U.S. rates, there’s continued “heaviness” at the long end of the yield curve. This trend is compounded by a strong “Risk-ON” sentiment in the U.S. at the start of the year, alongside market reactions to President-elect Trump’s refutation of a Washington Post story suggesting a possible retreat from earlier tariff commitments.

Source: CME Fedwatch

SOFR RATE FUTURES

The market has significantly revised downward its expectations for Federal Reserve rate cuts in 2025. With the economy demonstrating resilience and inflation remaining stubbornly high, the market now anticipates a mere 40 basis points of rate cuts over the next 18 months. This sharp reduction in expected easing reflects a shift in market sentiment towards a more hawkish Fed outlook.

Specifically, fading trades from the recent rise in longer-term interest rates, such as “(back) Red- and Green- SOFR Upside” strategies, offer a compelling risk/reward proposition. These trades can also help hedge against potential losses in equity portfolios. We are using call spreads to structure trade.

Source: TradingView

Source: TradingView

CORN AND SOYBEAN FUTURES

Corn and soybean futures rise on WASDE report and break out of the technical consolidation pattern.

The USDA’s recent World Agricultural Supply and Demand Estimates (WASDE) report sent shockwaves through the grain market, triggering a sharp price increase. The report revealed a significant tightening of grain supplies due to weather-related production issues in the U.S. while simultaneously projecting robust demand.

This unexpected combination of factors, particularly the larger-than-expected supply reduction, caught analysts off guard and fueled a rapid price surge.

Before the release of the WASDE report, weekly export sales data had shown weaker-than-expected figures. However, traders largely overlooked these figures in anticipation of the more comprehensive WASDE report.

Given the tight supply situation for grains, particularly corn, market volatility is expected to persist in the coming months.

Source: TradingView

Source: TradingView

U.S.DOLLAR FUTURES (DXY)

We forecast the market to front load USD strength, then fade in the year’s second half. DXY at 111 (Mar-25), 107 (Dec-25).

Even without tariffs, the Macro backdrop would argue for further USD outperformance, with economists suggesting upside risks to U.S. growth and inflation.

The main risk is that this is a crowded position. The USD is following the 2016/17 playbook well, which was the moment to sell it in 2017 as Trump disappointed on policies.

LUMBER FUTURES

The Californians affected by the fires are in our thoughts and prayers.

We are monitoring lumber futures with the Palisades Fire Total Damages As High As $150 Billion (AccuWeather estimate). The scope of damage has started to trickle out but is still in the very early stages.

With the new demand for lumber to rebuild California homes, the risk of a potential tariff hike imposed on Canadian exports to the U.S. as early as January will highlight developments that could define first-quarter trends in the softwood lumber market.

CRUDE OIL & NAT GAS FUTURES

Oil and natural gas futures are experiencing significant price increases due to a confluence of bullish market fundamentals and severe weather conditions.

Additionally, the onset of what could be the coldest January in 11 years is heightening demand for heating oil, leading to increased heating oil crack spreads and a global uptick in oil product prices.

Refineries face operational challenges with power outages and the risk of pipeline freezing, while producers are concerned about ice crystals potentially halting hydrocarbon extraction.

Geopolitical tensions are also playing a crucial role in the current market dynamics. There’s been a notable increase in buying from countries like India and China, driven by fears of impending sanctions on oil producers like Iran, Russia, and Venezuela, particularly with the incoming Trump administration. Reports indicate that these countries are stockpiling ahead of potential disruptions in supply due to sanctions on tankers and stricter stances on oil transport.

The surge in oil demand is also influenced by specific trade dynamics, notably with Canada. As reported by Reuters, U.S. crude oil imports from Canada hit record highs last week in anticipation of potential tariffs from the incoming Trump administration. This comes amidst President Trump’s comments about reducing reliance on Canada, focusing solely on oil, which could alter trade relations significantly.

Natural gas prices are similarly affected, with the cold weather posing risks such as freezing gas wells and refineries, which could lead to supply disruptions. The market is preparing for or reacting to these conditions, with prices reflecting the urgency to secure supplies before or during the cold spell.

BITCOIN FUTURES

There is no shame in booking profits and moving to a flat position.

If digital assets can find their footing with the incoming administration, there is still plenty of time to catch the move in BTC to $153k, or $250k, or beyond once it clears the current high of $109k.

Bitcoin has recently tested its November lows without a significant price break, indicating potential strength. While the market remains volatile, there’s no need to panic sell.

asset class performance summary

All content published and distributed by Topstep LLC and its affiliates (collectively, the “Company”) should be treated as general information only. None of the information provided by the Company or contained herein is intended as (a) investment advice, (b) an offer or solicitation of an offer to buy or sell, or (c) a recommendation, endorsement, or sponsorship of any security, Company, or fund. Testimonials appearing on the Company’s websites may not be representative of other clients or customers and is not a guarantee of future performance or success. Use of the information contained on the Company’s websites is at your own risk and the Company, and its partners, representatives, agents, employees, and contractors assume no responsibility or liability for any use or misuse of such information.

Futures trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the investor’s initial investment. Only risk capital—money that can be lost without jeopardizing one’s financial security or lifestyle—should be used for trading, and only those individuals with sufficient risk capital should consider trading. Nothing contained herein is a solicitation or an offer to buy or sell futures, options, or forex. Past performance is not necessarily indicative of future results.

CFTC Rule 4.41 – Hypothetical or Simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, because the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs, in general, are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

The post Grains, Rates, and SOFR Futures appeared first on Topstep.

Top things to watch this week

The Economic Calendar:

MONDAY: Fed Cook Speech (8:15a CT), S&P Global Composite PMI (8:45a CT), Factory Orders (9:00a CT), Total Vehicle Sales (9:00a CT), New York Fed Treasury Purchases (9:30a CT), 3-Year Note Auction (12:00p CT)

TUESDAY: Fed Barkin Speech (7:00a CT), Balance of Trade (7:30a CT), Redbook (7:55a CT), ISM Services Index (9:00a CT), JOLTs (9:00a CT), 10-Year Note Auction (12:00p CT)

WEDNESDAY:  MBA Mortgage Applications (6:00a CT), ADP Employment Change (7:15a CT), Fed Waller Speech (7:30a CT), Used Car Prices (8:00a CT), EIA Petroleum Status Report (9:30a CT), EIA Natural Gas Report (11:00a CT), 30-Year Bond Auction (12:00p CT), FOMC Minutes (1:00p CT), Consumer Credit Change (9p2:00p CT)

THURSDAY: Challenger Job Cuts (6:30a CT), Jobless Claims (7:30a CT), Fed Harker Speech (8:00a CT), Wholesale Inventories (9:00a CT), Fed Barkin Speech (11:40a CT), Fed Schmid Speech (12:30p CT), Fed Bowman Speech (12:35p CT), Fed Balance Sheet (3:30p CT)

FRIDAY: December Jobs Report (7:30a CT), University of Michigan Consumer Sentiment (9:00a CT), WASDE Report (11:00a CT), Baker Hughes Rig Count (12:00p CT)

Key Events:

• Jobs data and FOMC Minutes are the most important data of the week.
• Traders return to the desk after the holiday, so expect more activity. 
• Markets closed Thursday in equity, interest rate, and agricultural markets to honor the passing of former President Jimmy Carter on the National Day of Mourning. 
• Economic data on ISM Services PPI, Jobs, and Employment.
• Chinese CPI data (inflation) on Friday.
• Seasonal January effect theme.
• FOMC speakers: Cook, Barkin, Schmid, Bowman, and Harker.
• Delta Airlines kicks off the Q4 earnings season with its quarterly report.
• The Consumer Electronics Show highlights new tech products from Tuesday to Friday.

JOBS DATA (Tues, Wed, Fri)

In the U.S., the trading year begins with several labor market data points, starting with the JOLT’s job openings data on Tuesday, moving to the ADP employment report on Wednesday, and finishing the week with nonfarm payrolls and the unemployment rate on Friday. The December unemployment report marks the first in several months that should not be clouded by one-off factors.

Source: TradingEconomics

JANUARY SEASONAL TENDENCY

The “January Effect” is a well-known phenomenon in the stock market that describes the tendency for stock prices to experience a significant increase during January. This phenomenon is often attributed to several factors, including:

• Tax-Loss Selling: Investors often sell off underperforming stocks at the end of the year to realize capital losses for tax purposes. This selling pressure can drive down the prices of these stocks in December.
• Portfolio Rebalancing: Some investors rebalance their portfolios at the end of the year, selling off winners and reinvesting in underperforming assets.
• “Window Dressing” Some portfolio managers may sell off underperforming stocks at the year’s end to improve their portfolios’ appearance.

These actions can lead to a temporary dip in stock prices in December. However, traders may repurchase these oversold stocks in January, driving prices back up.

While the January Effect has been observed historically, its strength can vary significantly. It is not guaranteed to occur yearly.

STOCK INDEX FUTURES

The S&P 500 has enjoyed a significant rally in 2024, notching 57 record closes. This strong performance, driven by AI-fueled gains in tech stocks and a resilient economy, has positioned the index for its best consecutive year performance since the late 1990s.

However, this robust growth has also raised concerns about market valuations. The S&P 500 currently trades at a price-to-earnings ratio significantly above its historical average. While the strong performance of AI-driven companies may justify higher valuations, many investors remain cautious.

Despite these concerns, analysts expect strong earnings growth to continue, with projections for 15% growth in 2025. However, the market shows signs of increased volatility, and any negative earnings surprises could trigger a correction.

MARKET RISKS (BE PREPARED)

In DB’s survey of 471 financial professionals, a “global trade war” is considered the most considerable risk for 2025, followed by a “tech stock plunge” and “concerns over inflation and bond yields.”

U.S. DOLLAR INDEX FUTURES

The U.S. Dollar Index futures have started 2025 with a robust move, with few immediate threats to its continued strength. Notably, should there be an unexpected increase in the 10-year U.S. Treasury yield approaching 5%, which isn’t our primary expectation, we could see the DXY index challenging the 110 mark.

Source: TradingView

INTEREST RATE FUTURES

The market is pricing the probability of only one Fed Funds rate cut for 2025.

Source: CME FedWatch

The Federal Reserve’s December meeting revealed a more cautious stance on future rate cuts than initially anticipated. While the 25-basis-point rate cut was approved, the dot plots highlighted a significant upward revision in the projected federal funds rate for 2025 and 2026, suggesting a slower easing pace than expected.

Narratives we are watching:

1. The FOMC’s two rates ease expectations for next year, which were surprising because the Fed is a slow-moving animal. So, to halve the number of eases for next year off of a weak home data report and a soft PCE, something notable may have changed in the Fed’s thinking.
2. A decent number of Fed officials made some assumptions about a Trump presidency. Taking an extra ease (or two) off because of potential Trump inflationary and growth policies makes sense. Even if you don’t know the details, you must know the risks.
3. Expect Powell to sound dovish when the anecdotal evidence/data is weak and hawkish when the anecdotal evidence is strong.
4. Trump-related events will affect the longer end of the curve—risks to the steepening trend.

BITCOIN FUTURES

On the road to Bitcoin $200,000?

Analysts are projecting a significant rise in Bitcoin’s value in 2025. Predictions vary widely, with some forecasts suggesting Bitcoin could reach between $100,000 to $250,000. Specifically, there are mentions of Bitcoin potentially hitting $180,000 to $200,000, with some optimistic views suggesting it could go as high as $250,000 by the end of the year.

Trump has picked many crypto allies for senior positions in his administration. The incoming administration’s pro-crypto stance is expected to be crucial in Bitcoin’s price surge. President-elect Trump’s promises to make the U.S. the “crypto capital” include creating a strategic Bitcoin reserve and appointing crypto-friendly leaders like Paul Atkins to head the SEC, which could lead to more favorable cryptocurrency regulations.

Other appointees, like Howard Lutnick, chief executive of Cantor Fitzgerald, a financial firm that owns a large chunk of cryptocurrency stablecoin Tether’s assets, are Trump’s picks for commerce secretary. Venture capitalist David Sacks will be the new White House AI and crypto czar.

Trump also announced the creation of the Department of Government Efficiency, or DOGE, led by Elon Musk and biotech company founder Vivek Ramaswamy. Musk is a well-known supporter of DOGE, a popular meme coin.

asset class performance summary

All content published and distributed by Topstep LLC and its affiliates (collectively, the “Company”) should be treated as general information only. None of the information provided by the Company or contained herein is intended as (a) investment advice, (b) an offer or solicitation of an offer to buy or sell, or (c) a recommendation, endorsement, or sponsorship of any security, Company, or fund. Testimonials appearing on the Company’s websites may not be representative of other clients or customers and is not a guarantee of future performance or success. Use of the information contained on the Company’s websites is at your own risk and the Company, and its partners, representatives, agents, employees, and contractors assume no responsibility or liability for any use or misuse of such information.

Futures trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the investor’s initial investment. Only risk capital—money that can be lost without jeopardizing one’s financial security or lifestyle—should be used for trading, and only those individuals with sufficient risk capital should consider trading. Nothing contained herein is a solicitation or an offer to buy or sell futures, options, or forex. Past performance is not necessarily indicative of future results.

CFTC Rule 4.41 – Hypothetical or Simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, because the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs, in general, are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

The post Is Bitcoin Heading For $200,000? appeared first on Topstep.

Top things to watch this week

The Economic Calendar:

MONDAY: Chicago Fed National Activity Index (7:30a CT), Consumer Confidence (7:30a CT), 2-Year Note Auction (7:30a CT)

TUESDAY: Building Permits (7:00a CT), Durable Goods (7:30a CT), Redbook (7:55a CT), New Home Sales (9:00a CT), Richmond Fed Manufacturing Index (9:00a CT), Money Supply (10:00a CT), 5-Year Note Auction (10:30a CT)

WEDNESDAY:  MARKETS CLOSED FOR THE CHRISTMAS HOLIDAY

THURSDAY: Jobless Claims (7:30a CT), EIS Petroleum Status Report (10:00a CT), 7-Year Note Auction (12:00p CT), Fed Balance Sheet (3:30p CT)

FRIDAY: Good Trade Balance (7:30a CT), Retail Inventories (7:30a CT), Wholesale Inventories (7:30a CT), S&P Case-Shiller Home Price Index (8:00a CT), EIA Natural Gas Report (9:30a CT), Baker Hughes Rig Count (12:00p CT)

Key Events:

• It is the Christmas holiday week, so expect light volume and a lack of liquidity.
• Lite economic data with Durable Goods on Tuesday.
• Stock tax loss selling on beaten-up names is approaching the final days.
• Picking stock sectors for rotation inflows into the new year.
• U.K GDP (growth) on Monday.
• BoJ and BoC central bank minutes on monetary policy.
• Watching trades in VIX, Gold futures, Value vs Growth, Tax-loss selling names

U.S. INTEREST RATE FUTURES

Future rate cuts on hold, and the odds of only one cut in 2025.

Last Wednesday, the Federal Reserve cut the Fed Funds target rate by 25 basis points. While traders expected the cut in rates, they were surprised by a more hawkish tone in their forecasts for future rate moves than anticipated. The central bank lowered its projected number of rate cuts for 2025, signaling a potential pause in easing monetary policy.
This shift in the Fed’s stance initially caused a stock market sell-off, but the market recovered most of its losses Friday.

“I think we’re in a good place, but I think from here it’s a new phase, and we’re going to be cautious about further cuts,” Fed Chair Jay Powell declared. “We have lowered our policy rate by a full percentage point from its peak, and our policy stance is now significantly less restrictive.”

Rate traders are now concerned about the potential for higher interest rates and a tighter monetary policy environment. Additionally, concerns about the impact of potential trade tensions and geopolitical risks have further weighed on market sentiment.

Source: TradingView

RATES AND FX THEMES WE ARE WATCHING

1. Bessent (possible Fed chair) not being much of a dovish development,
2. There was a regime change last week (Fed on hold),
3. Trump being inflationary/reflationary,
4. Higher inflation seasonality in Q1,
5. The tendency for fixed income to sell off in Q1, and
6. Inflation will stall before the Fed’s 2% target, so they will have to stop easing once the target rate reaches 4-4.5%.
7. Bond vigilantes suddenly waking up,
8. Countries selling US fixed-income holdings ahead of tariffs or other Trump punitive policies.

STOCK INDEX FUTURES

For the week, the S&P 500 was down -2.16% and the Nasdaq 100 was lower by -2.24%

Here are Santa’s notes going into the end of the year…

S&P 500 and Nasdaq 100 Futures Review:

• Market Dynamics: The week began with a significant sell-off, which might have been fueled by profit-taking after an impressive rally. Fed Chair Powell’s comments temper the holiday cheer, potentially dousing the Wall Street Santa rally. Despite this, the underlying economic indicators remain strong, suggesting that rates are still on a downward trajectory.
• Performance and Projections: The S&P 500 futures, symbol ES1, experienced volatility but showed resilience. Given the recent pessimism, a conservative target for this week could be set above 6120, reflecting the market’s strong support. The market is buoyed by continued buybacks into year-end, although there’s still room for investors to add positions, particularly in the “Magnificent Seven” (Mag7) names.
• Sector Analysis: Cyclicals have received solid inflows driven by robust economic data and consumer spending resilience. On the flip side, the Healthcare and Energy sectors are lagging, indicative of defensive underperformance. This positioning suggests the potential for these sectors to benefit from any sector rotation in 2025.
• Valuation Concerns: While the market remains well-supported, valuations, especially in tech, are a concern. This is something to keep an eye on moving into the new year.
• Tech Leadership: The Nasdaq 100 continues to be led by technology stocks, which have been the primary drivers of the market’s gains. Despite the recent dip in momentum factors, the sentiment around tech remains positive, with many viewing the current dip as a buying opportunity into year-end.
• Market Sentiment: The extreme sell-off at the beginning of the week likely caught many investors off-guard, but the fundamentals supporting tech and growth stocks are still in place. The Nasdaq 100 futures could see further gains if the current trend of buybacks and CTA (Commodity Trading Advisor) investments continues.
• Year-End Positioning: With only a few weeks left in the year, there’s little incentive for a significant sell-off, repositioning, or rotation. The Nasdaq 100 futures are expected to maintain their upward trajectory unless there’s an important shift in economic indicators or policy expectations.

U.S. GOVERNMENT SHUTDOWN AVERTED (FOR NOW)

Just as the government funding deadline loomed like a dark cloud over a Saturday morning cartoon marathon, Congress, in a true last-minute scramble, passed an interim plan to dodge the dreaded shutdown after what can only be described as a legislative circus in Washington.

This spending band-aid comes just a month before President-elect Trump returns to the White House, armed with an ambitious agenda that might be harder to push through budget items. The “orange elephant” will wait at the door for the next Congressional session.

In the witching hours, while most of us were dreaming of sugarplums or wondering if we remembered to turn off the coffee maker, the Senate decided to play Santa Claus. They approved a boost in Social Security benefits for 2 million retired public servants, because nothing says “Happy Holidays” like a little extra cash for the golden years.

So, with government operations funded until March 14, we can all breathe a sigh of relief, knowing our national parks won’t turn into ghost towns… at least for now.

GLOBAL INTEREST RATES AND FX

Central Bank Updates: A Mixed Bag of Hawkish and Dovish Tones.

Santa’s notes below:

U.S. Fed:

• Rate Cut: As expected, the Fed delivered a 25 basis point rate cut, bringing the target range to 4.25-4.50%.
• Hawkish Tilt: The Fed’s updated economic projections indicate a more hawkish stance, with higher interest rate forecasts for 2025 and 2026.
• Cautious Approach: The Fed emphasized the need for a cautious approach to further rate cuts, citing concerns about potential inflationary pressures.

Bank of Japan:

• Rate Hold: The BoJ maintained its ultra-loose monetary policy, keeping the interest rate at -0.25%.
• Cautious Stance: The central bank reiterated its cautious stance, highlighting the need to observe economic data more closely.
• Potential for Future Tightening: While the BoJ remains dovish, future rate hikes are possible, particularly if inflationary pressures intensify.

Bank of England:

• Rate Hold: The Bank of England held interest rates steady at 4.75%.
• Diverging Views: The MPC members were divided on the appropriate policy stance, with some advocating for further rate cuts.
• Cautious Outlook: The Bank of England maintained a cautious outlook, citing concerns about economic growth and inflation.

European Central Bank (ECB):

• Rate Cut: The ECB cut interest rates for the third time, signaling a more dovish stance.
• Removed Restrictive Language: Removing “sufficiently restrictive” language from the ECB’s statement indicates a shift towards a more accommodative policy.

China:

• Stimulus Measures: China announced plans to stimulate its economy through fiscal measures and potential interest rate cuts.
• Economic Challenges: The country continues to grapple with weak consumer confidence, deflationary pressures, and a struggling housing market.

BITCOIN FUTURES

Bitcoin experienced a significant but expected drawdown, falling from a peak of $108,000 to around $93,000 before stabilizing at approximately $97,400 as of this writing. This drop, roughly 15%, has caused some alarm, especially given the public expectation for Bitcoin to continue its upward trajectory through the year’s end.

However, this correction should be considered in context. Earlier this year, Bitcoin saw a similar 15% drop from $72,000 to $61,000, which is relatively minor compared to historical bull market drawdowns.

Alex Thorn from Galaxy Research noted that the last two bull markets saw numerous drawdowns of over 12%, suggesting that these corrections are part of Bitcoin’s volatile nature during strong upward trends.

Federal Reserve Chair Jerome Powell clarified that the Fed has no authority to hold Bitcoin, squashing speculation about a strategic Bitcoin reserve under potential policy changes by President-elect Trump. Despite this, the market remains buoyed by Trump’s crypto-friendly policies and the recent resignation of SEC chair Gary Gensler.

Source: Galaxy

CRUDE OIL FUTURES

Crude Oil futures have struggled despite record global demand, primarily due to slowing economic indicators in China. The oil price rally was halted after China reported disappointing retail sales growth for November, with an increase of only 3% year over year, significantly lower than October’s 4.8%.

The market’s momentum, which saw it close above key technical levels like the 20-day and 50-day moving averages on Friday, has now turned to potential Chinese stimulus packages. However, the market’s trajectory could falter if China does not announce a substantial economic support plan soon.

The growing risk of new sanctions on Russia and Iran, alongside a force majeure declaration in Libya, adds complexity. These elements could tighten supply. Meanwhile, Russian President Putin has hinted at tensions with the West, potentially signaling further geopolitical risks for oil markets.

With these factors at play, the oil market is at a pivotal point. It is closely watching China’s next move while navigating the geopolitical landscape that could influence supply dynamics.

Source: TradingView

asset class performance summary

All content published and distributed by Topstep LLC and its affiliates (collectively, the “Company”) should be treated as general information only. None of the information provided by the Company or contained herein is intended as (a) investment advice, (b) an offer or solicitation of an offer to buy or sell, or (c) a recommendation, endorsement, or sponsorship of any security, Company, or fund. Testimonials appearing on the Company’s websites may not be representative of other clients or customers and is not a guarantee of future performance or success. Use of the information contained on the Company’s websites is at your own risk and the Company, and its partners, representatives, agents, employees, and contractors assume no responsibility or liability for any use or misuse of such information.

Futures trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the investor’s initial investment. Only risk capital—money that can be lost without jeopardizing one’s financial security or lifestyle—should be used for trading, and only those individuals with sufficient risk capital should consider trading. Nothing contained herein is a solicitation or an offer to buy or sell futures, options, or forex. Past performance is not necessarily indicative of future results.

CFTC Rule 4.41 – Hypothetical or Simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, because the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs, in general, are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

The post Bitcoin, Rates, and Foreign Currency Themes appeared first on Topstep.

Top things to watch this week

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 Fed’s final monetary policy rate decision of the year will come on Wednesday.
• Traders are 96% certain that the Fed will deliver a quarter-point interest rate cut.
• The Bank of Japan and The Bank of England rate decision on Thursday. 
• Traders are watching the Fed’s favorite inflation gauge, the core PCE data on Friday.
• Economic data on U.S. retail sales, Q3 GDP growth, personal income, and PCE.
• Trading desks start to thin out after this week, and we expect lower volume and illiquidity.
• Earnings are scheduled for Micron Technology, FedEx, and Nike.

FOMC INTEREST RATE DECISION (WEDNESDAY)

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 FUTURES (VOLATILITY) WHALE TRADE

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.

STOCK INDEX FUTURES

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.

Short-Term Outlook:

• Seasonal Strength: The upcoming period is historically strong for the stock market. However, the recent rally may have priced in some of this optimism.
• Potential for a Pullback: The market’s elevated valuations and recent volatility could lead to a short-term correction.
• Focus on Earnings: The upcoming earnings season will determine the market’s direction. Investors will be watching for signs of slowing growth and potential earnings downgrades.

Long-Term Outlook:

• Economic Factors: The Federal Reserve’s monetary policy, inflation trends, and global economic growth will continue influencing market sentiment.
• Geopolitical Risks: Geopolitical tensions and uncertainty can impact market volatility.
• Sector Rotation: A rotation from growth stocks to value stocks may occur.

THE TRUMP TRADE

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.

INSTITUTIONAL EQUITY POSITIONING

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.

U.S. INTEREST RATE FUTURES

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.

GLOBAL INTEREST RATE FUTURES

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.

GRAIN FUTURES

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!

Corn:

• Price Losses: Corn is trading around $4.40/bushel, down from $5.40 a year ago and $6.40 two years ago. The current price is approximately $1–$2 per bushel lower than the past highs.
• Per Acre Losses: With lower prices and production costs remaining stable or increasing, producers face losses ranging from $50 to $150 per acre, depending on yield and regional factors.
• Breakeven Price: Producers generally need around $4.50–$5.00 per bushel to cover production costs, including seed, fertilizer, equipment, and labor.

Soybeans:

• Price Losses: Soybean prices are approximately $9.80/bushel, compared to over $13 a year ago and $15 two years ago. This represents a drop of $3–$5 per bushel.
• Per Acre Losses: Farmers typically need $11.80–$12/bushel to break even. Current market prices translate to losses as high as $150 per acre for producers with average yields.
• Breakeven Price: Soybean farmers need approximately $11.80–$12.00 per bushel to break even, accounting for higher input costs and regional basis adjustments.

Wheat:

• Price Losses: Wheat has fallen to $5.70/bushel from peaks around $12.40 during the Russia-Ukraine conflict, representing a loss of up to $6.70 per bushel from historical highs.
• Per Acre Losses: Some producers, with yields around 90 bushels per acre, cannot cover costs, leading to substantial financial strain. Losses depend heavily on local yields and market conditions.
• Breakeven Price: Wheat producers typically require around $6.50–$7.00 per bushel to cover costs, though this can vary based on location and yield.

GOLD FUTURES

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.

CRYPTO FUTURES

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.

asset class performance summary

All content published and distributed by Topstep LLC and its affiliates (collectively, the “Company”) should be treated as general information only. None of the information provided by the Company or contained herein is intended as (a) investment advice, (b) an offer or solicitation of an offer to buy or sell, or (c) a recommendation, endorsement, or sponsorship of any security, Company, or fund. Testimonials appearing on the Company’s websites may not be representative of other clients or customers and is not a guarantee of future performance or success. Use of the information contained on the Company’s websites is at your own risk and the Company, and its partners, representatives, agents, employees, and contractors assume no responsibility or liability for any use or misuse of such information.

Futures trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the investor’s initial investment. Only risk capital—money that can be lost without jeopardizing one’s financial security or lifestyle—should be used for trading, and only those individuals with sufficient risk capital should consider trading. Nothing contained herein is a solicitation or an offer to buy or sell futures, options, or forex. Past performance is not necessarily indicative of future results.

CFTC Rule 4.41 – Hypothetical or Simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, because the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs, in general, are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

The post A VIX Whale Trade, Grain Futures, and Gold Prices appeared first on Topstep.

Top things to watch this week

The Economic Calendar:

MONDAY: Wholesale Inventories (9:00a CT), Consumer Inflation Expectations (10:00a CT)

TUESDAY: NFIB Business Optimism Index (5:00a CT), Nonfarm Productivity (7:30a CT), Unit Labor Costs (7:30a CT), Redbook (7:55a CT), WASDE Report (11:00a CT), 3-Year Note Auction (12:00p CT)

WEDNESDAY:  MBA Mortgage Applications (6:00a CT), Core Inflation Rate (7:30a CT), CPI (9:00a CT), EIA Petroleum Status Report (9:30a CT), 10-Year Note Auction (12:00p CT), Monthly Budget Statement (1:00p CT)

THURSDAY: Jobless Claims (7:30a CT), PPI (7:30a CT), EIA Natural Gas Report (9:30a CT), 30-Year Bond Auction (12:00p CT), Fed Balance Sheet (3:30p CT)

FRIDAY: Import/Export Prices (7:30a CT), Baker Hughes Rig Count (12:00p CT)

Key Events:

• The data of the week is the CPI (inflation) report on Wednesday.
• Watching the U.S. Dollar Index, Nat Gas as warmer weather approaches, a basket of risk-off stocks, volatility protection trades.
• Watching the Bitcoin reaction to the $100k wall.
• Quiet economic data week with CPI and PPI as the highlights.
• Position squaring ahead of the final FOMC meeting of the year on December 18.
• Fed governors are on media blackout before the FOMC meeting.
• The odds of a Fed quarter-point cut rose to 86% after last week’s jobs report.
• Earnings on Oracle, Adobe, Broadcom, Costco Wholesale, Toll Brothers, and Ciena.
• Be aware of your FOMO on trades!

CPI (INFLATION) REPORT

Economists expect that headline and core CPI, which excludes food and energy, rose 0.3% last month.

STOCK INDEX FUTURES

Stocks have been tearing since the election (not to mention all year). And they appeared to take a breather yesterday. For the week, the S&P 500 was up by +0.87%, and the Nasdaq 100 was up by +3.28%.

The stock market has experienced a significant rally, particularly in recent months. Traders remain optimistic despite lofty valuations and a potential economic growth slowdown.

However, some analysts are expressing concerns about the sustainability of this rally. Goldman Sachs and Bank of America have issued pessimistic 10-year forecasts for the S&P 500, citing historical trends and current valuation levels.

While the market’s performance has been driven by strong earnings growth, it’s important to consider the potential risks associated with high valuations. A sudden shift in market sentiment or a deterioration in economic conditions could lead to a sharp decline in stock prices.

TIME TO BE AWARE OF THAT FOMO FEELING!

Fear of Missing Out (FOMO) is a powerful psychological force that can lead to impulsive and irrational decision-making. In the world of short-term trading, FOMO can be particularly dangerous, as it can lead to impulsive trades that can quickly erode profits.

When traders see others making quick profits, they may be urged to jump into the market without proper analysis. This can lead to chasing trends, buying at market tops, and selling at market bottoms.

To combat FOMO, it’s essential to:

• Develop a Trading Plan: A well-defined trading plan can help you stay disciplined and avoid impulsive decisions.
• Set Stop-Loss Orders: Stop-loss orders can limit potential losses and protect your capital.
• Practice Patience: Successful trading often requires patience. Only rush into trades with a clear strategy.
• Manage Emotions: Emotional trading can lead to poor decision-making. It’s important to stay calm and focused, even during high volatility.
• Continuously Learn: Stay up-to-date on market trends, economic indicators, and technical analysis techniques.

By understanding the psychological impact of FOMO and implementing effective strategies, traders can make more informed and rational decisions.

INTEREST RATES TRADING

The recent release of U.S. economic data, particularly the robust jobs report, has led the Federal Reserve to reconsider the pace of interest rate cuts. The central bank is now leaning towards a more cautious approach, with a 25 basis point cut in December being the most likely outcome.

Markets are now pricing in an 87% chance of a 25bps Fed cut on December 18th, compared to 70% before the data.

Fed Chair Jerome Powell has acknowledged the stronger-than-expected economic performance, particularly in the labor market. This positive outlook suggests that the Fed may have more flexibility to maintain a tighter monetary policy for longer.

While the market initially priced at a more aggressive rate cut, recent economic data has shifted expectations. As a result, investors are now anticipating a more gradual easing of monetary policy. The Fed’s next policy decision on December 18th will clarify the future path of interest rates.

DEBT CRISIS AND ECONOMIC GROWTH

Jerome Powell and Jeff Bezos have both touched on the topic of addressing the debt crisis through economic growth (GDP), although their perspectives and contexts differ:

Jerome Powell View:
During discussions at the DealBook Summit, Federal Reserve Chair Jerome Powell has articulated views on the U.S. national debt, emphasizing that the debt is growing faster than the economy, which he describes as unsustainable.

However, he has suggested that the solution isn’t necessarily to repay the debt but to manage it so that the economy grows faster than the debt. This approach implies controlling the debt-to-GDP ratio by boosting GDP rather than drastically cutting debt.

Powell has also noted in interviews that while the U.S. faces significant fiscal challenges, a fiscal correction spread over several years could prevent a crisis, indicating a focus on sustainable growth rather than immediate austerity measures. His comments reflect a belief that fostering economic growth can alleviate the pressures of a high debt burden over time.

Jeff Bezos View:
During discussions, Bezos has aligned with the idea that the U.S. needs to grow out of its debt problems. This perspective suggests that by enhancing economic activity and GDP growth, the relative burden of the national debt can be reduced without the need for drastic fiscal tightening. Bezos’s approach focuses on economic expansion through entrepreneurship and innovation, which could indirectly support this strategy by creating jobs, increasing productivity, and boosting GDP.

CRUDE OIL FUTURES

OPEC+ has decided to extend its oil production cuts until April 2025, which initially boosted oil prices.

However, a large sell order from a single bank in early afternoon trading on Wednesday sent prices plummeting. This unexpected event highlights the significant impact that large institutional traders can have on the market.

The person said the large trader sold 4,000 lots of U.S. West Texas Intermediate crude oil futures CL1 in a single block at $69.21 a barrel around 1 p.m. EST (1800 GMT). The buyer then sold the contracts immediately afterward, putting pressure on prices, they added.

While the OPEC+ decision was largely anticipated, the timing and execution of the sell order caused a significant market disruption. It raises questions about how much market rumors and speculation can influence oil prices, particularly in the lead-up to major events.

Geopolitical tensions, particularly in the Middle East, are a significant factor influencing oil prices. The ongoing conflict between Israel and Hamas has added to market uncertainty, as any escalation could disrupt oil supplies from the region.

NATURAL GAS FUTURES

The weather run on Friday shows that the weather is warming back to above-normal temperatures.

The natural gas market will likely remain volatile in the near term, influenced by weather patterns, economic conditions, and geopolitical factors. As we move towards the winter months, the impact of heating demand and potential supply disruptions will be crucial in determining price trends.

Short-Term Outlook:

• Near-term cold snap: A recent cold front has boosted natural gas demand, particularly in the Midwest and East.
• Warming Trend: However, the Friday weather forecast indicates a potential warming trend, which could moderate demand and put downward pressure on prices.
• Production and Demand: Natural gas production remains relatively stable, while demand for electricity generation and LNG exports has increased.

Long-Term Outlook:

• La Niña Impact: The delayed onset of La Niña could impact weather patterns and natural gas demand, but its influence on the market remains uncertain.
• Global Energy Landscape: The global energy landscape, including factors like geopolitical tensions and climate change policies, will continue to shape the outlook for natural gas.

Source:NOAA

BITCOIN FUTURES

Bitcoin is consolidating at the $100k technical wall.

The crypto market has reacted positively to Paul Atkins’ nomination to lead the Securities and Exchange Commission (SEC). Known for advocating deregulation, Atkins’ appointment is seen as a signal for investors to engage further with cryptocurrencies.

Venture capitalist, All-In podcast host, and crypto maxi David Sacks was also appointed to “White House AI and Crypto Czar.”

David Sacks as AI and Crypto Czar:
President-elect Donald Trump has appointed David O. Sacks, who founded Yammer and was previously the Chief Operating Officer at PayPal, as the “White House AI and Crypto Czar.” Sacks will guide policy development in artificial intelligence and cryptocurrency, aiming to bolster U.S. competitiveness in these fields.

His role includes establishing a legal framework to provide clarity for the cryptocurrency sector in the U.S., which has been a long-standing industry demand for regulatory certainty. Additionally, Sacks will head the Presidential Council of Advisors for Science and Technology, indicating a strategic push towards tech innovation under Trump’s administration.

Paul Atkins’ Nomination to SEC:
Trump has nominated Paul Atkins to be the next SEC Chair, replacing Gary Gensler, who is known for his stringent regulatory approach to cryptocurrency. This shift in leadership is anticipated to create a more crypto-friendly environment, potentially reducing the aggressive regulatory scrutiny that characterized Gensler’s tenure.

Atkins, who previously served as an SEC Commissioner from 2002 to 2008, brings a wealth of experience in financial regulation. His involvement with Patomak Global Partners, where he assesses compliance programs for crypto trading platforms, and his role on the Chamber of Digital Commerce’s board of advisors since 2020 underline his connection to the digital asset space. His work also addresses issues like BSA/AML compliance and cryptocurrency custody, which are pivotal in the crypto regulatory landscape.

The appointments of both Sacks and Atkins reflect Trump’s campaign promises to foster a more supportive regulatory environment for cryptocurrencies, signaling potential changes in how digital assets will be regulated in the U.S. under the new administration.

asset class performance summary

All content published and distributed by Topstep LLC and its affiliates (collectively, the “Company”) should be treated as general information only. None of the information provided by the Company or contained herein is intended as (a) investment advice, (b) an offer or solicitation of an offer to buy or sell, or (c) a recommendation, endorsement, or sponsorship of any security, Company, or fund. Testimonials appearing on the Company’s websites may not be representative of other clients or customers and is not a guarantee of future performance or success. Use of the information contained on the Company’s websites is at your own risk and the Company, and its partners, representatives, agents, employees, and contractors assume no responsibility or liability for any use or misuse of such information.

Futures trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the investor’s initial investment. Only risk capital—money that can be lost without jeopardizing one’s financial security or lifestyle—should be used for trading, and only those individuals with sufficient risk capital should consider trading. Nothing contained herein is a solicitation or an offer to buy or sell futures, options, or forex. Past performance is not necessarily indicative of future results.

CFTC Rule 4.41 – Hypothetical or Simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, because the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs, in general, are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

The post CPI, FOMO, and the Debt Crisis appeared first on Topstep.

Top things to watch this week

The Economic Calendar:

MONDAY: S&P Global Manufacturing Index (8:45a CT), Construction Spending (9:00a CT), ISM Manufacturing Index (9:00a CT), Fed Waller Speech (2:15p CT), Fed Balance Sheet (3:30p CT), Fed Williams Speech (3:30p CT)

TUESDAY: Redbook (7:55a CT), JOLTs (9:00a CT), RCM/TIPP Economic Optimism Index (9:10a CT), Fed Kugler Speech (11:35a CT), Fed Goolsbee Speech (2:45p CT)

WEDNESDAY:  MBA Mortgage Applications (6:00a CT), ADP Employment Change (7:15a CT), Fed Musalem Speech (7:45a CT), S&P Global Composite PMI (8:45a CT), Factory Orders (9:00a CT), ISM Services Index (9:00a CT), EIA Petroleum Status Report (9:30a CT), Fed Chair Powell Speech (12:45p CT), Fed Beige Book (1:00p CT)

THURSDAY: Challenger Job Cuts (6:30a CT), Balance of Trade (7:30a CT), Jobless Claims (7:30a CT), Import/Export Prices (7:30a CT), EIA Natural Gas Report (9:30a CT), Fed Barkin Speech (10:30a CT), Fed Balance Sheet (2:30p CT)

FRIDAY: November Jobs Report (7:30a CT), Used Car Prices (8:00a CT), Fed Bowman Speech (8:15a CT), University of Michigan Consumer Sentiment (9:00a CT), Total Vehicle Sales (9:00a CT), Fed Goolsbee Speech (9:30a CT), Fed Hammack Speech (11:00a CT), Baker Hughes Rig Count (12:00p CT), Fed Daly Speech (12:00p CT), Consumer Credit Change (2:00p CT)

Key Events:

• Traders focus on the Employment and Jobs report on Friday.
• Look for the Black Friday preliminary holiday retail sales data update.
• Economic reports on ISM Mfg, ISM Services, and Non-Farm Payrolls. 
• OPEC+ semi-annual meeting on Thursday and crude oil futures reaction.
• We are watching CRM, MRVL, FIVE, LULU, and DLTR earnings reports.
• Fed Chair Powell’s speech on Wednesday.
• FOMC speakers – Waller, Williams, Barkin, Bowman, Golsbee, and Daly.

EMPLOYMENT AND JOBS DATA

Traders are focused on jobs data on Friday. Below, find the street estimates.

Source: TradingEconomics

STOCK INDEX FUTURES

The stock market has experienced a strong upward trend, with the S&P 500 and NASDAQ 100 posting gains of 1.18% and 0.78%, respectively, for the week. November has been particularly favorable, with the S&P 500 and NASDAQ 100 gaining 3.89% and 2.69%, respectively.

The Russell 2000, which tracks small-cap stocks, outperformed the broader market, rising 9.23% in November. The Energy, Financials, and Consumer Discretionary sectors led the charge, with gains of 8.5%, 8.9%, and 11.1%, respectively.

Some analysts, like Deutsche Bank, predict the S&P 500 could reach 7,000 points next year. Many factors fuel this optimistic outlook, including strong corporate earnings, economic recovery, and accommodative monetary policy.

INTEREST RATE FUTURES

The probability of a 25 basis point rate cut at the December 18th meeting is now 66%, up from 52% a week ago.

Recent economic data, including inflation figures and labor market reports, has reinforced the Federal Reserve’s stance on interest rates. With a strong labor market and continued economic growth, the central bank should not rush to implement rate cuts.

U.S. Core Personal Consumption Expenditures (PCE) price index, the Fed’s preferred measure of inflation, increased 2.8% from October last year and 0.3% from a month earlier.

Per market expectations, the U.S. Q3 GDP came in at 2.8% on Wednesday. While still strong, household spending was revised modestly lower from the initial reading, reflecting slightly less robust merchandise outlays.

Source: CME Group

FRENCH RISKS AND THE EUROZONE

Could this be the sovereign risk nobody was expecting?

France’s long-term borrowing costs have surged to levels comparable to Greece’s, sparking concerns about the country’s economic stability. This development is primarily attributed to the ongoing political turmoil and uncertainty surrounding the government’s ability to pass a budget and implement necessary fiscal reforms.

Prime Minister Michel Barnier’s government faces a potential no-confidence vote from Marine Le Pen’s far-right National Rally party. This political standoff has heightened market anxiety, as a government collapse could lead to increased market volatility and further pressure on French bond yields.

The rising yield spread between French and German government bonds reflects investor concerns about France’s fiscal health and ability to meet its debt obligations. French bond yields could rise even further if the political situation deteriorates, potentially leading to a broader contagion effect across European markets.

NATURAL GAS FUTURES

U.S. natural gas futures climbed last week, fueled by various factors. Weather forecasts predict colder temperatures across the Midwest and Eastern areas of the country over the next two weeks, which should significantly increase demand for heating.

This positive demand outlook was further bolstered by strong liquefied natural gas (LNG) exports exceeding 14 billion cubic feet per day over the past few days.

The benchmark Nymex Henry Hub contract for December delivery settled at $3.363 per million British thermal units (mmBtu), representing a 5% increase on the day and a 2.3% gain for the week. This uptick comes after a monthly gain of 24%.

Despite the recent price rise, some analysts anticipate a potential shift in the coming week. Additionally, some analysts predict higher production and moderating weather patterns, which could lead to downward pressure on prices over the next 7-10 days.

U.S. DOLLAR FUTURES

The U.S. dollar has been a strong performer in recent months, driven by factors such as robust economic growth, rising interest rates, and geopolitical uncertainties. However, the currency has experienced some recent weakness due to end-of-month portfolio rebalancing and thin holiday trading volumes.

Despite this short-term pullback, the dollar’s long-term outlook remains positive. Federated Hermes’ John Sidawi believes that the dollar’s exceptional status is unlikely to diminish in 2025, as there is no evidence of significant economic or geopolitical shifts that could undermine its strength.

The dollar’s performance will continue closely tied to U.S. monetary policy. As the Federal Reserve navigates the economic landscape, its interest rates and quantitative tightening decisions will significantly impact the dollar’s value. Additionally, the relative performance of the U.S. economy compared to other major economies will play a crucial role in determining the dollar’s strength.

Source: TradingView

JAPANESE YEN FUTURES

The Japanese Yen futures surged 1.2% to a six-week high against the dollar on Friday after Tokyo’s inflation data fuelled expectations of a Bank of Japan rate hike next month.

Core consumer prices in Japan rose 2.2% in November from a year earlier, higher than the Japanese Central Bank target of a 2% inflation rate.

Traders see a 57% chance of a 0.25% hike in the upcoming central bank meeting.

Source: TradingView

COFFEE FUTURES SOAR

Your morning coffee fix could be going up in price soon…

Coffee prices are hitting 50-year highs, and futures on the ICE exchange are trading at $3.18050 per lb, having hit their highest since 1977 at $3.3545.

Prices for arabica coffee have risen by about 75% this year, making it one of the strongest-performing commodities.

Coffee prices have surged to their highest levels in over half a century, driven by a combination of factors:

• Adverse Weather Conditions: Severe droughts in Brazil, the world’s largest coffee producer, have significantly impacted production.
• Rising Global Demand: The increasing global demand for coffee, particularly from emerging markets, has further strained supply.
• Supply Chain Disruptions: Ongoing supply chain issues and geopolitical tensions have exacerbated the situation.

Source: TradingView

BITCOIN FUTURES

We are still on the quest for $100000 BTCUSD. After a brief pullback early in the week to $91000, the price rallied to a high of $98600 by Friday.

Bitcoin, often touted as a digital gold, has shown a surprising correlation with traditional risk assets like stocks. This challenges the notion of Bitcoin as a completely uncorrelated asset.

Historically, Bitcoin has tended to move in tandem with the NASDAQ, particularly during periods of heightened risk appetite. This suggests that broader market sentiment and economic conditions influence Bitcoin’s price.

While Bitcoin has recently reached a fair value relative to the NASDAQ, historical patterns indicate further upside potential. However, traders should be aware of the risks of increased volatility and potential economic downturns.

As the market enters a potentially more exuberant phase, traders may face challenges managing Bitcoin’s volatility. It’s crucial to monitor economic indicators, geopolitical events, and regulatory developments that could impact Bitcoin’s price.

All content published and distributed by Topstep LLC and its affiliates (collectively, the “Company”) should be treated as general information only. None of the information provided by the Company or contained herein is intended as (a) investment advice, (b) an offer or solicitation of an offer to buy or sell, or (c) a recommendation, endorsement, or sponsorship of any security, Company, or fund. Testimonials appearing on the Company’s websites may not be representative of other clients or customers and is not a guarantee of future performance or success. Use of the information contained on the Company’s websites is at your own risk and the Company, and its partners, representatives, agents, employees, and contractors assume no responsibility or liability for any use or misuse of such information.

Futures trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the investor’s initial investment. Only risk capital—money that can be lost without jeopardizing one’s financial security or lifestyle—should be used for trading, and only those individuals with sufficient risk capital should consider trading. Nothing contained herein is a solicitation or an offer to buy or sell futures, options, or forex. Past performance is not necessarily indicative of future results.

CFTC Rule 4.41 – Hypothetical or Simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, because the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs, in general, are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

The post Natural Gas, US Dollar, and Japanese Yen Futures Updates appeared first on Topstep.

Top things to watch this week

The Economic Calendar:

MONDAY: Chicago Fed National Activity Index (7:30a CT), Dallas Fed Manufacturing Index (9:30a CT), 2-Year Note Auction (12:00p CT)

TUESDAY: Building Permits (7:00a CT), Redbook (7:55a CT), House Price Index (8:00a CT), CB Consumer Confidence (9:00a CT), New Home Sales (9:00a CT), Richmond Fed Manufacturing Index (9:00a CT), Dallas Fed Services Index (9:30a CT), Money Supply (10:00a CT), 5-Year Note Auction (12:00p CT), FOMC Minutes (1:00p CT)

WEDNESDAY:  MBA Mortgage Applications (6:00a CT), PCE (7:30a CT), Corporate Profits (7:30a CT), Durable Goods (7:30a CT), U.S. GDP (7:30a CT), Jobless Claims (7:30a CT), Retail Inventories (7:30a CT), Wholesale Inventories (7:30a CT), Chicago PMI (8:45a CT), Pending Home Sales (9:00a CT), EIA Petroleum Status Report (9:30a CT), 7-Year Note Auction (10:30a CT), EIA Natural Gas Report (11:00a CT), Baker Hughes Rig Count (12:00p CT)

THURSDAY: U.S. Holiday – Thanksgiving

FRIDAY: Fed Balance Sheet (3:30p CT)

Key Events:

• It is a short trading week, with Thanksgiving on Thursday and stock trading closing early on Friday.
• Watching close Core PCE (Fed’s fav inflation indicator) and GDP (growth) on Wed.
• Watching for holiday spending trends and Black Friday retail sales. 
• Economic data on PCE, initial jobless claims, U.S. GDP, and October personal income. 
• FOMC minutes for the November meeting will be released on Tuesday. 
• Fed Fund futures have a reduced probability of 52% for a rate cut on Dec. 18. 
• U.S. dollar futures as it hits the upper end of many economist’s price targets.
• Natural Gas futures as a cold weather stretch is approaching.

BITCOIN FUTURES FLIRTING WITH $100,000

Bitcoin’s recent surge has been nothing short of spectacular. With a spot new all-time high of $99,800 last week, its monthly performance has skyrocketed to an astonishing +41%. This far outpaces traditional safe-haven assets like gold (+5.3%) and silver (+8.0%).

The crypto market’s overall growth, fueled by a favorable regulatory climate under the incoming Trump administration, has seen its capitalization soar from $2.5 trillion to $3.5 trillion. Bitcoin’s market cap has expanded to a staggering $1.796 trillion, surpassing both silver and Saudi Aramco. This positions Bitcoin as one of the world’s largest assets.

FOMC MEETING ON DECEMBER 18

Fed Fund futures are trading at a 52% probability of a 25 basis point rate cut at the next FOMC meeting, which is scheduled for December 18.

The market is currently pricing a stall in Fed Fund rate cuts in the 4.25-4.5% range until May.

STOCK INDEX FUTURES

The stock market ended the week positively, with the S&P 500 registering a gain of 1.6% and the Nasdaq 100 advancing by 1.8%.

Market Sentiment:

• The general atmosphere was optimistic, driven by the outcomes of the presidential election, anticipated policy changes, and expectations of additional rate reductions by the Federal Reserve.
• Notwithstanding the positive vibe, the market displayed a blend of bullish and bearish tendencies, especially within the technology sector, where stocks often saw profit-taking after earnings announcements failed to meet the lofty expectations.
• Positive seasonal trade this week.

Sector Rotation:

• Throughout the year, there has been a noticeable shift in investment strategies:
  • Cyclicals vs. Defensives: Following a period where investments leaned towards more defensive sectors, the third quarter gradually pivoted towards cyclical sectors. This was evident with increased investments in Financials and Consumer Discretionary stocks, while exposure to Health Care, Consumer Staples, and Real Estate was dialed back.
  • Growth vs. Value: Early in 2024, there was a significant overweight toward Growth stocks, but as the year progressed into the third quarter, there was a marked rotation toward Value stocks, setting a new record for this shift on a sector-neutral basis.

SECTOR ALLOCATIONS

Here’s a snapshot of how hedge and mutual funds allocate to sectors compared to the Russell 3000 index.

SOFR INTEREST RATE FUTURES

Volatility at its best. The past 18 months have been a rollercoaster ride for SFR8, with multiple 100+ basis point swings in both directions.

Despite this extreme volatility, the year double fly has paradoxically narrowed. This suggests a significant increase in algorithmic trading activity this year. These algorithms are exploiting the market’s wild swings, leading to trading patterns that deviate from historical norms.

Many traders believe this is NOT how the double fly “should” trade with respect to major rate-level changes. Traders have to adapt to the new environment!!!

CRUDE OIL FUTURES

Oil markets are experiencing a tug-of-war. Increasing geopolitical risks are pushing prices upward, while a strengthening dollar, which has hit new peaks, is dampening the potential for an oil price surge driven by war-related risks.

The market is grappling with the notion that President Biden might be inclined to intensify global tensions as his term winds down. This sentiment appears to be influencing perceptions of risk not only with Russia but also with Iran:

Iran’s Nuclear Activities: Initially, there was a market sell-off when headlines suggested Iran might halt its pursuit of weapons-grade uranium. However, these reports were misleading. Recent developments have provided clarity that Iran has declared intentions to ramp up its nuclear fuel production capacity.

This decision comes in the wake of a censure from the United Nations’ atomic watchdog, escalating tensions with Western nations. According to Bloomberg, Mohammad Eslami, head of Iran’s Atomic Energy Organization, has called for the deployment of a “significant collection” of “new and advanced” centrifuges. This move is in direct response to the International Atomic Energy Agency’s criticism over unresolved investigations into uranium particles at unreported locations, as announced by Iran’s Foreign Ministry.

EURO FX CURRENCY

Euro FX futures experienced a significant decline on Friday, reaching $1.035, the lowest since November 2022. This drop came in the wake of the latest PMI data, which highlighted continued economic fragility within the Euro Zone.

Business activity has shown signs of weakness, prompting traders to speculate on a potential further depreciation of the Euro, potentially reaching parity with the U.S. Dollar. This rare occurrence has only been observed twice since the Euro’s inception in 1999.

Traders have noted that the Euro’s weakness could be attributed to both internal economic challenges and external pressures, such as a strong U.S. economic performance and anticipated policy divergence between the ECB and the Federal Reserve.

NATURAL GAS FUTURES

A sudden cold snap boosted the natural gas markets this week. However, the market traded much lower on Friday as traders took profits. In the short term, key support is around the $3 level.

Early last week, the anticipation of cold weather led to a spike in natural gas futures, with traders positioning for increased heating demand. Should these forecasts for a very cold December materialize, we might witness a sharp rise in natural gas prices due to heightened consumption for residential and commercial heating purposes.

Some weather forecasters are now predicting that December might turn out to be unusually cold, which, if realized, could significantly alter market dynamics for diesel, heating oil, and natural gas.

PERFORMANCE SUMMARY

All content published and distributed by Topstep LLC and its affiliates (collectively, the “Company”) should be treated as general information only. None of the information provided by the Company or contained herein is intended as (a) investment advice, (b) an offer or solicitation of an offer to buy or sell, or (c) a recommendation, endorsement, or sponsorship of any security, Company, or fund. Testimonials appearing on the Company’s websites may not be representative of other clients or customers and is not a guarantee of future performance or success. Use of the information contained on the Company’s websites is at your own risk and the Company, and its partners, representatives, agents, employees, and contractors assume no responsibility or liability for any use or misuse of such information.

Futures trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the investor’s initial investment. Only risk capital—money that can be lost without jeopardizing one’s financial security or lifestyle—should be used for trading, and only those individuals with sufficient risk capital should consider trading. Nothing contained herein is a solicitation or an offer to buy or sell futures, options, or forex. Past performance is not necessarily indicative of future results.

CFTC Rule 4.41 – Hypothetical or Simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, because the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs, in general, are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

The post Bitcoin, Natural Gas, and Stock Sector Allocations appeared first on Topstep.