Markets: Volatility Still High + Interest Rates + Grains Down

by Francesco Placci

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It was another week of high volatility on all markets. In addition to the repercussions of the conflict between Russia and Ukraine, this week also saw the Fed's announcement of interest rate increases, which caused a drop in the bond segment.

However, the news didn't particularly affect US stock indexes, which rebounded by rising considerably. 

Among the good news of the week, we find the decline in grains, with negative returns for Wheat and Corn, and the return of the volatility term structure in contango. 

For more on how markets are moving and volatility trends during this complex period, don't miss our weekly overview.

Enjoy the video!

Transcription

Hello, good day, welcome back. One of the coaches of Unger Academy here, and this is our usual chat that we have every weekend about the financial markets from the week.

But before we start, as always, I invite you to please subscribe to our channel and click on the bell to stay updated on the release of all our new content. And hey, leave us a Like to this video as well! It means so much to us, thank you so much!

Okay, so this was really a very hectic week for the markets, with high volatility in all sectors. This is obviously due to the current situation that we're facing. Clearly I'm talking about the ongoing conflict between Russia and Ukraine.

So let's start, as usual, with the stock indexes, which this week have rebounded in a pretty remarkable way. The Nasdaq rose by 6.5% and the Mini S&P rose by +5%.

As for the European stock exchanges, they also performed quite well over the last few days.

As I mentioned earlier, the historical volatility of these markets is still on the maximum percentile, and we can also see it from the standard deviation chart, which shows values that are among the highest ever recorded in recent years.

On the other hand, the bond sector continues to fall. This is the chart of the T-Bond, which fell quite a lot compared to last week, losing about 1.5%.

I remind everyone that during the week, the Fed made a meeting during which they stated that they will proceed with 7 rate hikes over the course of this year. And at the moment, an initial increase of 25 basis points has already been made.

This has obviously hurt the bond market, although it didn't hurt the stock market as much as one may have expected, because as we've seen this sector has rebounded quite strongly this week.

As for the energy market, on the other hand, we can see that Crude Oil fell by 5.86% compared to the prices it touched last Friday.

Natural Gas moved less and rebounded only slightly by 2.64%. However, we know that at the moment, the real problem is not the American Natural Gas but the European gas.

By the way, volatility is still very high on this market as well, where we can also see maximum percentile values for all markets except the American Natural Gas, as we've already mentioned.

Let's move on to the metals sector, where we can see negative returns almost everywhere. The only exception is Copper, which made a slight retracement after the large uptrend of the last days.

As for the meat market and the soft commodities, we see mixed returns. Overall there's nothing really particularly interesting here.

What's more interesting is definitely the cereals market. This week, in fact, this market retraced quite remarkably. And this is obviously a very positive thing especially if we consider that Wheat and Corn are necessary goods, and that the huge rise in prices that took place in the past weeks has created many problems for the food industry. A rise in the prices that is obviously due to the current conflict between Russia and Ukraine, which are among the main producers of these raw materials.

Finally, we can also see some significant movements in the currency markets, which usually tend to move much less than other futures. We have a -1.5% for the Japanese Yen. And +1.10% for the Euro-Dollar future, which is currently at a value of 1.1070. So you see it, the volatility is very high also on this market.

As for the cryptocurrency market, it rebounded slightly this week. Bitcoin gained a +6% compared to last week but it's still within its usual trading range, so even in this case, not much has changed compared to the previous weeks.

Let's take a look at the term structure of implied volatility, where we have good news this week! The market is going back to contango, that's to say to a more normal situation.

Well, you know, the current situation is obviously still very critical at the moment, because things could change very quickly. We've all seen how much volatility has grown in recent weeks. In the last five days, we've seen a slight decline in implied volatility, but the situation still requires great caution because, as I told you, everything can really change in a sudden and unpredictable way.

At the moment, the Vix value is 24.94, which can be certainly considered as a good value compared to the highs that it has recently reached. So let's wait and see how the situation will evolve.

Alright, let's take a look at the rollover calendar now.

Next week, on the 23rd, we'll be able to roll over the Bitcoin and Ethereum futures. Then the future on Natural Gas will follow. And all the meats will also be rolled over next week, so Feeder Cattle, Live Cattle and Lean Hogs.

Finally guys, for those of you who are interested in learning more about systematic trading, we'll leave you a link in the description of this video. I'm sure you're going to find it very useful. It'll take you to a page from where you'll be able to access a free presentation by Andrea Unger, who will introduce you to his trading method, which is the exact method that he used to win the World Cup Trading Championships with real money no once, twice or three but 4 times. With that link you can also get our best-seller book, "The Unger Method," covering only the shipping costs. And much more.

And with that, this video is over!

I invite you once again to subscribe to our channel and leave us a like, if you liked it of course.

I'll see you next week, thank you so much, 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.