We'll help you map out a plan to fix the problems in your trading and get you to the next level. Answer a few questions on our application and then choose a time that works for you.
BOOK YOUR FREE STRATEGY SESSION NOW >>The week was characterized by high volatility in commodities and equity indexes, mainly due to the war in Ukraine.
The most obvious effects were seen on European stock exchanges and on cereals (remember that Russia and Ukraine are important producers of wheat). The energy market also rose, although not as much as might have been expected.
The volatility term structure, however, hasn't gone into backwardation yet, which shows that the markets are not yet panicking. If you want to know more about what happened in the markets this week, and to know the rollover calendar, don't miss this video!
Enjoy! 😎
Hey everyone and welcome back! One of the coaches of Unger Academy here, and this is our usual chat we've got every weekend about the markets from the week.
Okay, so this week was characterized by high volatility, as could be expected following the Russian invasion of Ukraine. We've seen strong volatility on the markets. I’m referring not only to equity indexes but also to commodities.
This is also because both Russia and Ukraine are important producers of both energy and food commodities, such as wheat.
So, as I said, a very high level of volatility which, overall, given the gravity of the situation, had a more modest impact on the indexes compared to what was expected.
At the moment the US indexes, namely Nasdaq and Mini S&P, are losing 1.67% and 1.75% respectively, so we have a loss on a weekly basis, but not an excessive loss.
The European stock exchanges, on the other hand, fared worse, probably also as a result of their proximity to the war zone, showing a fall of around 3%.
Certainly, the common denominator of this market decline is the increase in historical volatility in this case measured as standard deviation. We're at the 100th percentile over a one-month horizon.
Here is the chart of the standard deviation, which is on the highs for the last month, but we are also on the highs over a one-year horizon.
This means very high volatility, which can also be seen graphically by looking at the width of these bars, especially the latest ones. You see, we've seen days that have gone from -2% to +1.5%, so very high volatility on equity indexes.
If we turn instead to the bond market, little has happened compared to the previous week. We're more or less at the same levels.
The T-Bond rose slightly. In contrast, the returns on the US and German ten-year bonds were negative.
Obviously, the energy sector has risen but a lot less than perhaps expected. In particular, we often talk about the performance of Natural Gas, but it has gained only 2.36% since last week.
Let's see this graphically as well. We know that over the last few years it has grown a lot. But American natural gas isn't showing as much of an upward trend as European natural gas, which is certainly suffering more from this situation.
As for the other energy commodities, they are on the rise. They are at all-time highs. Crude Oil exceeded 100$ a barrel in the week, so certainly a tense situation on the whole energy sector.
The metals sector, on the other hand, didn't perform as well as expected. On the contrary, Platinum has lost 3.5% in the last five days.
It's true that gold had also risen a lot in recent weeks, so perhaps this type of movement is a natural reaction of the market after such a violent upward spike. And it's still quite normal on all markets that, more than the fact itself, the fear of the unknown is frightening traders.
Turning to the meat market, we see negative returns on both Lean Hogs, Live Cattle and Feeder Cattle.
The entire soft commodities sector was also negative, with the exception of orange juice.
Let's turn now to the grains market. This shows positive returns especially on Wheat, because we know that Ukraine is also a big wheat producer, so this certainly fuels a strain on the prices of this underlying asset.
On the currency side, we see mainly negative returns. Above all, the Euro-Dollar fell to almost 1.11 during the week, losing around 1%.
The British Pound was also very negative. These are important fluctuations for a currency, which typically has a much lower volatility than commodities.
And lastly, the cryptocurrency market. We see Bitcoin losing about 5%. That's not much compared to the usual volatility of Bitcoin.
We're still on the same level, which acted as a support in the past but also in recent times. So, there isn't much more to say on this. Let's see if this level will continue to hold and if Bitcoin will have the strength to recover. But, in general, we can say that the cryptocurrency market continues to be a very weak market.
Lastly, let's take a look at implied volatility.
This is the term structure of the volatility indexes on the S&P 500 and it shows us a rather peculiar picture. On the one hand, we might have expected an increase in volatility, which actually occurred, but not more than in the past.
As we can see, the Vix is currently at 28.86%.
The term structure of the volatility however is not in backwardation. So, we see a compression and roughly the volatility indexes on different durations are on the same level.
However, this is a sign that there is no panic on the markets at the moment.
Let us now turn to the rollover calendar. Next week there will be rollovers on European bond futures, so mainly Bund.
And on the following day, March 4th, all major currencies will be rolled.
Well, if there's someone out there interested in learning more about the systematic approach to the markets, you’ll find a link in the description below. You'll also find very useful resources including a video by Andrea Unger introducing you to the world of systematic trading and his best seller, "The Unger Method" which you can get by only covering the shipping costs.
And before I say goodbye, I invite you to please leave us a Like, of course if you liked the video, and subscribe to our channel.
And with that, I will see you soon in our next video! Bye-bye!
We'll help you map out a plan to fix the problems in your trading and get you to the next level. Answer a few questions on our application and then choose a time that works for you.
BOOK YOUR FREE STRATEGY SESSION NOW >>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.
