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Fixed Income

Federal Reserve Interest Rate Hike Probabilities


The reaction to the FOMC meeting on Wednesday was to pull back some of the hawkish pricing in the market regarding future interest rate hikes.

Because the 2018 Dot Plot did not move up, and in fact on average moved down, the pricing for 4 interest rate hikes in 2018 was reduced. Heading into the meeting, there was an expectation from professional forecasters that the Fed would raise the 2018 dots to 4 hikes from 3, largely because the Fed had just effectively hiked 5 times in a row.

Additionally, because there appeared to be no urgency from the Fed, the probability of a March interest rate hike, which was already high, was brought back to a little more neutral.

Quantitatively, the unconditional probability of a hike at the March meeting fell from about 78% that morning to 63% by day’s end, although it has drifted back up to 74% today.

The probability of a hike at the December FOMC meeting, which represents the optionality of raising interest rates 4 times next year, fell from 35% to 27%. In fact, the probability that the Fed hikes just once is 2x the probability that the Fed hikes 4x.

However, the probability of hikes at the June (~50%) and September (35%) FOMC meetings did not change, as the probability of 3 hikes in 2018 remained a base case scenario for the market, and those are the appropriate levels for that potential outcome.

Ultimately, except for the direction of the stock market between now and the end of the year, trading for the interest rate market is over for the remainder of 2017.

Moving into 2018, we would keep an eye on three catalysts.

  1. The FOMC Meeting Minutes are released on January 3rd.
  2. What the early Fed policymaker speeches say about the March FOMC meeting. Usually, we can gather insight from what was discussed during the prior meeting, but because of the holidays, the first speech is not scheduled until January 5th.
  3. The monthly employment report on Friday, January 5th.

Of the three catalysts, we believe the monthly US employment report, which has been a non-event the last 3-6 month’s, is likely to set the tone for fixed income to start 2018. Why? Because following the weak inflation data as of late, further weakness in the Average Hourly Earnings (AHE) data set could shift the probabilities for an interest rate hike at the March FOMC meeting lower to 50%, or 33%, from 74% currently.

The key point here is that with a new Fed and a new year, our sight beyond sight suggests that the professional community is likely to trade the inflation data on its own merit again for a change, not just give that important part of the Federal Reserve’s mandate a free pass because financial conditions remain loose.

 

To see the remainder of today's edition, please sign up for a subscription to Sight Beyond Sight through Interactive Brokers.

Sight Beyond Sight® is a global macro trading newsletter written daily by Neil Azous. With close to two decades of institutional experience across asset classes, Neil interprets the day-to-day economic, policy and strategy developments and provides actionable trading ideas for investors. We invite clients of Interactive Brokers to sign up for a free trial in Account Management. If you are not a client of IB, you can sign up for a free trial by visiting our website.

This article is from Rareview Macro and is being posted with Rareview Macro’s permission. The views expressed in this article are solely those of the author and/or Rareview Macro and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Futures

Midday Market Minute: eMinis and Gold Prices


Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.

Visit our website at www.bluelinefutures.com to open an account and stay up to date with our research.

Bill Baruch is President and founder of Blue Line Futures. Bill has more than a decade of trading experience. Working with clients he focuses on developing trading strategies that present a clear objective for both long and short-term trading approaches. He believes that in order to properly execute a trading strategy, there must be a well-balanced approach to risk and reward.

Prior to Blue Line, Bill was the Chief Market Strategist at iiTRADER which followed running a trade desk at Lind Waldock and MF Global.

Bill is a featured expert on CNBC, Bloomberg and the Wall Street Journal as well as other top tier publications. 

Blue Line Futures is a leading futures and commodities brokerage firm located at the Chicago Board of Trade. We work with clients that range from institutional to professional to novice and from self-directed to broker-assisted. No matter what type of trader you are, our mission is simple; to put the client first. This means bringing YOU strong customer service, consistent and reliable research and state of the art technology. 

This video is from Blue Line Futures and is being posted with iBlue Line Futures’ permission. The views expressed in this video are solely those of the author and/or Blue Line Futures and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Technical Analysis

Technical Take: Financials Gain as Yield Curve Belly Steepens


The widely followed “yield curve”, represented by the spread in 10-yr-2yr Treasuries, has flattened below 53bps and is set to close at its lowest level for 2017.  While seemingly this is bad for rate sensitive financials, the pure branch bank lenders are actually more correlated to the “belly” of the curve which is better represented by the 2yr-3month spread.  As you can see in the below chart, this spread bottomed in July at 18bps and has now widened to 54bps.  This widening has been driven by the 2yr treasury yield which bottomed at 1.25% in September and is on pace to close at a ten year high at its current level of 1.85%.  This may explain why the regional bank ETF (KRE) is leading most industries today with a gain of 1.64%.        

Nasdaq's Market Intelligence Desk (MID) Team includes: 

Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

Jeffrey LaRocque is a Director on the Market Intelligence Desk (MID) at Nasdaq, covering U.S. equities with over 10 years of experience having learned market structure while working on institutional trading desks and as a stock surveillance analyst. Jeff's diverse professional knowledge includes IPOs, Technical Analysis and Options Trading.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT has 16 years of trading desk experience. Prior to joining Nasdaq Brian executed equity orders and provided trading ideas to institutional clients. He also contributed technical analysis to a fundamental research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Airline companies among others understand the trading in their stock. Brian is a Chartered Market Technician.

This article is from Nasdaq and is being posted with Nasdaq’s permission. The views expressed in this article are solely those of the author and/or Nasdaq and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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azioni

Nasdaq Market Intelligence Desk - Equity Market Insight December 15, 2017


As of 10:50 AM EST:

NASDAQ Composite +0.79% Dow +0.60% S&P 500 +0.79% Russell 2000 +1.05%

NASDAQ Advancers: 1644 Decliners: 615

Today’s Volume (100 day avg) +55.9%

The Dow is the shining star this week having gained about 1.4%, helped by strong gains from Boeing, Goldman Sachs and Disney.  At 10:15 this morning US  stocks got a boost after a Fox Business reports that Marco Rubio will vote in favor of the Tax bill, adding confidence an agreement will be reached before the end of the year.  The shift in sentiment is reflected in the R2K index, which fell 1.1% yesterday on tax bill worries and rallies over 1% so far today as those worries subside.  All sectors are in the green with financials (+1.4%) leading after two daily declines.  Treasuries are a little weaker as the yield curve flattens, gold is flat, the dollar up slightly as is crude oil. 

  • Wednesday’s pullback in the US Dollar (-0.7%) will likely end the greenback’s weekly winning streak.  Comments from the Fed sent the DXY Index sharply lower in the afternoon session, as the index was testing its highest level in over a month.  The committee pointed towards uncertainty for tax reform passing and a loose plan for the upcoming rate hikes.  Investor reaction suggests a dovish tone from the Fed, which may initiate some equity profit-taking to close out 2017. 
  • November Industrial Production rose 0.2%, less than the 0.3% expected. However October’s already strong read of 0.9% was revised higher to 1.2% making October the best month since May 2010.  The November gain was driven by a 3% surge in oil & gas production, which return to more normal levels following storm disruptions.  Mining activity rose 2%, utility output fell 1.9%, vehicle output rose just 0.1% and business equipment gained 0.5%. 
  • Today’s elevated volume is related the rebalance of the S&P and other indexes, as well as the quarterly quadruple witching event with the expiration of equity index futures & options and single stock futures & options.  We’d like to congratulate the Nasdaq 100 additions ASML Holdings, Cadence Design Systems, Synopsys, Take-Two Interactive Solutions and Workday.  Also there will also be 54 additions to the Nasdaq Biotechnology Index as that index performs its annual reconstitution.   

Nasdaq welcomes two IPOs that listed today: Newmark Group (NMRK) and Casa Systems (CASA).  Newmark priced 20 million shares at $14 and Case priced its offering of 6 million shares at $13. 

 

Nasdaq's Market Intelligence Desk (MID) Team includes: 

Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

Jeffrey LaRocque is a Director on the Market Intelligence Desk (MID) at Nasdaq, covering U.S. equities with over 10 years of experience having learned market structure while working on institutional trading desks and as a stock surveillance analyst. Jeff's diverse professional knowledge includes IPOs, Technical Analysis and Options Trading.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT has 16 years of trading desk experience. Prior to joining Nasdaq Brian executed equity orders and provided trading ideas to institutional clients. He also contributed technical analysis to a fundamental research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Airline companies among others understand the trading in their stock. Brian is a Chartered Market Technician.

This article is from Nasdaq and is being posted with Nasdaq’s permission. The views expressed in this article are solely those of the author and/or Nasdaq and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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azioni

Why Tech Stocks Will Shine in 2018


 

Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google parent Alphabet (GOOGL) have had a standout 2017, powering the overall market’s advance.

In my opinion, that strength can continue into 2018 as earnings and valuations continue to support the rise of these so-called FANG stocks, or FAANG if you include Apple (AAPL).

investing

Here’s a prediction: In my opinion, these tech giants will lead in 2018 as well.

Valuation Argument

Valuations for Alphabet and Facebook are trading at multiples in the low 20s based on 2019 estimates.

Netflix, meanwhile, is expected to grow at nearly 42 percent. Based on earnings estimates for 2019 of $3.90, the stock trades at about 47 times estimates.

Even Amazon, focusing on revenue, will be trading at roughly two times 2019 revenue estimates, for a company that is expected to grow revenue by nearly 17 percent to $275 billion.

investing

Takeaway

Even though many of these companies have had a strong 2017, they can continue to perform well in 2018. In my view, that’s because they have the earnings and revenue growth to help the support the rising valuations.

Photo Credit: magicatwork via Flickr Creative Commons

Michael Kramer is a Portfolio Manager for Interactive Brokers Asset Management, an online investing marketplace and a division of Interactive Brokers Group.

This article is not intended as investment advice. IB Asset Management or portfolio managers on its marketplace may hold long or short positions in the companies mentioned through stocks, options or other securities.

This article is from Interactive Brokers Asset Management and is being posted with Interactive Brokers Asset Management’s permission. The views expressed in this article are solely those of the author and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Informative

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