Energy Sector and Wheat Skyrocket - Weekly Market Update

by Francesco Placci

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This week we've seen significant rises in two market sectors that have been strongly affected by the conflict in Ukraine: energy and cereals. Obviously, the consequences of these gains are visible in everyday life, given the strong impact of these markets on the real economy.

Other sectors that showed positive returns during the week include stock indexes and soft commodities. Bonds, on the other hand, were negative and recorded significant losses.

Volatility is still very high, but we're seeing a reduction in the Vix and a return of the implied volatility term structure in contango. 

For more details on how the markets are moving and the volatility trend, don't miss our weekly overview.

Enjoy the video!

Transcription

Hello everyone! It's one of the coaches of Unger Academy here, and welcome back to our usual chat that we have during the weekends about the market trends.

Okay, so let's start with the US stock indexes, which report good gains this week, despite the ongoing conflict. So, we have the Nasdaq, which is up about +2.40%, and the Mini S&P, which is up by 1.70%. 

The European stock exchanges were obviously weaker, partly due to their proximity to the Ukraine war zone.

However, volatility remains decidedly high. We can also see it from the standard deviation, which is currently at an all-time high, especially on a long-term horizon.

As for the bond market, there has been a sharp decline in bonds. T-bond is down -3.20% and is in free fall.

And the same goes for the US 10-year bond and the German Bund.

Bad news on the energy market, where we can see the remarkable increases that are really weighing on the real economy. Natural Gas in the US is up 14.5%.

Heating Oil up 11.5%. Crude Oil is up 6.70%, while Gasoline is up by "only" 4%.

So these are really important rises. And  also, if we look at the performance of these futures over a three-month or one-year time frame, we can see incredible returns. Just think that during Covid we saw Crude Oil at negative prices.

On the metals side, there is little to report. The returns are mixed. Although these are safe haven commodities, we can't see significant returns over a one-month horizon for these markets.

Even on a three-month horizon, in spite of the ongoing conflict, there has been very little fluctuation.

On the meat side, we can see that Lean Hogs is up 4.5%.

All soft commodities also show positive returns. Sugar is up by 3.5% and Orange Juice is still at very high levels. Here we can see Sugar.

Cotton is up by +6% and during the week has broken through its recent highs.

Let's move on to the cereals sector, which is obviously more linked to the ongoing conflict - I'm referring, of course, in particular, to Wheat, which continues to show positive returns. It has reached very expensive price levels, very costly for the real economy.

You can see it, we have a 3-month return of about 31% for Wheat. And the same goes for all cereals in general.

As for currencies, the yen continues to fall dramatically against the dollar.

The same, but to a lesser extent, applies to the euro, which is still quite weak against the dollar. On the other hand, there isn't much to report for the Canadian dollar, the British pound and the Australian dollar, since their prices are more or less at the values that we've seen recently.

On the other hand, as far as cryptocurrencies are concerned, we see that Bitcoin rose by 7.30% this week. And last week it was also positive. As you can see from the chart, we are currently on an important level. In fact, we are close to a resistance whose breakout could be seen as the end of this weak phase for Bitcoin.

Let's also take a look at the term structure of implied volatility with reference to the volatility indexes on the S&P 500, and we can see the signs of a return to normality.

The term structure is back in contango, so short-term volatility is lower than long-term volatility now. And this gives us hope for a return to more stability on the markets.

The value of the Vix, which is now at 21.60, is also quite low compared to recent prices.

Let's now turn to the rollover calendar. Next week we'll have to take action on energy and metals.

The same day, March 28, will be a good day to roll over Gold and Platinum. And for what regards energy, also Heating Oil and Gasoline.

Guys, let me give you a tip. If there is anyone among you who's interested in systematic trading, my advice is to take a look at the link in the description of this video. You'll be able to access a presentation by Andrea Unger, our founder and the only 4-time winner of the World Cup Trading Championships with real money, who will introduce you to the world of systematic trading according to his method. You will also be able to get his best seller book, "The Unger Method", by covering only the shipping costs, or hey, book a free call with a member of our team for a free strategic consultation.

Finally, please don't forget to subscribe to our channel and leave us a Like if you liked this video.

And that's it for today. Have a fantasatic weekend! And I will see you next week! Bye-bye!

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Francesco Placci

Hi, I'm Francesco Placci, a professional trader since 2005 thanks to the systematic approach to the markets.

My skills range from trading on index futures to bonds, from stocks to commodities, with a particular focus on volatility and options, which I consider to be among the most versatile and fascinating instruments available to traders.

After an experience with leading Italian credit institutions where I learned the basics of institutional finance, I became a successful independent trader, with great personal satisfaction.

Founder of Algoritmica.pro, in 2019 I joined Unger Academy as head of Research and Development.