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In This Issue
50 Important Rules Often Violated by Futures Traders
September Forecast: Calm Before the Storm(s)
Economic Reports and Expiration Notices
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Newsletter Archives
December 30, 2008
This publication is the property of National Futures Association
A survey of more than 500 experienced futures brokers asked what, in their experience, caused most futures traders to lose money. These account executives represent the trading experience of more than 10,000 futures traders. In addition, most of these Account Executives (AEs) have also traded or are cur rently trading for themselves. Their answers are not summarized because different traders make (and lose) money for different reasons. Perhaps you may recognize some of your strengths and weaknesses. Yet many of the reasons given are very similar from broker to broker. The repetitions stand to demonstrate that alas, many futures traders lose money for many of the same reasons. Perhaps these statements from experienced brokers can make a contribution to you, and make this sometimes fickle, often intricate, always interesting market place of futures trading possible.
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After a month of rough waters, markets seem to have at least temporarily calmed and gone into light-volume summer mode. Markets are not out of turbulent waters yet, however, as it is still unclear when and how forcefully the FOMC will act. Volatility has subsided from peak levels in mid-August, though the VIX volatility index is still at a relatively high, sitting in the 20's. The calm demeanor of central bankers in the face of risk being reevaluted has not quelled all of the fears in the markets—there may still be more downside retests to come in the equity markets over the next few months. A number of key market events will shape the outcome for the markets this month, including events in the energy market, earnings reports from Wall Street, and central bank actions.
Energy Market
The Gulf of Mexico had a brief scare from Hurricane Dean, which reached category 5, but swept across the Yucatan, missing major offshore oil fields. Last month, forecasters reduced their outlook for major storms but still predict that the 2007 hurricane season will be more active than usual. Given that forecast, crude prices are still floating well above $70, though natural gas futures came crashing down after the threat from Dean dissipated.
The other energy highlights for the month include OPEC's meeting on September 11, though numerous OPEC ministers have already said they will not be amending output targets at this meeting. The US Administration assessment of the Iraq "surge" is due out on Sept 15 and may also be viewed as energy related news, as the fate of Iraq and its oil supply become more clear.
Equities
The earnings calendar will be focused squarely on investment banks this month, with Goldman Sach (reports 9/20), Lehman, Bear Stearns, and Morgan Stanley all set to report in mid-month. Analysts and investors will pore over these earnings reports for evidence of subprime damage and contagion, which could further shake investor confidence in the financial sector.
Traders and technicians alike should continue to focus on financial stocks and the related ETF''s like the XLF, as they have served as leaders during the equity market''s retreat from the July highs. Likewise, any increased clarity regarding the risk/exposure situation for the major U.S. financial institutions could induce buyers to step in possibly signaling broader stabilization for equity markets.
Towards the end of July an interesting correlation emerged between currency and equity markets. Stock traders gave up watching every tick in Treasury markets for clues to equities'' direction, and instead began to take notice of the so called "carry trade" currencies. Often when stock markets moved in one direction the Japanese Yen would broadly move in the opposite direction in a global reassessment of risk. Stock and currency traders will likely continue to monitor this negative correlation heading into September in hopes it might provide a sense of how the turmoil in U.S. credit/housing market will play out for financial markets.
Forex Market
In Currencies, the usually subdued month of August unleashed a bout of volatility of historic proportions as various Yen carry trades unwound. The wrath of excessive leverage used in FX trading simply added the necessary fuel to heighten volatility. At times in August the Yen experienced price swings that would typically characterize a year's trading range. At the past several G7 meetings, central bankers warned about 'one-way' bets and a likely rise in market volatility. The US subprime turmoil provided the outlet.
The key question encompassing the September trading outlook is whether the market will experience a 'pause' — in either the extreme volatility or in terms of expected central bank actions. Is the subprime firestorm successfully contained by the liquidity adds from the global central banks or will the flames jump the river and spread into other economic sectors?
Prior to the US subprime fallout, the European central bankers noted that inflationary expectations remained their primary concern and thus forecasted that prices could exceed their ideal targets. Such an outlook thus warranted the necessary policy adjustments. At its August 2nd press conference the ECB once again issued the 'strongly vigilant' code words that usually signal an interest rate hike at the next policy meeting. However, the uncertainty of the lingering impact that the US subprime debacle would have on financial markets, personal consumption, and global exports has clouded previous central bank policy actions.
The September 6th ECB meeting will prove to be the watershed event for the upcoming policy meetings of other central banks. The ECB is under prssure from all sides to pause at the current 4.00% interest rate level. Prior to the August market volatility, the market had expected rate hikes from SNB and BOJ.
The Bank of Japan (BoJ) has been caught off guard by recent Fed commentary. The BoJ scenario expects a soft landing for the U.S. economy, but the recent Fed statement that "risks to economic growth had increased appreciably" has put the BoJ in a tough position. The BoJ may have to rethink the soft landing scenario, increasing the likelihood that they will go into "wait-and-see" mode to assess subprime's impact on the wider economy.
If the Fed cuts rates at the September 18 meeting, unstable flows may make it difficult for the BoJ to hike immediately at their Sept 19 meeting. A BoJ rate hike on September 19 might be unrealistic, but the consensus seems to be that the bank will probably look for a window of opportunity to hike at October's meeting.
Treasury Market, Fed Policy, and Economic Releases
As the subprime fiasco continues to unwind, market participants will be forced to look ahead to further fallout. A recent report focused on the month-by-month dollar amounts of mortgage resets through 2008 showed the largest reset will occur in the first six months of next year, suggesting that we've only seen the tip of the iceberg. The resets expected in February and March of next year will be greater than the $197 billion of mortgage resets so far in 2007. The first six months of next year will see more than the total for all of 2007, or $521 billion.
Central banks worked to assuage the markets with a swift injection of funds in early August. That, combined with the 50 basis point cut in the discount rate executed by the Fed seemed to appease markets at least temporarily.
In his Aug 31 speech at Jackson Hole, Fed Chairman Bernanke has made it clear that the central bank will act "as needed" to quell market turmoil, but that the Fed has no intention of coming to the rescue of investors that have made irresponsible choices. Bernanke admitted that subprime contagion has spread, noting that financial stress has has spread beyond the mortgage market, though outside subprime the deterioration is less pronounced. A chorus of Fed speakers will sound off during the second week of September
In his Jackson Hole speech, Bernanke also noted that past months' data is less useful than usual and that the Fed was paying particular attention to timeliest data. This statement seems to indicate that Bernanke will be looking for the "freshest" data to help guide the Fed's policy decision on Sept 18. Besides the weekly initial jobless claims, some of the more timely data the Fed may be considering includes: Aug ISM Manufacturing (9/4), Aug ISM Non-Manufacturing (9/6), and Preliminary Sept University of Michigan Confidence (9/14). The Fed will also likely have previews of the Aug PPI (9/18) and Aug CPI (9/19) at the time of the FOMC meeting.
Given the extent of uncertainty in the market, uncertainty that seems to extend to the Fed, the expectations for the FOMC rate decision on Sept 18 will be hotly debated. Most analysts are deliberating how quickly and how much the Fed will ease, though some contend the Fed will withhold a cut at the Sept meeting, for fear of the perception the central bank is acting under political pressure for a "bailout." If credit market constipation continues, the lesser measures still open to the Fed are more liquidity injections or another discount rate cut, though by September, those may be seen as feeble half-measures.
Source: Moore Research Center, Inc.
| Date | Reports | Expiration & Notice Dates |
|---|---|---|
| 09/06 Thu |
7:30 AM CDT - Productivity-Rev(Q2)
7:30 AM CDT - USDA Weekly Export Sales 7:30 AM CDT - Initial Claims-Weekly 9:00 AM CDT - ISM Services(Aug) 9:30 AM CDT - EIA Gas Storage 3:30 PM CDT - Money Supply |
|
| 09/07 Fri |
7:30 AM CDT - Nonfarm Payrolls & Unemploy Rate(Aug) 7:30 AM CDT - Hourly Earnings & Ave Workweek(Aug) 9:00 AM CDT - Wholesale Inventories(Jul) 2:00 PM CDT - Dairy Products Prices |
LT: Sep U.S. Dollar Index Options(NYBOT)
Sep Candian Dollar Options(CME) Sep Currency Options(CME) Sep Live Cattle Options(CME) Oct Cocoa Options(NYBOT) |
| 09/10 Mon |
2:00 PM CDT - Consumer Credit(Jul)
|
LT: Sep Orange Juice(NYBOT)
|
| 09/11 Tue |
7:30 AM CDT - Trade Balance(Jul)
|
|
| 09/12 Wed |
7:30 AM CDT - Crop Production & WASDE Reports 7:30 AM CDT - Supply & Demand Reports 9:30 AM CDT - API & DOE Energy Stats |
|
| 09/13 Thu |
7:30 AM CDT - USDA Weekly Export Sales
7:30 AM CDT - Initial Claims-Weekly 9:30 AM CDT - EIA Gas Storage 1:00 PM CDT - Treasury Budget(Jul) 3:30 PM CDT - Money Supply |
LT: Sep Cocoa(NYBOT)
Sep Nikkei 225(CME) Sep Nikkei 225 Options(CME) |
* Please note that the information contained in this letter is intended for clients, prospective clients, and audiences who have a basic understanding, familiarity, and interest in the futures markets.
** The material contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.
*** This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!