Market Synthesis: A Tale of Two Reports
The markets witnessed a dramatic reversal in sentiment over the past week, oscillating between concern over strong labor data and optimism from cooling inflation.
Below is a synthesis of the momentum data across major futures markets, along with observations on causal relationships and possible forward scenarios. The overarching aim is to lay out how these different asset classes are moving in tandem (or diverging) and what that implies for macro trading strategies.
TLDR: Cooling inflation and resilient earnings have reinvigorated market confidence, but labor market strength remains a wildcard that could temper the Fed's dovish tilt. Keep an eye on upcoming data for confirmation of this trend.
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The Morning After CPI
Last Friday’s stronger-than-expected unemployment report reignited fears of a labor market that could sustain inflationary pressures, putting pressure on equities and bolstering Treasury yields to 14-month highs. This stoked speculation that the Federal Reserve might maintain higher rates for longer.
However, yesterday’s softer-than-expected CPI report painted a contrasting picture, signaling progress toward the Fed’s 2% inflation target. Core CPI rose 3.2% YoY in December, down from November’s 3.3%, reaffirming the disinflationary trend. The report fueled a rally across risk assets, with US stock futures climbing and major indices surging—Dow up 1.65%, S&P 500 up 1.83%, and Nasdaq Composite up 2.45%.
The 10-year US Treasury yield fell sharply to around 4.65%, unwinding its earlier spike and boosting the risk-on sentiment further.
Adding to the bullish momentum were strong earnings reports from major banks. JPMorgan led the way, rising 2% after beating estimates and raising its 2025 net interest income forecast. Other financial heavyweights like Wells Fargo (+6.6%), Goldman Sachs (+6%), Citigroup (+6.5%), and Bank of New York Mellon (+8.1%) significantly outperformed, contributing to the market’s broad-based strength.
The divergence between labor and inflation data highlights the delicate balancing act the Fed faces. For now, markets are leaning into the possibility of further rate cuts in 2025, fueling optimism across equities and risk-sensitive assets.
1. Big Picture: “Risk-On” Tilt With Some Contradictions
Equity Index Futures (S&P 500 – ES, Nasdaq – NQ, Dow – YM, Russell – RTY)
All four major US equity index futures show recent bullish flips on both shorter (15 min) and medium (60 min) timeframes. Momentum readings (generally between +2 and +6) confirm positive follow-through.This synchronous move upward across all US equity indices typically reflects a risk-on environment.
Commodity Complex
Crude Oil (CL) on both short and medium timeframes is up, with multi-day bullish momentum. This implies markets are pricing in resilient demand or improved global growth expectations.
Copper (HG), a cyclical metal, also shows robust upside momentum for ~10 days on the 15 min and 60 min charts, reinforcing the “global growth” or “risk-on” narrative.
Gold (GC) is up as well, somewhat unusual to see gold rally alongside risk assets; it can happen if markets are anticipating lower real yields (bond prices rising, yields falling) and/or a weaker USD environment over time.
Bond Futures (Treasuries)
Shorter-dated (2-year – ZT), medium (10-year – ZN), and longer-dated (30-year – ZB) Treasuries mostly show short-term upside flips (on 15 min timeframes) and at least mixed-to-up direction on 60 min.
Rising bond futures price = falling yields. This, too, supports a narrative of easier monetary conditions or at least a “Fed pivot/peak rates” story.
Currencies
EUR (6E) has been in a long-running downtrend on the 60 min chart (71 days) and has just flipped short-term (15 min) to “down” again (-0.65819 momentum).
GBP (6B) is similarly weaker in both short (15 min) and longer (60 min) timeframes. Momentum is decidedly negative.
JPY (6J), on the other hand, shows an up direction on both short and medium timeframes, suggesting yen strength (or USD weakness against the yen).
AUD (6A) is quite choppy short-term (“mixed” in 15 min) and still in a longer-term downtrend on the 60 min.
Put together, you have a US-dollar mix: weaker against JPY, stronger vs. EUR/GBP, and AUD somewhere in-between. This currency divergence can be caused by idiosyncratic central bank narratives—e.g., speculation that the Bank of Japan may tweak policy further, while the ECB/BOE may sound more dovish if European/UK growth falters.
Bitcoin (BTC) futures also show upside flips across short (15 min) and medium (60 min) time horizons. BTC often aligns with a pro-risk environment, consistent with the rally in equities.
2. Causal / Correlative Relationships
Equities Up + Bonds Up
Typically, if stocks are rallying strongly and Treasuries are also bid, one strong possibility is that markets are anticipating rate cuts or at least a gentle rate-hike path. Stocks like lower borrowing costs, while bond prices rise if yields are expected to come down.
Copper and Crude Oil Rising
Both are cyclical/industrial commodities. Rising copper often correlates with expectations of stronger global manufacturing or Chinese demand. Rising crude can similarly reflect improved demand expectations or geopolitical supply constraints.
Gold Rallying Despite Risk-On
Gold up in tandem with equities can indicate a weaker real yield environment or a desire for inflation/monetary hedge. If bond yields are falling, gold’s opportunity cost drops—supporting gold’s price even in a risk-on rally.
Divergent Currencies
The dollar’s performance is not uniform. USD is weaker against JPY (momentum for 6J is positive) while it is stronger vs. EUR and GBP (6E and 6B show negative momentum). This points to individual central bank policy or economic conditions in Europe vs. Japan, rather than a universal “strong USD” or “weak USD” story.
3. Forward-Looking Scenarios
Below are two broad scenarios for the months ahead, with some data points that would confirm or refute them:
Scenario A: Continued Risk-On, Lower Yields
What It Looks Like: Equity futures continue to grind higher; copper and oil extend gains; gold remains firm on declining real yields; Treasury futures keep drifting upward (lower yields).
Confirming Data:
Further softening of US inflation data (e.g., CPI, PCE) indicating Fed can pause or pivot.
Better-than-expected global growth numbers, especially from China/EM.
Dovish commentary from major central banks (Fed, ECB, BoE).
Disconfirming Data:
Sudden resurgence of inflation data forcing central banks to reiterate hawkish stances.
Sharp slowdown in leading indicators that threaten corporate earnings and hamper commodity demand.
Scenario B: Renewed Hawkishness, Risk-Off Reversal
What It Looks Like: Equities lose steam; bond yields spike (futures sell off); cyclical commodities like copper and oil fade. The USD potentially strengthens broadly, gold might correct.
Confirming Data:
Upside surprise in inflation or wages.
Hawkish statements from the Fed on controlling inflation “for longer.”
Geopolitical risks or negative corporate earnings guidance that undercut risk sentiment.
Disconfirming Data:
Incrementally weaker inflation, labor markets softening, or rate cuts in other major economies.
4. Trading Implications
Equity Index Strategies
Short-term momentum has turned bullish. Traders inclined toward long dips / buy pullbacks until (and unless) bond yields abruptly jump or macro data sours.
Watch how each index responds to news on inflation or central bank commentary. A synchronized shift in ES, NQ, YM, and RTY to the downside would be a warning signal.
Treasury Strategies (Bond Futures)
The short-term flips to “up” suggest yields are dropping. If Scenario A (peak rates, dovish tilt) persists, staying long the front end (ZT) or even intermediate (ZN) could pay off.
If a hawkish surprise emerges, you might see a swift sell-off in these overbought bond markets—be prepared to reverse or hedge if yields start breaking upward.
Commodity Positions
Crude Oil & Copper: Both are in healthy uptrends. A “pro-growth” environment supports further gains. If economic data or China re-opening headlines continue to impress, momentum likely endures.
Gold: Riding tailwinds of lower real yields. If you believe in the “Fed pivot,” gold may still have upside. However, a sudden rise in yields or a USD rebound (particularly if it extends beyond just EUR/GBP) could cap gold’s rally.
FX Trades
Sell EUR & GBP vs. USD has been working on both short- and long-dated timeframes. The momentum remains negative. If the ECB/BoE turn more hawkish, that could challenge these shorts, but so far the data confirm ongoing pressure.
Buy JPY vs. USD is a nascent story. Yen momentum is up short-term. Continued Bank of Japan policy shifts could accelerate JPY appreciation.
AUD is too choppy short-term to have a clear directional conviction. Waiting for clarity in Chinese data or RBA policy might help.
Bitcoin
BTC futures are up, consistent with a broad risk-on environment. That rally can continue if global liquidity conditions stay accommodative or if investor appetite remains robust. Conversely, BTC often sells off hard if markets turn risk-off.
Final Takeaway
Overall Lean: A broad-based “risk-on” attitude is evident—equities, industrial commodities, bonds (rallying in price), even Bitcoin. It rests on expectations of moderating inflation and less hawkish central banks.
Caveat: The present environment is unusually supportive for both stocks and bonds, and risk-on plus a rising gold price can be fragile if the macro data turn.
Key Markers: Keep an eye on inflation prints, central-bank rate statements, and leading economic indicators to see whether they reinforce the risk-on scenario (lower yields, stronger cyclical assets) or trigger a hawkish pivot and upend the rally.
In short, the evidence points to continued short-term momentum for risk assets and a “peak rates” narrative, but traders should be prepared for quick reversals if inflation or growth data challenge that assumption.
Hi Dan, is it possible to share your Tradingview script with subscribers?