Financial Markets Update: Energy Sector on the Rise, Bonds and Metals Falling, How’s Inflation?!

by Francesco Placci

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While equity indexes, bonds, and metals had recently shown signs of recovery, in recent days we have seen new bearish trends in these markets. 

This is probably due to data on U.S. inflation that raises fears of possible new interest rate hikes, with obvious negative repercussions on the performance of stock and bond indexes.

In contrast, energy futures and grains were strong, as they continue to be affected by tensions due to the ongoing conflict between Russia and Ukraine. 

For more on how financial markets are moving, volatility trends, and rollovers ahead for the coming week, don't miss our weekly overview.

Enjoy the video!

Transcription

Hey everyone! It is that time of the week again! One of the coaches at Unger Academy here and welcome back to our usual chat that we have every weekend about the performance of the financial markets.

Alright, so this week wasn't an easy one for the markets. I mean, we saw stock equities, we saw bonds, and metals going down, while energetics and grains, in particular, went up. So, nothing new compared to the last few months.

Now these movements were partly derived from the gloomy U.S. inflation data and thus the fear of further rate squeeze that especially impacted the performance of stock and bond indexes.

This chart here shows the Mini SP 500 losing 4.32% this week. This is a bad drop, especially in the last two days. And the same can be said for all the major stock indexes, so the Nasdaq, also Eurostoxx and Dax.

Bonds also performed badly, as mentioned earlier, with the T-Bond losing 1.22%. Bonds had hinted at a rebound, but over the past couple of weeks they've practically eaten up all or most of the gains, and this situation holds true for U.S. bonds as well as for the European 10-year bond, namely the Bund, which has also touched some lows.

Those who are doing well are the energy markets. We know that this depends on the ongoing conflict between Russia and Ukraine, which brings pressure to this asset class.

Here's the Crude Oil, it's came in close to the highs that it recently touched. Gasoline is also at really important highs. So, overall, the energy sector is certainly under pressure.

The underperformance of the metals also continues. In fact, despite the fact that they are often considered as safe-haven sectors where to invest in times of uncertainty, they have been doing poorly lately.

Let's check out their 3-month returns: you see, they're all negative. And the same applies to the 1-year returns, so the Metals sector is underperforming.

What else is interesting to note? Is that in the soft commodities sector, we can see that the run-up in Orange juice and Cotton continues.

And, as already mentioned, the Grains market is also showing great strength. Let's take a look at the Soybeans, which has come out of this trading range, which to be honest was a pretty wide one. However, it has managed to reach these important highs, and a little bit like all the commodities in the Grains sector, it's currently at pretty remarkable highs. And also in this case, these levels are the result of the pressure on this market coming from the conflict between Russia and Ukraine.

Now let's turn on to the currencies. We see that the US Dollar is pretty strong against all other currencies. The EuroFX, namely the future of the Euro-Dollar currency pair, has reversed the recovery that it had made. We're at about 1.06 right now. But what is interesting to note is that the US Dollar is strong not only against the Euro but against all the other currencies.

And finally, let's take a look at Bitcoin. It was an insignificant week on Bitcoin, which practically remained unchanged and is consolidating within this trading range. However, the cryptocurrency market is also weak. Incidentally, of all cryptocurrencies, at the moment Bitcoin is one of the currencies that is holding the most.

Finally, as far as volatility is concerned, obviously, it remains high, especially in the long run, because in the short run we touched very high levels, so it has dropped a little bit in the short run, but still, it remains high over a one-year time horizon.

If we go and take a look at the term structure of volatility, we can see that this week, the implied volatility indexes on the SP 500 went up. The term structure is a little mixed but it isn't in backwardation. Let's say it is not well defined but it isn't showing any specific symptoms of panic either.

The Vix right now is at 27.72, about half of the values that it recently touched, so it's a situation to keep an eye on because although implied volatility isn't particularly high, in light also of recent data, the situation could evolve even very quickly.

Alright, let's take a look at the rollover calendar. Next week will be the Three Witches' Day, thus the maturity of the equity indexes. Therefore, the European indexes, the DAX, Eurostoxx, FIB, etc. will need to be rolled over.

U.S. indexes, on the other hand, have already been rolled over this week because usually, the increased liquidity moves from one maturity to the next one week in advance of the futures' maturity.

We'll then have, on the 14th, to rollover also on Cotton and finally on the 15th on Crude Oil.

Finally, guys, if there is someone among you who's interested in systematic trading, my advice is to take a good look at the link in the description of this video. You'll be able to watch a free presentation by Andrea Unger, who will introduce you to his trading method, which enabled him to win the World Cup Trading Championships of real-money trading not once, not twice, but four times. In addition, you'll also be able to get his best seller, "The Unger Method," and much more.

Alright, with that guys we will see you again next week!

Please leave us a Like to the video if you liked it and please subscribe to our channel!

Have a great weekend, I will see you soon! 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.