24/03/2024
Carbon X āTHE RISKā newsletter
Welcome to the second edition of āTHE RISKā our CarbonX newsletter, your weekly source for insights into our weekās trading activity, economic analysis, poll outcomes, and more! Every Friday, we'll recap the events of the week and delve into topics like economic analysis, technical trends, and equities relationships.
Highlights of this Edition:
This week marked a significant period for the markets, particularly with the involvement of The Fed. Whenever the Fed releases economic reports or holds meetings, it often triggers considerable volatility, leading to unpredictable market reactions in the ensuing days. Consequently, we should adjust our risk management strategies accordingly.
Our approach involves employing small stops and aiming for large targets. This allows us to capitalize on multiple opportunities to capture significant market movements. If initial trades result in minor losses, we anticipate that a substantial gain will not only offset them but also yield additional profits. Ideally, successful trades occur swiftly, potentially even within the first or second attempt.
Confirmed Tips of the Week:
For CarbonX, especially on Fed Days like last Wednesday, we all should prioritize positioning all trades between 9:15-9:45 am CT. This timing is strategic as volumes tend to diminish and market conditions become more erratic as the day progresses. By establishing positions early, we aim to mitigate exposure to heightened volatility and maintain stability in our portfolio.
ECONOMY
The Federal Reserve concluded its two-day meeting this week and opted to maintain interest rates at their current level for the foreseeable future.
Consequently, interest rates will remain within the 5.25%-5.5% range, indicating a stance of stability in the existing policy framework. The decision signals a cautious approach, with the Fed adopting a wait-and-see attitude to ensure that inflation remains under control before considering any significant policy adjustments.
Looking ahead, the Fed's projections indicate a potential shift in monetary policy. It foresees three quarter-percentage rate cuts by the end of 2024, marking the first such cuts since March 2020. Additionally, the Fed anticipates three further rate reductions in 2025, followed by another three in 2026. These projections suggest a gradual easing of monetary policy over the coming years, reflecting the Fed's efforts to support economic growth and manage inflationary pressures effectively.
Nevertheless, current interest rates mark a 23-year high, reflecting the Federal Reserve's proactive stance in managing economic conditions.
While Jerome Powell refrained from specifying the exact timing of rate cuts, he emphasized that such actions would be contingent upon sustained economic growth. The Fed remains committed to maintaining stability in interest rates and indicated a willingness to keep rates steady for an extended period if necessary.
Despite the inflation-suppressing effect of high rates, the resilience of the labour market and robust consumer spending have mitigated some of the downward pressure on inflation. This favourable economic backdrop provides justification for the Fed's patience in implementing rate cuts.
The Fed's cautious approach is driven by the desire to avoid reigniting inflation prematurely, particularly given the tumultuous economic climate of recent years. Cutting rates prematurely could potentially fuel inflationary pressures once again, a scenario that neither the Fed nor most Americans desire following a period of significant economic turbulence.
Despite the uncertainty surrounding interest rates, market sentiment remained positive, leading to new record highs across all three major indices this week:
ā¢ The Dow Industrial Average closed at 40,230.
ā¢ The S&P 500 finished at 5,304.
ā¢ The Nasdaq Composite reached 18,565.
In a notable development, officials revised their GDP growth forecast for the remainder of the year to a 2.1% annualized rate, representing a significant increase from the 1.4% projection made in December.
Regarding inflation, expectations suggest a gradual decline towards the Fed's 2% target by 2026, indicating a favourable trajectory for price stability in the coming years.
TECHNICAL ANALYSIS
TECHNICAL ANALYSIS UPDATE
Following the Federal Reserve's announcement, indices experienced a notable rally that persisted throughout the week.
At the outset of the week, indices displayed upward momentum in anticipation of The Fed's announcement on Wednesday. Traders accurately forecasted that interest rates would remain unchanged and had likely factored this expectation into market pricing ahead of the release. Consequently, when The Fed's decision aligned with these predictions, the markets responded with a surge.
In such circumstances where markets are hitting all-time highs, the potential for significant movements is substantial. As we navigate these dynamic and bullish market conditions, flash breaks become particularly prominent and rapid. At CarbonX, we embrace the opportunity to capitalize on short-term shorts in these markets, leveraging our strategies to adapt to and benefit from the swift market dynamics.
OBSERVATIONS
Job Market Strength: The job market exhibited further resilience this week, buoyed by positive economic indicators. Weekly unemployment claims came in slightly below the forecast at 210,000, indicating ongoing stability. Despite lingering concerns, layoffs have remained relatively low since a turbulent January, although hiring has seen moderate progress. The overall unemployment rate stands impressively low at 3.7%, a remarkable figure amidst previous recession fears and record-high interest rates.
COMMODITIES UPDATE
Oil Price Surge: Oil prices surged by 2% to reach a four-month high this week, primarily driven by reduced crude exports from both Iraq and Saudi Arabia. Brent futures climbed by 1.8% to $86.89 per barrel, while WTI crude rose by 2.1% to $82.72 per barrel. These benchmarks closed at their highest levels since October. Iraq's reduction in shipments by 130,000 barrels last month, coupled with ongoing drone attacks on Russian oil facilities, has strained supply and increased costs. Consequently, Americans are experiencing notable price hikes at the pump, with the average U.S. gas price reaching $3.47 per gallon, the highest since Halloween. As spring approaches and demand surges, coupled with limited imports, further spikes in gas prices are anticipated, posing challenges despite The Fed's recent success in managing inflation.
OTHER HIGHLIGHTS
February Home Sales Surge: February witnessed a notable 9.5% spike in home sales, accompanied by a 5.9% increase in inventory. With the current median home price at $412,778, this uptick in inventory could alleviate pricing pressures as the spring home-buying season approaches.
Student Debt Forgiveness: The Biden administration announced the forgiveness of $5.8 billion in student debt for 77,700 borrowers this week. This move continues a trend of student debt relief efforts, with over 4 million individuals having their student debt cleared since 2020, totalling $143.6 billion in cancellations.
POP Culture
Is Aaron Taylor-Johnson Destined to Be the Next James Bond?
As the press goes crazy over rumours that Aaron Taylor-Johnson will be the next James Bond in Bond 26, we take a closer look at the story.
If you checked the news earlier this week you probably saw the headline-grabbing story about Aaron Taylor-Johnson being āthe next James Bondā.
āLICENCE TO KICK-ASS British hunk formally offered role of James Bond and āwill sign contract this weekā to take over from Daniel Craigā, UK tabloid The Sun breathlessly thundered on Tuesday 19 March, claiming that the 33-year-old Kick-Ass star was next in line to play 007 in Bond 26.
The story was picked up and repeated ad infinitum by pretty much everyone including the BBC and Sky News. You couldnāt listen to the radio, watch TV, or read anything online without coming across the story.The problem is, itās not actually true.
He certainly gets our vote. Kick Ass was Bad Ass!!! š
Thanks for reading,
CarbonX
