Being paid 4% to hold cash when Core inflation is at 6% isn't all that. Even if it was 2%, you can often make 2% on a single day trade. That's one day vs one year. I know it's not exactly a fair comparison, but it's not that unrealistic either.
Why do you think ES/NQ leads the 10Y? Seems they are correlated, but not certain there is a lead/lag relationship.
Also, that ratio picks up a bit of market beta, which is also (inversely) correlated with rates. Beta-neutral ES/NQ still correlates nicely with moves in rates, though.
Good question. Primary because of the duration sensitivity of NQ and it’s at an extreme in both momentum and valuation. It might lag. Not necessarily a certainty. But many times it has a lead depending on the drivers of liquidity with price of money vs quantity of money.
Hi, thanks for your insights. We all recognize the lags with labor data (and the connectedness with corporate profitability, after all as corporate margins come under pressure, forced to layoffs). The problem with BLS data is very prone to sharp falls and rises (and not to mention revisions can be sharp too). The labor data is very hard to rely on during inflection points, imo.
This is why you need to net it out against every other data point. Labor market data by its nature has nonlinear moves. It’s not that it’s unreliable around inflection points. It’s that the nature of the moves are more like the Vix than they are a trending asset. Also labor market CAN be a lagging indicator. We heard that all of 2022. Watch for the rate of change accelerating at the same time as it surprising consensus. This with credit spreads being the driver of vol and the YC steepening will likely be ample signals for recession. Hope that helps 👍🏻
Being paid 4% to hold cash when Core inflation is at 6% isn't all that. Even if it was 2%, you can often make 2% on a single day trade. That's one day vs one year. I know it's not exactly a fair comparison, but it's not that unrealistic either.
Thanks for the insights!
Why do you think ES/NQ leads the 10Y? Seems they are correlated, but not certain there is a lead/lag relationship.
Also, that ratio picks up a bit of market beta, which is also (inversely) correlated with rates. Beta-neutral ES/NQ still correlates nicely with moves in rates, though.
Good question. Primary because of the duration sensitivity of NQ and it’s at an extreme in both momentum and valuation. It might lag. Not necessarily a certainty. But many times it has a lead depending on the drivers of liquidity with price of money vs quantity of money.
Hi, thanks for your insights. We all recognize the lags with labor data (and the connectedness with corporate profitability, after all as corporate margins come under pressure, forced to layoffs). The problem with BLS data is very prone to sharp falls and rises (and not to mention revisions can be sharp too). The labor data is very hard to rely on during inflection points, imo.
This is why you need to net it out against every other data point. Labor market data by its nature has nonlinear moves. It’s not that it’s unreliable around inflection points. It’s that the nature of the moves are more like the Vix than they are a trending asset. Also labor market CAN be a lagging indicator. We heard that all of 2022. Watch for the rate of change accelerating at the same time as it surprising consensus. This with credit spreads being the driver of vol and the YC steepening will likely be ample signals for recession. Hope that helps 👍🏻
Yes, I do understand the non-linearity of the labor data, along with the other points you mentioned. Thanks